Can AIG Really Rewrite the Rules of Financial Disclosure?

AIG has reinvented the definition of “cost.”

Gavin Magor at says:

AIG has made it impossible to understand where the investment losses lie. AIG’s group insurance companies posted $23.6 billion in investment losses in the first nine months of last year, so this is an important detail.

AIG lists investment types by category on its balance sheet. There are three columns of figures: cost, fair value and amount, enabling investors to see the purchase price of an investment, what AIG thinks it’s currently worth and the total amount. Nothing special there, except there is a note at the bottom of the page that reads: “Original cost of equity securities and fixed maturities are reduced by other than temporarily impairment charges, and, as to fixed maturities, reduced by repayments and adjusted for amortization of premiums or accrual of discounts.”

In other words, AIG isn’t reporting the original cost of its investments. The insurer is instead listing the cost, minus losses already taken.

Let’s say you bought a house for $500,000 in cash two years ago. In recent months, its market value dropped by $300,000. If you sell it, you would lose $300,000. AIG is reporting that the house cost $200,000, the fair value is $200,000 and is recorded as an asset of $200,000.

AIG’s financial disclosure is among the most opaque of any company. That’s why nobody really knows AIG’s true health. The company’s reports don’t help us understand.

Even AIG’s Liddy had this to say on Monday: The company’s overall conglomerate structure is simply too complicated, unwieldy and opaque for its component businesses to be well-managed as a single mammoth corporation.

My question: Tell me again how many accountants and auditors work at AIG?