Insurer AIG posts large loss on bad mortgage bets

By Lilla Zuill

NEW YORK (Reuters) - American International Group Inc (AIG.N) posted its third consecutive quarterly net loss of more than $5 billion on Wednesday as it wrote down bad mortgage-related investments, sending its shares down almost 8 percent.

The world's largest insurer and one of the hardest hit in the credit crisis also reported a general deterioration in its mainstream insurance businesses, which were hurt in particular by a decline in investment income and losses from its mortgage insurer, United Guaranty Corp.

"Our second quarter results were adversely affected by the severe conditions in the housing and credit markets and a very difficult investment environment," AIG's chairman and chief executive Robert Willumstad said in a statement. Willumstad took the CEO job in June after Martin Sullivan resigned.

"We have a lot of work to do to restore AIG's profitability to where it should be," Willumstad warned, adding that AIG was considering all options as it looked to improve results and its risk profile and protect its capital base.

"We are examining every business, as well as the assumptions underlying how we do business in the markets where we have a presence," Willumstad said. He said a progress report would be issued in late September.

BATHED IN RED

AIG said its second-quarter net loss was $5.36 billion, or a loss of $2.06 a share, compared with net income of $4.28 billion, or $1.64 a share, a year ago. It had an adjusted net loss of 51 cents a share. Analysts, on average, had forecast a profit of 46 cents a share, according to Reuters Estimates.

It was the second-largest loss in AIG's 89-year history, surpassed only by the $7.7 billion net loss it recorded in the first quarter of 2008. AIG has posted net losses exceeding $18 billion over the past three quarters.