AIG's Losses Lead Insurers as Tally Nears $1 Trillion (Update1)

By Erik Holm and Stephanie Luke
Bloomberg News
November 11, 2008

Nov. 11 (Bloomberg) -- American International Group Inc.'s losses from the collapsing mortgage market account for almost half the $123.6 billion inflicted on North American insurers, helping push the tally for the world's biggest financial firms toward the trillion-dollar mark.

AIG, which posted a record third-quarter loss yesterday, accounts for $60.9 billion of the writedowns and credit losses. Bond insurer Ambac Financial Group Inc. is second among the insurers with $10.6 billion, and life insurer MetLife Inc. is third at $7.2 billion. The industry losses are three times as costly as Hurricane Katrina, the worst natural disaster in U.S. history.

The falling value of holdings tied to U.S. mortgages contributed to net losses at 15 of the 24 companies in the KBW Insurance Index in the third quarter, and prompted North American insurers to raise more than $83 billion to replenish capital. New York-based AIG helped increase the total of losses among financial companies worldwide to more than $919 billion.

"We have a really big investment base, and if those assets continue to deteriorate in value, we could continue to suffer losses,'' AIG Chief Executive Officer Edward Liddy said in a Bloomberg Television interview yesterday. "We don't think that will happen, but you just never know what will happen in the marketplace.''

AIG took write-downs on mortgage-backed securities and credit-default swaps, guarantees protecting investors from losses on fixed-income holdings. AIG got a new $150 billion government rescue package this week, supplanting its initial $85 billion bailout of less than two months ago.

Job Cuts

The Bloomberg tally of write-downs is available through the WDCI function, and now includes data for insurers. The figures for the industry include unrealized losses, which are watched by investors and ratings firms to gauge an insurer's financial strength and don't count against earnings.

The list includes 2,929 job cuts announced by North American insurers since midyear 2007.

After Katrina in 2005, companies including Northbrook, Illinois-based Allstate Corp., the largest publicly traded U.S. home insurer, raised rates in disaster-prone areas, bolstering their balance sheets and stock prices. Now, insurers are stuck holding mortgage-related investments in a market where there are so few buyers that it's hard to know the value of those assets.

The industry's tally excludes so-called mutual insurers, owned by their policyholders.

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