The size of AIG's record Q1 loss sent shudders through the industry
Though American International Group (AIG) was expected to report a loss in the first quarter 2008, its gigantic size, $7.81bn, sent shudders through the industry.
A year ago the company had a profit of $4.13bn. Much of the deficit was attributed to an after-tax loss of $5.92bn related to the company’s super senior credit default swap portfolio.
AIG president and CEO Martin Sullivan said, "AIG's results do reflect the extremely adverse external conditions affecting the spectrum of companies exposed to the US residential housing credit and capital markets….However, the underlying fundamentals of our core businesses remain solid and several performed quite well in the quarter despite the challenging environment many faced.”
And indeed though general insurance operations of AIG showed a steep decline in underwriting profits in first quarter 2008 to $405m compared with $1.4bn in 2007’s quarter, the combined ratio was 96.86 for 2008’s first quarter compared with 87.52 in 2007’s.
“Former AIG CEO Hank Greenberg filed a lawsuit which accuses AIGâ€™s current CEO and CFO of misrepresenting multibillion-dollar losses in AIG's portfolio
Net premiums written in the first three months of 2008 totaled $12.08bn only slightly less than the $12.1bn in the period for 2007.
Yet, even with assets of more than a trillion dollars and shareholders’ equity near $79.7bn, the company rushed to assure investors and rating agencies that it had set in motion a plan to raise $12.5bn in new capital.
And right on cue, Standard & Poor's lowered its counterparty credit ratings on AIG and several of its subsidiaries to 'AA-/A-1+' from 'AA/A-1+.
Fitch downgraded AIG's issuer default rating and senior debt ratings to 'AA-' from 'AA and said all the ratings remain on a negative watch.
“AIG's results do reflect the extremely adverse external conditions affecting the spectrum of companies exposed to the US residential housing credit and capital markets
Moody's Investors Service placed the ratings of AIG on review for possible downgrade.
CEO Sullivan, in a conference call, said the one notch downgrade was "very manageable". He said he was grateful both agencies kept the financial strength ratings of “our insurance company subsidiaries at the AA+ level”.
Further adding to the company’s woes, former AIG CEO Maurice "Hank" Greenberg, who was dismissed by AIG’s board in 2005, filed a lawsuit which accuses AIG’s current CEO and CFO of misrepresenting multibillion-dollar losses in AIG's portfolio of credit-default swaps which lead to significant losses for the Starr Foundation.
The foundation, which Greenberg heads, is seeking damages of at least $300m.