May 8 (Bloomberg) -- American International Group Inc., the world's biggest insurer, may post its second straight quarterly loss as pressure builds on Chief Executive Officer Martin Sullivan to show shareholders he can turn around a company that lost 38 percent of market value in the past 12 months.

AIG will probably report a first-quarter net loss of more than $100 million later today, according to five analysts surveyed by Bloomberg. The New York-based company has been battered by record losses from derivatives sold to protect debt investors as the subprime mortgage market collapsed.

``Sullivan's time is running out,'' said Robert Haines, a fixed-income analyst at CreditSights Inc. in New York. ``He's responsible for being in the business lines where they've been required to take these hits. He's got another year, maybe.''

AIG hasn't reported two consecutive losses since the insurer went public in 1969. Analysts predict AIG will further write down its derivative holdings after already disclosing the biggest loss in the company's 89-year history during the fourth quarter. Sullivan has presided over a 31 percent decline in the stock price since replacing Maurice ``Hank'' Greenberg in 2005.

The insurer fell 93 cents, or 2.1 percent, to $44.15 at 4:03 p.m. in New York Stock Exchange composite trading.

The value of guarantees sold to fixed-income investors probably dropped by as much as $12 billion in the first quarter, said Joshua Shanker, a New York-based analyst at Citigroup Inc., who has a ``hold'' rating on AIG and predicts a first-quarter operating loss of $1.65 a share.

Subprime Mortgages

AIG booked an $11.1 billion writedown in the fourth quarter, which wiped out profit and was followed by the departure of financial products head Joseph Cassano, who co-founded the business in 1987. The AIG unit provided protection on more than $500 billion of assets at the end of 2007, including $61.4 billion in securities tied to subprime mortgages.

Sullivan, 53, told shareholders in February that most of the financial products division's unrealized losses will eventually reverse, and realized losses won't hurt the company's overall health. He declined to comment yesterday ahead of the release of first-quarter results.

``They took on a lot more risk than we thought,'' said Rose Grant, managing director at Boston-based Eastern Investment Advisors, who helps oversee about $2 billion, including AIG shares. ``I wish they'd review these units and think about divesting some that don't fit into the long-term strategy of being an insurance company.''

Sullivan has been trying to persuade regulators to relax accounting rules tied to the writedown. So-called mark-to-market rules require companies to estimate a value on holdings that haven't traded, with the change recorded as an unrealized gain or loss even though the asset wasn't sold.

Housing Slump

The fourth-quarter writedown should've been closer to $900 million, the company's worst-case scenario for actual losses, rather than the $11.1 billion that was booked, Sullivan said in a March 18 interview at an industry conference in Dubai.

AIG, the largest insurer by assets, has other units hurt by the worst U.S. housing market in more than 25 years, including a mortgage insurer and home lender. It also had $28.6 billion of holdings linked to subprime mortgages at the end of 2007. Sullivan said in February that those businesses will be challenged ``for the foreseeable future.''

Among Sullivan's most vocal critics is the 83-year-old Greenberg, his former mentor and the biggest shareholder of AIG through a pair of investment firms. In legal papers and regulatory filings, Greenberg has raised questions about the insurer's management.

Chris Winans, a spokesman for AIG, and Greenberg's spokesman Glen Rochkind declined to comment.

Spitzer Probe

Sullivan steered the insurer through a $1.64 billion settlement of probes by federal and state regulators, as well as restatements of 2000 to 2005 results that cut profit by $3.4 billion.

Sullivan, who started at AIG as a 17-year-old clerk in the insurer's London office, succeeded Greenberg as CEO in March 2005. Two months later, then-New York Attorney General Eliot Spitzer sued AIG and Greenberg, accusing him of ordering improper transactions to hide losses and inflate reserves.

Greenberg denies any wrongdoing in the case, which is still pending. Spitzer dropped portions of the lawsuit in 2006 that included four other allegations tied to the investigation.

Moody's Investors Service and Standard & Poor's said in February that AIG's credit rating is in jeopardy because of the potential for more losses.

Analyst Ratings

Analysts including KBW Inc.'s Cliff Gallant, Morgan Stanley's Nigel Dally and Wachovia Corp.'s John Hall downgraded AIG to ``hold'' from ``buy'' this year. Ten analysts recommend investors accumulate shares, eight have ``hold'' ratings, and none say ``sell.''

AIG is struggling with writedowns at the same time premium rates are declining industrywide for commercial insurance. Prices for business coverage in the U.S. fell 14 percent in the first quarter from a year earlier as insurers competed for revenue, according to a survey by the Council of Insurance Agents & Brokers in Washington.

``Sullivan hasn't had the luckiest tenure,'' said Gallant, who's based in New York. ``But he's managing the company as best he can. He has to wait it out until the markets turn and then he might be in a stronger position.''

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

Last Updated: May 8, 2008 21:25 EDT