Federal and state investigators are looking at whether a transaction between Berkshire Hathaway's General Reinsurance Corp. and American International Group Inc. (AIG) four years ago transferred sufficient risk to AIG to allow the company to account for it as an insurance policy, people familiar with the matter told Tuesday's Wall Street Journal.

New York-based AIG booked the transaction at issue as insurance, the people said, a move that boosted its premium revenue by $500 million while also adding $500 million to its property-casualty claims reserves. Generally accepted accounting principles require insurance and reinsurance transactions to transfer "significant" risk from one party to another if either intends to account for the transaction as insurance; without significant risk transfer, such transactions must be accounted for as financing, under rules that are often less favorable.

On its surface, the deal transferred as much as $600 million of potential losses from General Re to AIG, in return for the $500 million premium paid by General Re, according to people familiar with the transaction. Investigators are seeking to determine if the apparent risk transfer was undermined in any way by the structure of the transaction. If so, that could raise questions about how either General Re or AIG accounted for the transaction, these people say. It is unclear how General Re accounted for the transaction.

AIG and General Re declined to comment on the investigations.

AIG officials have told investigators that the company entered into the transaction because alternative uses of AIG's capital were less attractive, according to people familiar with the discussions. The transaction took place as property-casualty insurers were hungry for revenue amid fierce price wars, and as some AIG shareholders were concerned about the sufficiency of its claims reserves. For 2000, the financial-services giant posted $17.5 billion in property-casualty insurance premiums, with $46 billion in total revenue and $5.6 billion in net income. Reinsurance contracts help insurers share the risk for policies they have written with other companies.

-Wall Street Journal Staff Reporter Theo Francis contributed to this story. Dow Jones Newswires 03-08-05 0440ET Copyright (C) 2005 Dow Jones & Company, Inc. All Rights Reserved.