Feb. 28 (Bloomberg) -- American International Group Inc., the world's largest insurer by assets, posted its biggest quarterly loss as a publicly traded company after an $11.1 billion writedown of guarantees sold to fixed-income investors.

The fourth-quarter net loss of $5.29 billion, or $2.08 a share, compared with profit of $3.44 billion, or $1.31, a year earlier, New York-based AIG said today in a statement. AIG said it doesn't expect to repurchase shares for the ``foreseeable future'' beyond commitments made last year. The company declined in extended trading.

The insurer has dropped 21 percent in New York trading since Chief Executive Officer Martin Sullivan, 53, replaced Maurice ``Hank'' Greenberg in March 2005. AIG has units that originate, insure and invest in subprime mortgages and said it expects more writedowns this year amid the worst U.S. housing slump in a quarter century.

``AIG's results in 2007 were clearly unsatisfactory,'' Sullivan said in the statement. ``The deterioration of both the U.S. residential mortgage and credit markets significantly affected several of our operations.''

AIG's fourth-quarter loss is the largest since its initial public offering about 40 years ago, said spokesman Chris Winans. The $11.1 billion writedown before taxes wiped out operating profit, which would have been $1.58 a share without the charge, Morgan Stanley analyst Nigel Dally said. AIG also had another $3.27 billion in losses before taxes on impaired holdings in its investment portfolio.

`Poor Performance'

``People are just so frustrated with management, with the price of the stock and with their performance,'' said Rose Grant, who helps manage about $2 billion, including AIG shares, at Eastern Investment Advisors in Boston.

AIG dropped 2.8 percent to $48.82 after the close of regular trading in U.S. markets. Insurance stocks declined 8.6 percent this year as 21 of the 24 members in the KBW Insurance Index reported lower fourth-quarter earnings or losses.

Excluding capital losses and the change in value of some derivatives, the company's loss was $1.25 a share, missing the 69-cent-profit average estimate of 17 analysts surveyed by Bloomberg.

Credit-Default Swaps

AIG said for the first time that realized losses on its so- called credit-default swap portfolio ``could be material'' to operations during a quarter. Some of the unrealized losses on the guarantees will reverse over time, AIG said. On Feb. 11, AIG said the contracts, which protect investors against losses in their securities, declined by $4.88 billion in October and November, four times more than previously estimated.

The ``massive'' writedown in credit-default swaps ``are clearly a concern,'' Dally said today in a research note. He rates the company ``overweight.''

AIG guaranteed $62.4 billion in collateralized debt obligations that included subprime mortgages as of Nov. 25, securities that led to fourth-quarter losses for MBIA Inc. and Ambac Financial Group Inc., the biggest bond insurers.

The world's largest financial institutions have reported at least $163 billion in asset writedowns and credit losses tied to the collapse of the subprime mortgage market.

AIG's mortgage insurer, United Guaranty Corp., had a $348 million operating loss, compared with profit of $27 million a year earlier. The unit, which reimburses lenders when borrowers don't pay their loans, may not regain profitability until 2009, CEO William Nutt said at a Dec. 5 conference.

Mortgage Insurance

U.S. homeowners with private mortgage insurance defaulted on 37 percent more loans in December than a year earlier, according to the Washington-based Mortgage Insurance Companies of America.

AIG reported about $175 million in costs from wildfires in California. The fires and high winds forced as many as 1 million people from their homes and caused an estimated $2.26 billion in insured losses in October, the state's insurance regulator said.

Operating profit at AIG's U.S. commercial insurance unit rose 7.9 percent to $1.64 billion on falling claims costs. Policy sales declined 4.3 percent to $5.65 billion. Rates charged by business insurers fell 12 percent in the fourth quarter, according to a survey by the Council of Insurance Agents & Brokers in Washington.

``Further softness in the property-casualty lines overall could be viewed unfavorably as it would further signal that the non-life lines are heading into a period of cyclical weakness,'' Seth Glasser, a credit analyst at Barclays Capital Inc., said in a Feb. 27 research note.

Share Buybacks

The insurer said in November it was increasing its buyback plan by $8 billion after shares sank to a 52-week low. AIG, which bought 76.4 million shares in 2007 and 12.2 million more through Feb. 15, said today it plans to halt repurchases after meeting commitments from last year.

AIG last reported a net loss in the fourth quarter of 2002, when it boosted reserves for covering corporate boards and workers' compensation policies. The insurer posted a $103.8 million loss in that quarter and later restated 2000 to 2005 earnings without providing an updated quarterly figure.

Full-year net income declined 56 percent to $6.2 billion.

Martin Sullivan

Two months after Sullivan replaced Greenberg, then-New York State Attorney General Eliot Spitzer sued AIG and Greenberg, accusing him of ordering improper transactions to hide losses and inflate reserves.

AIG agreed in February 2006 to pay $1.64 billion to settle the state and federal investigations. Later that year, Spitzer dropped portions of the civil lawsuit that included four other allegations against Greenberg, who denies any wrongdoing.

(To hear AIG's fourth-quarter conference call tomorrow at 8:30 a.m. New York time, visit LIVE.)

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: February 28, 2008 21:40 EST