AIG disputes reserves sums

AIG told regulators that Sanford Bernstein’s review of its claims-paying resources relied on faulty analysis prompting it to increase its reserves, Bloomberg reports.

Todd Bault, then a Bernstein analyst, used data that AIG had marked in a regulatory filing as insufficient, AIG has told the US. Securities and Exchange Commission (SEC).

Part of the shortfall stemmed from the accounting for portfolios of business that AIG moved outside the US, AIG said in the letter just released.

Distorted losses

“These portfolio transfers significantly distorted both paid loss statistics and loss reserve information,” AIG senior vice president and deputy general counsel Kathleen Shannon said in the letter. AIG attempted to recreate Bernstein’s analysis and “identified errors in both the data and methods used.”

AIG stock fell 15% on the day Bault estimated a shortfall of about $11bn for property-casualty claims. Bault said AIG may have to take a reserve charge at its Chartis division. AIG said additions to reserves cost $2.3bn in the last three months of 2009.

“AIG did not identify any matters that indicated its reserves as reported at December 31, 2008 or any 2009 quarterly period were not adequate,” the firm said in its letter to the SEC, eight days before releasing 2009 results.

Loss review

“A comprehensive annual loss reserve review is performed in the fourth quarter of each year. AIG is currently finalising this review.”

The reserve additions contributed to an $8.9bn fourth-quarter loss as AIG set aside funds to pay for workers’ compensation policies sold before 2003.