NEW YORK (Bloomberg) — American International Group Inc., the world's largest insurer by assets, said it will raise $12.5 billion after posting back-to-back quarterly losses for the first time as a publicly traded company.

AIG had a record first-quarter net loss of $7.81 billion, or $3.09 a share, compared with earnings of $4.13 billion, or $1.58, a year earlier, the New York-based company said yesterday in a statement. The company wrote down the value of contracts to protect fixed-income investors by $9.11 billion.

"The severity of the unrealised valuation losses and decline in value of our investments were beyond our expectations," chief executive officer Martin Sullivan said in the statement.

Sullivan's job may be on the line unless he stems losses from the sub-prime mortgage collapse and reverses a 12-month stock decline of 38 percent. Financial products head Joseph Cassano stepped down after AIG reported the biggest loss in its 89-year history in the fourth quarter as so-called credit-default swaps issued by the insurer were written down by $11.1 billion.

Excluding capital losses and the change in the value of some derivatives, the first-quarter loss was $1.41 a share, missing the average 34-cent loss estimate of 17 analysts surveyed by Bloomberg.

"Sullivan has to start really delivering," Rob Haines, a debt analyst at CreditSights Inc., said in an interview before results were announced. "He gets some leeway because there's been a perfect-storm kind of environment for anyone with swaps exposure, but the board's only going to take so much."

The financial products business, co-founded by Cassano in 1987, guaranteed more than $500 billion of assets for fixed-income investors at the end of 2007, including $61.4 billion in securities tied to sub-prime mortgages.

AIG hasn't had two consecutive quarterly losses since its initial public offering in 1969. The company fell 93 cents, or 2.1 percent, to $44.15 in New York Stock Exchange composite trading at the close of regular trading.

The world's largest financial institutions reported at least $318 billion in asset write-downs and credit losses tied to the worst US housing slump in more than a quarter century.

Sullivan, 53, told shareholders in February that most of the financial products division's unrealised losses will eventually reverse, and realised losses won't hurt the company's overall health.

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

The 24-company KBW Insurance Index has dropped about 9.6 percent this year as most insurers in the group reported first-quarter profit declines or losses. Rates charged by commercial insurers 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.

AIG's mortgage insurer, United Guaranty Corp., had a $352 million operating loss, compared with profit of $7 million a year earlier. The unit, which reimburses lenders when borrowers don't pay their loans, may post operating losses through this year, Sullivan told analysts in a February conference.

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