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AIG memos dating back to 1992 question the legality of premium accounting at the insurance company.
Stephen Taub, CFO.com | US
April 27, 2005
More woes for American International Group (AIG).
New York State Attorney General Eliot Spitzer said he and state Insurance Superintendent Howard Mills will audit what he calls “years of alleged improper booking” of workers’ compensation premiums at the embattled insurance giant.
Spitzer said that as far back as 1992, an internal AIG legal memorandum addressed to top management revealed that the practice was illegal. Spitzer also said that another AIG document, dating from the early 1990s, noted that AIG likely saved tens of millions of dollars annually by booking the income as general liability premiums.
Indeed, the practice under scrutiny involved recording premiums for workers’ compensation coverage as premiums for general liability coverage. That’s important because to fulfill reserve requirements, the state can levy fees of 1 percent on sellers of workers’ compensation policies, according to the The Wall Street Journal.
Spitzer asserted that by booking the income as something other than workers’ compensation premiums, AIG avoided paying its true share into various workers’ compensations funds. He added that the purpose of the investigation, which will be conducted by a consultant, is to determine whether AIG must reimburse the State of New York or others, for the improper accounting.
The practice, now apparently discontinued, appears to have taken place for more than a decade, and continued even after AIG insiders repeatedly challenged its legality.
AIG, which has recently been cooperating with the Attorney General and the state Insurance Department on the inquiry, has uncovered no evidence that AIG disclosed the practice to regulators or made restitution, Spitzer notes.