SEC and Spitzer Subpoena AIG

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American International Group recently said it received subpoenas seeking information on its nontraditional insurance products and reinsurance transactions. The company said the subpoenas came from the office of New York State Attorney General Eliot Spitzer and the Securities and Exchange Commission, after its earnings conference call on February 9.

Prudential analyst John A. Hall said in a note to clients that the subpoenas are "not a surprise" given several other property-casualty insurers including Ace, Travelers, and Chubb have received similar requests.

He predicts the inquiries will result in possible fines and penalties, but not "something that could impede AIG's future earnings power." The subpoenas mark the latest round of inquiries from regulators in recent months for the insurance giant.

Last November, AIG paid $126 million to settle investigations by the SEC and Department of Justice into its sales of finite insurance and reinsurance, also known as nontraditional insurance.

AIG said the latest subpoenas were "relating to investigations of non-traditional insurance products and certain assumed reinsurance transactions and AIG's accounting for such transactions."

Regulators are trying to find out whether the products help firms improperly smooth earnings and bolster capital. Critics contend that the complex transactions can sometimes involve limited transfer of risk, making them look more like loans than insurance.

Last year, AIG was also implicated in Spitzer's investigation of bid-rigging in the insurance industry. On February 9, AIG said an exhaustive internal review has so far revealed that such activity was confined to one broker relationship and one unit; the Excess Casualty division of American Home Insurance.

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