Credit crisis throws AIG into
Written on March 1, 2008
American International Group (AIG.N: Quote, Profile, Research), on the heels of reporting its largest-ever loss, said on Friday the subprime crisis had thrown it into “uncharted waters” that were likely to remain choppy through 2008.
The world’s largest insurer recorded a loss of $5.3 billion on Thursday, stemming from a $11.12 billion write-down of a super senior, or highly rated, credit swap portfolio in its AIG Financial Products unit.
AIG has not ruled out further write-downs and losses in this portfolio, which is akin to an insurance policy on other companies’ derivatives, but said it does not expect a decline in the value of its credit swaps to be material to the company in the long run.
Its shares fell 6.5 percent and led other insurers lower. The KBW Insurance Index .KIX was down about 2 percent, with AIG the biggest drag.
“We are in uncharted waters,” Chief Executive Martin Sullivan said on a conference call on Friday, a day after reporting AIG’s largest quarterly loss since it was founded in 1 1919.
AIG said it had not incurred a realized loss in the credit swap portfolio since it entered this business in 1998 free credit report.com. Under a worst-case scenario it projects potential realized losses of up to $900 million, based on current analysis.
The deterioration in AIG’s derivatives portfolio is another example of how the global credit crisis is expanding throughout the financial services sector.
UBS on Friday estimated that the global credit crisis is likely to result in losses of more than $600 billion.
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