NU Online News Service

American International Group Inc. reported a record $5.29billion fourth-quarter loss, down from a $3.44 billion profit forthe period in 2006.

Management said results for the quarter were affected by thecontinuing deterioration of the U.S. residential real estate andcredit markets and announced the head of its financial productsunit, which caused the loss, would be stepping down.

The company said it was hurt in the fourth quarter by an $11.12billion pretax write-down related to AIG Financial Products Corp.'s(AIGFP) super senior credit default swap (CDS) portfolio. AIG alsoexperienced over $3.3 billion in additional pretax investmentcharges related to the credit market.

In a conference call with investors, AIG Chief Executive OfficerMartin Sullivan announced that Joe Cassano, head of AIGFP, will beretiring effective March 31. He will be replaced on an interimbasis by Bill Dooley. Mr. Cassano will remain a consultant for AIGthrough 2008.

Mr. Sullivan said that "rapid deterioration in the U.S.residential real estate and credit markets significantly affectedseveral of our operations and investments," offsetting strongresults in the first half of the year.

He called the 2007 results "clearly unsatisfactory," and henoted that the company will continue to be challenged in the futurebecause of the real estate and credit markets.

For the year, AIG reported a net income of $6.2 billion, a 55.9percent decrease from the 2006 reported income of $14 billion.

AIG said that general insurance operating income for the fourthquarter was 2.11 billion, a 15.8 percent drop from the fourthquarter of 2006. AIG noted that strong results by DomesticBrokerage Group (DBG) and Foreign General were offset by a $348million operating loss in mortgage guaranty business and a $184million operating loss in personal lines.

In response to AIG's quarterly and year-end announcement,Standard & Poor's said it has affirmed the company's "double-A"counterparty credit rating and the "double-A-plus" counterpartycredit and financial strength ratings on AIG's core operatingsubsidiaries.

Speaking to the write-downs announced by the company, S&Psaid, "These charges clearly exceeded Standard & Poor'sexpectations, but not by a level that would change the ratings.AIG's capitalization to absorb these losses is still consideredvery strong, with $95.8 billion of shareholders' equity as ofDecember 31, 2007."

S&P said the ratings outlook for AIG remains negative. "Thenegative outlook reflects the continued uncertainty aroundestimating economic losses and fair market values in the U.S.mortgage market. Standard & Poor's believes that AIG willultimately recover a meaningful portion of the 2007 unrealizedmarket valuation loss, but the timing and the amount are difficultto estimate."

Fitch Ratings said that AIG's Issuer Default Rating, and allholding company ratings and subsidiary debt ratings, remain onRating Watch Negative. The rating agency added, "If weakness atAIGFP leads to a rating downgrade at the holding company, Fitchbelieves the magnitude would be limited to one notch."