NEW YORK (Bloomberg) — American International Group Inc., the world's largest insurer by assets, posted its biggest quarterly loss as a publicly traded company as it wrote down guarantees sold to protect fixed-income investors. The company declined in extended trading.

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 yesterday in a statement.

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

AIG, which employs around 200 people at its Bermuda offices, has dropped 21 percent in New York trading since chief executive officer Martin Sullivan replaced Maurice (Hank) Greenberg in March 2005. Credit-default swaps sold by AIG declined in value by $11.1 billion before taxes in the quarter. Investors are concerned that the company, with units that originate, insure and invest in sub-prime mortgages, will have more losses tied to the worst US housing slump in a quarter century.

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

AIG guaranteed $62.4 billion in collateralised debt obligations that included sub-prime mortgages as of November 25, securities that led to fourth-quarter losses for MBIA Inc. and Ambac Financial Group Inc., the largest bond insurers.

The write-down "highlights the greater risk associated with AIG and has led to increased investor scepticism," Bank of America Corp. analyst Alain Karaoglan said in a February 12 research note. He rates the company "neutral".

AIG dropped 3.5 percent to $48.40 after the close of regular trading in US markets. The company fell $2.10, or four percent, to $50.15 in New York Stock Exchange composite trading yesterday. Insurance stocks declined about 8.6 percent this year as 21 of the 24 members in the KBW Insurance Index reported lower fourth-quarter earnings or losses.

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 December 5 conference.

US 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 one million people from their homes and caused an estimated $2.26 billion in insured losses in October, the state's insurance regulator said. Allstate Corp., which disclosed $318 million in costs, is the only publicly traded insurer to report higher costs from the disaster.

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 firm posted a $103.8 million loss in that quarter and later restated 2000 to 2005 earnings without providing an updated figure. The fourth-quarter loss is the largest in AIG's history as a publicly traded company, said spokesman Chris Winans.

Sullivan, 53, replaced Greenberg in March 2005. Two months later, 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.