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Breaking News: AIG shares plunge

The share price of American International Group (AIG) plunged by the most in 20 years this morning after the company announced a near $5 billion fall in the value of part of its investment portfolio.

AIG announced this morning that auditors found a “material weakness” in how the company values its credit-default swap portfolio.

The contracts declined by about $4.88 billion in October and November of last year, according to data in a regulatory filing today. AIG had said in December that the value of the “super senior credit derivatives” fell by about $1.1 billion in those two months. The stock retreated 11.5 percent to $44.82 as of 1.22 p.m. Bermuda time in New York Stock Exchange composite trading.

AIG, the world’s biggest insurer by assets, employs around 200 people at its Bermuda office, which has been established on the Island for more than 40 years.

AIG has lost about a third of its market value in the past year on concern that the US housing slump will reduce earnings and the value of its holdings.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

* See the full story in tomorrow's Royal Gazette.