Finite reinsurance products used by AIG to smooth the books has cost the global giant $1.19bn, its annual report has revealed.
The company originally estimated that it had a shareholder equity of $82.87bn. This figure was slashed by $2.26bn in its restated accounts.
The reduction, it said, included an after-tax reduction of $1.19bn for changes in estimates for the 2004 fourth quarter.
Market sources said AIG had fine tuned its books using finite products worth $1.19bn.
New York attorney general Eliot Spitzer accuses the company of improperly using finite reinsurance products to balance the books.
A civil lawsuit filed against AIG in the US last week accuses it of committing fraud.
The suit, which also names AIG's ousted chief executive Maurice Greenberg, claimed AIG employees were instructed to negotiate fraudulent deals to artificially boost the company's trading performance.
It is widely anticipated that AIG will seek a settlement with US investigators, a source said.
A settlement could be worth "several hundred million dollars," the industry insider claimed.
