NEW YORK (Bloomberg) — American International Group Inc led the Dow Jones Industrial Average lower on Friday after the world's biggest insurer said it needs to raise $12.5 billion and may face more write-downs after two consecutive record quarterly losses.

AIG declined nine percent in New York trading, the most since February. The insurer's first-quarter net loss was $7.81 billion, compared with earnings of $4.13 billion a year earlier, New York-based AIG said after markets closed yesterday.

The insurer can offer "no assurance" that losses from disruptions in credit markets are over, vice-chairman Steven Bensinger said during a conference call on Friday. Chief executive officer Martin Sullivan said he needed to raise capital to fortify the balance sheet in "turbulent times".

"We harbour no illusions about the challenges ahead and recognise that many of our businesses, while largely affected by external factors, fell short of our own high expectations," Sullivan said.

Pressure is building on Sullivan to turn around AIG after the company posted two straight money-losing quarters for the first time since its initial public offering in 1969. AIG had more than $15 billion in pretax write-downs in the period ended March 31, prompting Standard & Poor's and Fitch Ratings to cut the company's credit ratings.

AIG wrote down contracts it had sold to protect investors by $9.11 billion in the first quarter to comply with rules that require the company to estimate their present market value.

"The end of the down cycle in credit quality is not over, with delinquencies in various segments still on the rise," Bensinger said. "We expect market conditions to remain under stress for some time."

The insurer also wrote down its investment portfolio in the quarter by $6.09 billion as borrower defaults forced down the value of mortgage-backed securities. Bensinger said that he expects some holdings tied to home loans will rebound.

AIG fell $3.87 to $40.28 in New York Stock Exchange composite trading. AIG has dropped 24 percent this year through Thursday, a slide that came after Sullivan, 53, reassured investors in December that write-downs would be "manageable".

"Management capability issues, which have been smoldering for a while, are likely to flare up," said David Havens, a credit analyst at UBS AG in Stamford, Connecticut, in a note to investors yesterday. "One of AIG's constant weaknesses has been its complexity. It's come back to bite them."

The world's largest financial institutions reported at least $321 billion in asset write-downs and credit losses tied to the US housing slump. Banks and securities firms have raised or announced plans to seek $245 billion since July to replenish capital depleted by the collapse of the US sub-prime market, according to Bloomberg data.