American International Group management, after reporting afirst-quarter 44 percent jump in net income, said today that ratingfirm downgrades had only a minor impact on the insurer.

With results restated for prior first quarters, the NewYork-based insurer said it had first-quarter net income of $3.68billion, or $1.40 per share, compared to $2.56 billion, or 97 centsper share, in the first quarter of 2004.

During a conference call, AIG President and Chief ExecutiveOfficer Martin Sullivan said the first-quarter 2005 resultsdemonstrate "the value of AIG's global diversity–both products andgeography," reporting that all segments contributed to the overallincrease in earnings.

In the property-casualty segment, net premiums increased 7.6percent to $10.8 billion, Mr. Sullivan reported, noting "downwardpressure on certain commercial lines" such as property anddirectors and officers liability.

In terms of underwriting profit, he said the p-c combined ratiowas 93.4 in the quarter–98 for domestic business, and 81.6 forforeign business.

Noting that loss reserves increased just over $2 billion to$49.8 billion in the first quarter, Mr. Sullivan later gave ananticipatory response to a question he knew was on the minds ofinvestors–the question of when the previously announced reservereview would be performed.

Mr. Sullivan said that proposals from several outside actuarialfirms were currently under consideration and that AIG expected tomake a decision very soon, and to initiate the review shortlythereafter.

He also said work that needs to be done to address materialweaknesses in financial controls disclosed earlier this year isunder way. Calling it a top priority, he said AIG's chief riskofficer, Robert Lewis, is leading the initiative and workingalongside AIG's independent auditors to address those issues.

AIG, which is being sued for accounting fraud by the New YorkAttorney General's Office, has admitted to improperly documentingtransactions.

Mr. Sullivan also said that AIG expects to file itssecond-quarter results on time, no later than Aug. 10.

Confirming some negative news, Mr. Sullivan reiterated a priorreport that on the domestic life and retirement services side ofthe business, "certain producers are more cautious" in light ofregulatory probes and negative publicity.

Asked more directly about the impact of ratings downgrades onAIG's business, Mr. Sullivan said that for general insurance(property-casualty) business, "there was generally little to noimpact whatsoever."

However, "honestly, as we've disclosed, in the capital marketsarea, the overall loss of triple-A credit rating has impacted ourability to trade in certain transactions," he said, referring tothe financial products segment of the business. (AIG FinancialProducts operates in derivatives markets–including the equity,fixed income, foreign exchange, energy, metals, commodities andcredit markets, according to information about the unit on AIG'sWeb site.)

Detailing what they have seen, AIG management said that duringthe first quarter, although customers wouldn't call and say, "We'renot dealing with you" for capital markets transactions, the companydid notice that some business it thought it usually would have wonhad gone to other insurers at levels as competitive as AIG's. Thecompany did not quantify how much of this financial productsbusiness was involved.

Now that all rating agencies, with the exception of Fitch, havetaken AIG's ratings off credit watch, management said it wasfinding when it met with clients around the globe they arecomfortable that "the knife has stopped falling" and they expectthe financial products business to come back to AIG over time.

During the conference call, Mr. Sullivan confirmed that AIG didrecently lose one foreign life insurance executive, but that he hadno other major executive defections to report.