AIG Unit Boss to Leave As Insurer Loses $5.29B in Quarter

NU Online News Service

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

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

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

In a conference call with investors, AIG Chief Executive Officer Martin Sullivan announced that Joe Cassano, head of AIGFP, will be retiring effective March 31. He will be replaced on an interim basis by Bill Dooley. Mr. Cassano will remain a consultant for AIG through 2008.

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

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

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

AIG said that general insurance operating income for the fourth quarter was 2.11 billion, a 15.8 percent drop from the fourth quarter of 2006. AIG noted that strong results by Domestic Brokerage Group (DBG) and Foreign General were offset by a $348 million operating loss in mortgage guaranty business and a $184 million 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" counterparty credit and financial strength ratings on AIG's core operating subsidiaries.

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

S&P said the ratings outlook for AIG remains negative. "The negative outlook reflects the continued uncertainty around estimating economic losses and fair market values in the U.S. mortgage market. Standard & Poor's believes that AIG will ultimately recover a meaningful portion of the 2007 unrealized market valuation loss, but the timing and the amount are difficult to estimate."

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