American International Group reported a second-quarter loss of $5.36 billion, attributing the poor results to the weak U.S. housing market and market disruptions.

New York-based insurer AIG reported net income fell from $4.28 billion, or $1.64 a share, in the second quarter of 2007 to a loss of $5.36 billion, or $2.06 a share. Consolidated total revenues dropped 36 percent from $31 billion to $20 billion.

For the six months, net income loss stands at $13 billion, or $5.11 a share, compared to $8.4 billion, or $3.21 a share, for the same period last year. Revenues fell 45 percent from $62 billion to $34 billion.

The weak housing market was blamed as the primary driver for the poor earnings results, the company said, with its heavy investments in collateralized debt obligations, mortgage backed securities, load defaults and declines in investments.

Operating income for general insurance operations fell 72 percent, going from $3 billion to $827 million in the second quarter. The results showed only a slight increase in net premiums written of $81 million, leaving the sector virtually unchanged at $12 billion. Combined ratio deteriorated 10.59 points to 97.71.

For the six months, operating income for the sector dropped 64 percent, going from $6 billion in 2007 to $2.2 billion. Net premiums for the quarter were $24 billion, an increase of $55 million. The combined ratio rose 10 points to 97.32.

Other sectors--life, financial services and asset management operations--all reported losses.

Financial services in the quarter reported a loss of $5.9 billion, followed by a life sector loss of $2.4 billion and an asset management loss of $248 million.

The company's poor results were a product of a concentration of risk in the housing market and related financial instruments, Robert B. Willumstad, AIG chairman and chief executive officer, said during a conference call with analysts.

Executives were hard pressed to say when the company would see a turnaround in its performance. The troubles in the housing market are expected to continue through next year, when some stability returns to the sector, they said.

In its filing with the Securities and Exchange Commission, AIG said it participates in the U.S. residential mortgage market through American General Finance Inc. and United Guaranty Corp., which provide mortgages.

AIG insurance and financial services subsidiaries also invest in mortgage backed securities and collateralized debt obligations, and the company is involved in that market through AIG Financial Products Corp. and AIG Trading Group Inc. and their subsidiaries that provide credit protection through credit default swaps on certain super senior tranches of collateralized debt obligations.

The company also noted that it could see claim increases in directors and officers and professional liability lines related to residential mortgage and credit default markets.

Mr. Willumstad indicated that the company will be going through some restructuring that will be announced on Sept. 25 at the company's stockholder meeting, saying, "A less complex AIG will be a better competitor."

"AIG is a great company but facing a lot of challenges," said Mr. Willumstad, adding, "We are committed to building shareholder value."

Standard & Poor's said this afternoon that the company's "double-A-minus (negative)" rating would remain unchanged, but the company remains on watch with negative implications. The rating agency said the losses were within expectations. However, if earnings do not stabilize in the third quarter, S&P may downgrade the insurer by one notch.

Moody's affirmed its ratings of AIG units saying the company will address potential liquidity and capital needs. Failure to do so in the near term could result in a downgrade.

(This story was updated at 3:13 p.m.)

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AIG 2Q Loss Exceeds $5 Billion

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