AIG expected to post third-quarter loss

by Gill Montia

Story link: AIG expected to post third-quarter loss

Analysts are expecting AIG, the largest insurer in the US, to post a loss in the third-quarter of 2008.

According to a report by Bloomberg, financial services group Credit Suisse is predicting that mortgage writedowns could result in a $2.41 billion loss for the group in the three months to the end of September.

The insurer’s woes emanate from the sale of its credit-default swaps, which are used by debt holders to hedge against a default under a debt instrument.

At the end of June, AIG’s swaps guaranteed $441 billion of assets, including $57.8 billion in securities tied to subprime mortgages, according to Bloomberg.

It is possible that AIG will need to raise more capital, despite having raised $20.3 billion in May in a sale of debt and equity.

The group is also in danger of having its credit rating downgraded, which could impact on borrowing costs and at the same time lower premium income.

In the second-quarter AIG posted a net loss of $5.36 billion. The result followed on from a $7.81 billion net loss in the first-quarter of the year, after the group wrote down $13.1 billion in sub-prime and other investment losses.

In June, the company’s chief executive, Martin Sullivan, resigned after nearly 40 years with the group, to be replaced by former chairman, Robert Willumstad.