AIG 10K Filing and Restatements Shave 2004 Net Income by 11.9%

May 31, 2005

American International Group Inc. (AIG) announced that it has filed its long-awaited 2004 annual financial report Form 10-K along with adjustments for 2000 through 2003 with the Securities and Exchange Commission.

As part of the restatement, AIG cut shareholders’ equity at Dec. 31, 2004 by 2.7 percent, or $2.26 billion, to $80.61 billion from the unaudited consolidated shareholders’ equity of $82.87 billion at Dec. 31, 2004, which was previously announced in AIG’s earnings release of February 9, 2005. This change includes a reduction of $1.19 billion for changes for the fourth quarter of 2004.

The company also lowered 2004 net income by 11.9 percent, or $1.32 billion, to $9.73 billion from the $11.05 billion previously reported on Feb. 9.

The 10K filing comes just days following the filing of a complaint against the company and two of its former executives, CEO Maurice Greenberg and CFO Howard Smith, who are accused of participating in several accounting schemes to disguise underwriting losses and polish financial results. The complaint, filed in New York State Supreme Court by N.Y. Attorney General Eliot Spitzer and Superintendent of Insurance Howard Mills, was the culmination of official probes into AIG activities in reinsurance, offshore entities, accounting and workers compensation reporting that began in February.

Following the initial subpoenas from Spitzer, AIG commenced its own internal review of its financial reports and accounting and has issued restatements that address several of the alleged illegalities cited in the Spitzer complaint. The internal review was conducted in consultation with its independent registered public accounting firm, PricewaterhouseCoopers LLP, as well as the law firms Paul, Weiss, Rifkind, Wharton & Garrison LLP and Simpson Thacher & Bartlett LLP.

That review prompted the 10K filing delay and restatements and caused AIG to acknowledge that there had been some improper accounting and transactions.

“In many cases, these transactions or entries appear to have had the purpose of achieving an accounting result that would enhance measures believed to be important to the financial community and may have involved documentation that did not accurately reflect the true nature of the arrangements,” the filing stated.

IThese transactions may also have involved misrepresentations to management, regulators and AIG’s own independent auditors, the company also acknowledged.

Martin J. Sullivan, AIG president and chief executive officer, said today’s filing brings an end to the internal review. “I am pleased that we have completed our internal review and filed our 2004 Form 10-K, which reflects the results of our detailed and thorough review of AIG’s major business units globally.”

Sullivan, who replaced Greenberg in March, maintained that despite the restatements and investigations, the company is on solid financial ground. “We remain focused on executing the strategies we have in place for each of our principal businesses. AIG’s financial position is sound, our insurance cash flow is strong and our global franchise is unmatched.”

He said the company “continues to cooperate to the fullest possible extent with all ongoing government and regulatory investigations.”

AIG said it expects to file its Form 10-Q for the first quarter of 2005 by the end of June.

In addition, AIG announced that it would commission a comprehensive independent actuarial review of the loss reserves of its principal property-casualty insurance operations. It expects to complete the review before reporting its full year 2005 financial results.

AIG, the world’s largest insurer, had previously announced plans to restate by today. AIG shares are down 23 percent since accounting subpoenas were disclosed on Feb. 14. The stock rose 69 cents to $56.40 in New York Stock Exchange composite trading on May 27.