A transaction between Berkshire Hathaway’s General Reinsurance Corp. and American International Group Inc. four years ago is now under investigation. Federal and state investigators are trying to find out whether the deal transferred sufficient risk to AIG to allow the company to account for it as an insurance policy, people familiar with the matter said.

This transaction booked by New York-based AIG as insurance boosted its premium revenue by $500 million, while also adding $500 million to its property-casualty claims reserves. According to generally accepted accounting principles all insurance and reinsurance transactions should transfer "significant" risk from one party to another if either wants to account for the transaction as insurance; otherwise, when it lacks significant risk, such transactions must be accounted for as financing.

At first sight, 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 the people familiar with the transaction. Investigators are trying to determine if the structure of the transaction undermined the apparent risk transfer. If so, that could question how either General Re or AIG accounted for the transaction, since it still remains unclear how General Re accounted for the transaction.

AIG and General Re refused to provide any comment on the investigations.