NEW YORK (Bloomberg) American International Group Inc., the world's biggest insurer by assets, posted a $5.36 billion loss as write-downs tied to the housing slump wiped out profit for a third straight quarter. Shares fell 7.9 percent in extended trading

The loss in the period ended June 30 equaLled $2.06 a share, compared with profit of $4.28 billion, or $1.64, a year earlier, the New York-based company said after the markets closed yesterday. The loss excluding the declines in the value of some investments was $1.32 billion, or 51 cents a share, missing by $1.28 the average estimate of 19 analysts surveyed by Bloomberg.

"They're still dealing with the environment for credit-default swaps, which is very difficult," said Keith Wirtz, who helps manage $23 billion including 1.3 million AIG shares as chief investment officer of Fifth Third Asset Management in Cincinnati. "Investment income is being pressured."

Chief executive officer Robert Willumstad promised there are "no sacred cows" in his three-month review of AIG units as he tries to reverse a 50-percent stock slide this year and net losses in two previous quarters totalling $13 billion. Willumstad, 62, replaced Martin Sullivan June 15 after investors including former CEO Maurice "Hank" Greenberg demanded Sullivan's ouster.

The insurer reduced the value of credit-default swaps, guarantees AIG sold to protect-fixed income investors, by $5.56 billion and marked down other holdings by $6.08 billion before taxes. The biggest insurers in the US and Bermuda posted more than $77 billion in write-downs linked to the collapse of the mortgage market from the start of 2007 through the first quarter, with AIG representing about half that total.

AIG, which employs around 200 people at its Bermuda offices, raised $20.3 billion in May by selling debt and equity to replenish capital and protect against further write-downs. Citigroup Inc. analyst Joshua Shanker said in a research note that month that AIG may seek $10 billion more.

The insurer fell $2.29 to $26.80 by 6.30 p.m. (Bermuda time) in New York. AIG is the second-worst performer this year in the Dow Jones Industrial Average behind General Motors Corp. AIG named former Goldman Sachs Group Inc. vice-chairman Suzanne Nora Johnson to the board last month to help restore investor confidence. Investors including billionaire Eli Broad pressured Willumstad to bolster the company's financial leadership.

Richard Holbrooke, a former US ambassador to the United Nations, and Ellen Futter, president of the American Museum of Natural History in New York, resigned from the board.

Willumstad, who is also AIG's chairman, has said he'll meet with the insurer's unit heads, business partners and regulators to get a better feel for the company, which has about $1 trillion of assets, 116,000 employees and operations in more than 100 countries.

AIG has other units affected by the worst US housing slump since the Great Depression, including a mortgage insurer and home lender. The company said June 17 that its Wilmington Finance Inc. unit will stop originating mortgages through brokers and reduce the number of loans it makes directly to homebuyers.

One in every 171 US households was foreclosed on, received a default notice or was warned of a pending auction in the second quarter, said RealtyTrac Inc., double the rate of a year earlier.

AIG's United Guaranty mortgage insurance unit may be unprofitable this year, the company has said. Mortgage insurers pay lenders when homeowners default and foreclosure doesn't recoup costs. In June, 67,908 insured borrowers fell at least 60 days delinquent industry-wide, compared with 43,214 who got out of arrears, according to the Washington-based Mortgage Insurance Companies of America. The financial products unit responsible for credit-default swaps guaranteed more than $460 billion of assets for fixed-income investors at the end of March, including $60.6 billion in securities tied to sub-prime mortgages.

AIG is struggling with writedowns at the same time prices are declining industrywide for commercial insurance. Rates in the U.S. fell 13 percent in the second quarter from a year earlier as insurers cut prices to win market share, according to a survey by the Council of Insurance Agents & Brokers in Washington.

Ten analysts recommend investors accumulate shares of AIG, eight have "hold" ratings, and none say "sell," according to Bloomberg data through yesterday.