Shares of AIG, the world's largest insurer by market value, fell 6.7 percent during the day, then dropped a further 2.9 percent in after-hours trading following the release of the results. In recent weeks with fears that subprime losses would cut into earnings, AIG stock has lost approximately 25 percent of its value, now trading at the lowest levels seen in a year.
While analysts said AIG's losses in mortgage insurance and credit default swaps weren't as big as some had feared, weakness perceived in AIG’s Life and P/C business has analysts concerned. "It's disappointing but not disastrous," said Donald Light, an analyst with Celent LLC.
After-tax realized losses of $600 million were less than 1 percent of its portfolio of $872 billion, which included permanent impairments in its portfolio of mortgage-backed securities.
"This was far from a worst-case analysis," said Matt Nellans, an analyst with Morningstar.
Its mortgage insurance unit recorded an operating loss of $215 million, compared with a profit of $85 million a year earlier due to the deterioration of the U.S. housing market and credit market conditions, the company said.
AIG's portfolio of credit default swaps that protect other companies' derivatives -- including some backed by subprime mortgages -- had a $229 million unrealized loss after taxes, meaning that the company had not been forced to liquidate the securities.