AIG’s estimated losses from subprime mortgage crisis increase fivefold

by David Masters

Story link: AIG’s estimated losses from subprime mortgage crisis increase fivefold

AIG, the world’s largest insurer, has increased its estimation of losses from the sub-prime mortgage crisis to $5 billion. Previous estimates put this figure at just $1 billion.

This five-fold increase follows a warning by AIG’s auditors, PWC. PWC said that the insurer had shown a “material weakness” in its value of exposures.

Total potential losses for securities related to subprime mortgages were recently estimated at $400 billion. $78 billion worth of credit default swaps have already been written by AIG in collateralised debt obligations.

This new estimation of losses saw AIG’s price fall severely, seeing a decrease in excess of 11%. $14 billion of the company’s market capitalisation was lost because of this price plummet.