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New York Attorney General Eliot Spitzer on Tuesday said he will audit American International Group Inc. over reports that AIG improperly booked workers’ compensation premiums, providing an “unlawful benefit” to the company worth tens of millions of dollars. Spitzer and the state Insurance Department are appointing a consultant to audit the company for conduct that Spitzer said appears to have happened over a decade and is now discontinued. Spitzer said a 1992 AIG memorandum to top management reported the practice was illegal, a notice that followed similar warnings in previous years. Spitzer and acting state Insurance Superintendent Howard Mills are looking at whether AIG booked premiums for workers’ compensation coverage as premiums for general liability coverage. The result could be that AIG avoided paying its share into several workers’ compensation funds. AIG has been cooperating with the state officials on the issue, the attorney general’s office said. To date, AIG has provided no evidence that it disclosed the practice to regulators or made restitution. An AIG spokesman didn’t immediately respond to a request for comment Tuesday. In morning trading, AIG shares dropped 21 cents to $51.55 on the New York Stock Exchange. That’s at the low end of the $49.91 to $74.98 range for AIG stock in the past year. The funds at issue are supposed to be used for the operations of the state Workers’ Compensation Board and to provide certain other claim benefits for injured workers, Spitzer said. Connecticut also is looking into overpayments for workers’ compensation insurance. In January, Connecticut Attorney General Richard Blumenthal sued Marsh & McLennan Companies Inc., a New York-based brokerage, and a unit of ACE Ltd. insurance company, which is headquartered in Bermuda, in connection with an $80 million state contract. On Feb. 3, executives of ACE said they would seek dismissal of the suit, in which Blumenthal alleged the company paid “kickbacks” to secure the workers’ compensation contract. Marsh & McLennan was at the center of a probe by New York Attorney General Eliot Spitzer into bid rigging, price fixing and demanding incentive fees from insurance companies in exchange for sending more property and casualty business their way. On Jan. 31, Marsh & McLennan agreed to pay $850 million in restitution to end Spitzer’s investigation. Much of the money will go to policyholders hurt by the conflicts of interest. Marsh & McLennan also pledges to change its practices. In his broad investigation of AIG, Spitzer is looking into a number of reinsurance transactions booked by New York-based AIG, one of the world’s largest insurers. Reinsurance traditionally has been used to spread out risk among insurers but, in some cases, has been used for the questionable purpose of polishing a company’s financial statements. In the transaction at the center of the probe, AIG purchased reinsurance from General Reinsurance Corp. in the fourth quarter of 2000 and first quarter of 2001. Investigators have said that AIG used the deals to pump up its reserves when markets were uneasy about the company’s outstanding liabilities. AIG acknowledged recently that its accounting for the transaction with General Reinsurance “was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance.” Also Tuesday, The New York Times reported that AIG has uncovered at least $1 billion more in accounting problems. The paper cited unnamed “people briefed on the company’s investigation.” An AIG spokesman could not immediately be reached for comment. On March 30, AIG disclosed that it had improperly booked a number of transactions and said corrections for errors and omissions in its accounting would result in a reduction of about 2 percent of the company’s $82.87 billion shareholders’ equity, or about $1.7 billion. AIG has promised to file its delayed annual report by the end of April. In a note to investors on Tuesday, Lehman Brothers analyst Jay Gelb said he expects a “relief rally” in AIG shares “if it files the (annual report) by Monday, May 2, without an adverse auditor’s opinion and with a charge of less than $5 billion.” That would equate to 6 percent of shareholders’ equity, or $1.90 per share after tax, he said. Gelb said he believed there was a 75 percent probability AIG would meet those targets. Lehman Brothers rates the stock “overweight.” AP Business Writer Eileen Alt Powell contributed to this report from New York. Copyright 2005 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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