NEW YORK (Bloomberg) — American International Group Inc. plans to absorb losses for a dozen insurance units after their securities-lending accounts suffered $13 billion of write-downs tied to the sub-prime-mortgage collapse during the past year.

The world's largest insurer will assume as much as $5 billion of any losses on sales of the investments, up from a previous commitment of $500 million, said Christopher Swift, vice-president for life and retirement services, in an interview. AIG also will inject an undisclosed amount of capital into some of the subsidiaries, he said. Moody's Investors Service and AM Best Co. both cited the write-downs in May when they downgraded New York-based AIG's credit ratings. State regulators in Texas said they didn't know AIG was investing cash collateral from the securities-lending business in sub-prime-linked assets and were concerned the insurance units hadn't put aside enough capital to cover potential losses.

"We were aware of this portfolio, but we didn't have transparency on what was in it because it was off-balance sheet" in the company's statutory accounting reports, said Doug Slape, chief analyst at the Texas Department of Insurance in Austin, which oversees three AIG insurers that have suffered about 60 percent of the write-downs.

The reduction of asset values in the securities-lending portfolio was part of the $38 billion in pretax write-downs that AIG reported during the past three quarters. That total included reductions of $20 billion on guarantees known as credit-default swaps and $18 billion on mortgage- and asset-backed securities, including some tied to sub-prime home loans. Most of the mortgage-related holdings are in the securities-lending pool.

The securities-lending business caters to banks and brokerages that borrow for themselves and clients to hedge trades, cover bets that a stock will fall and avoid trade-settlement failures. AIG's life-insurance subsidiaries invest their premiums in stocks and bonds. To make extra money, they lend out those securities through a central pool that invests cash collateral.

AIG said in regulatory filings that about $9 billion of the markdowns on mortgage-backed securities resulted from temporary market-value declines that it expects to be reversed. Those unrealised losses don't affect earnings.

In the meantime, its support for the insurance subsidiaries relieves pressure to sell the holdings at a loss should the banks and brokerages close out their loans, said Laura Bazer, a senior credit officer at Moody's in New York.

"At that point the AIG life-insurance companies would have to make a decision to find cash elsewhere or sell the securities at a loss, which nobody wants to do," Bazer said. "If you think those securities are money good, you want to hold them until maturity."

AIG's securities-lending programme hadn't experienced a "significant" decrease in loan balances as of March 31, according to a May 8 filing with the US Securities and Exchange Commission. Swift said in an interview last week that AIG has "adequate liquidity" to fund any required returns of collateral.

AIG fell 34 cents, or 1.2 percent, to $27.75 in New York Stock Exchange composite trading on Friday. The shares have lost 52 percent this year, compared with the 13 percent drop by the Standard & Poor's 500 Index.