NU Online News Service, Feb. 26, 11:55 a.m.EST

American International Group cut its fourth-quarter net loss by86 percent over the same period in 2008, reporting it reduced itsnet loss by $54 billion.

The New York-based insurer reported fourth-quarter net loss for2009 of $9 billion, or loss per share of $65.51, compared to theprevious year's net loss of $62.6 billion, or net loss per share of$458.99.

For net premiums earned, the company reported a drop of 7percent, or $633 million, to $8.03 billion for the quarter.

The company said for the year, net loss stood at $12.3 billion,a net loss per share of $90.48, compared to a net loss in 2008 of$100.4 billion, or net loss per share of $756.85 billion.

Net premiums earned for the year dropped 12 percent, or $4.23billion, to $32.3 billion.

The company said the net loss was attributed to severalfactors:

o There was $6.2 billion of interest and amortization expense onits $25 billion reduction on the outstanding balance and maximumcredit available under the Federal Reserve Bank of New York creditfacility.

o There was a $2.8 billion loss recognized on the company'spending sale of Nan Shan Life Insurance Company, Ltd.

o Loss reserve strengthening of $2.3 billion at Chartis, itscommercial insurance segment.

o A valuation allowance charge of $2.7 billion for taxbenefits.

In recorded remarks at the company's Web site, Robert Benmosche,AIG president and chief executive officer, said that despite thevolatility, many of the company's businesses have begun to recoversince the beginning of the year. He also noted the improvement inthe company's performance over the previous year.

"While we are not out of the woods by any stretch, these numbersrepresent a substantial improvement from just one year ago," heobserved.

He noted that the company has "significantly" wound down itsderivatives portfolio at AIG Financial Products, which brought thecompany to the brink of bankruptcy through its investments incollateralized debt obligations. He said the strategy is to exitthe "vast majority" of the segment's risks by the end of theyear.

To help pay off the company's debt to the U.S. Government, Mr.Benmosche said it has placed two of its major company's--AmericanLife Insurance Co. (ALICO) and American International Assurance Co.Ltd. (AIA)--up for sale or initial public offering, depending uponmarket conditions or regulatory approval.

"Clearly we will be a smaller and more focused company than inthe past," said Mr. Benmosche, adding that the company is on itsway to regaining its stature as one of the world's largest propertyand casualty insurance companies. "The only way we can repaytaxpayers is to divest parts of the organization, and we are."

He said while the company is showing continued improvement,continued volatility is expected in the coming quarters, "partlydue to ongoing restructuring activities."

In a letter to shareholders, Harvey Golub, non-executivechairman, was critical of some of the executive compensationrestrictions placed on the company, saying "they make littlebusiness sense." He said in some cases the company has not beenable to provide "market competitive compensation to retain some ourown most experienced and best executives."

He said being unable to pay competitively "hurts the businessand makes it harder to repay the taxpayers."

The company's goal "is to fully repay" the U.S. Government'sloans and move forward to ensure the remaining AIG businesses "arethriving and profitable as soon as is practicable," he said.

Government assistance will be needed "for some time," he said,adding that the company needs to pay the employees it needscompetitively in order to become independent again.

Late this morning, Fitch Ratings placed AIG's financial strengthrating of "A-plus" for its domestic insurance group on rating watchnegative as it reviews the company's reserve strengthening.

Fitch said that after its review, if it is comfortable withreserve adequacy and accident year underwriting profitability, itwould maintain the rating. If it is not comfortable, then thereview could result in a one-notch downgrade to "A."

After AIG announced its results Moody's affirmed the Aa3insurance financial strength rating of Chartis U.S. and the A1financial strength rating of its life subsidiary Sun AmericaFinancial Group.