AIG seen posting loss on write-down

By Lilla Zuill

NEW YORK (Reuters) - American International Group (AIG.N), the world's largest insurer, is expected to report a quarterly loss on Thursday, with crippled mortgage investments taking a $5 billion (2.5 billion pounds) bite out of its derivatives portfolio.

Analysts' average forecast is a loss of 18 cents a share, according to Reuters Estimates.

A quarterly loss -- which would be only the second since the 1970s for AIG -- would follow the insurer's disclosure this month that auditors had found a "material weakness" in the way it accounted for some financial instruments tied to mortgages.

AIG earned a rebuke from its auditors after it told them it would slash the value of a credit default swap portfolio by $4.88 billion through November. The insurer had previously included a spread differential in calculating the portfolio, which valued the securities more favourably.

The move rattled investor confidence in Chief Executive Martin Sullivan, who was brought in about three years ago after an accounting scandal unseated CEO Maurice "Hank" Greenberg, who had steered the insurer for nearly four decades.

AIG shares have dropped 26 percent in the past 12 months, underperforming the KBW Insurance index .KIX, which is down 16 percent over the same period.

The slump has provoked some unfavourable comparisons with AIG's stock performance under Greenberg, who has been in a protracted legal fight with AIG since his ouster.

"There are plenty of people who remember the golden (Greenberg) years," said Ron Shelp, a former AIG executive who reported directly to Greenberg and later wrote a book on him titled "Fallen Giant."