American International Group, the world's largest insurer, disclosed that the value of some of its risky debt portfolio had plunged by $5.96 billion, not $1.6 billion as reported earlier.
The disclosure cast doubt on AIG's past contention that it didn't face major problems stemming from the credit crisis that has slammed other financial institutions.
AIG's stock plummeted to nearly a five-year low on the news, pushing down the Dow Jones Industrial Average, of which AIG is a component.
U.S. Treasury prices rose as fresh credit market worries restored a flight-to-safety bid to government securities.
AIG said the change came after its auditors questioned the internal controls over the valuation of derivatives.
PricewaterhouseCoopers, the company's outside auditors, concluded that the company had a material weakness in its internal control over financial reporting relating to the fair valuation of credit default swap portfolio obligations of AIG Financial Products Corp., the company disclosed in a regulatory filing.
AIG disclosed that earlier estimates of its derivatives had included an adjustment for cash flow diversion. However due to difficult market conditions it will not include the adjustment in determining the fair value of AIGFP's super senior credit default swap portfolio.
In a filing with the U.S. Securities and Exchange Commission, AIG said that based on its new way of calculating the fair value of the super senior CDSs, the gross cumulative decline in valuation during 2007 as of Nov. 30 was $5.96 billion, compared with its previously-disclosed estimate of $1.6 billion.