Days before credit default swaps brought down insurer
The US Securities and Exchange Commission (SEC) questioned AIG's disclosures on derivatives months before the insurer's bailout last September, according documents posted on the SEC’s website, Reuters reports.
A series of letters between April 2008 and June 2009 were posted on the SEC’s website on Monday.
The letters refer to an "apparent inconsistency" in the way AIG described the risk of losses from credit default swaps it had sold to European banks.
"You indicate that these contracts provide credit protection but not risk mitigation to the counterparties. Please explain this," wrote SEC accountant Jim Rosenberg.
Disclosure could be improved
The agency also demanded more information on AIG's assertion in a regulatory filing that it did not expect to be hit by any additional costs on the derivatives contracts it had sold in Europe.
In a letter 11 days before AIG begged for a multibillion-dollar bail-out the SEC said: "We believe that your disclosure ... could be improved so that an average investor can better understand how you establish the fair value of your CDS," or credit default swaps, said the SEC.
"While we acknowledge that the valuation of these instruments may be complex, we do not believe such complexities obviate the need to provide readable and understandable disclosure.”
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