AIG Shares Slip on 4Q Loss

American International Group Inc.'s stock slipped Friday after the insurer reported the credit crisis has eaten into the company's investments.

AIG lost $5.3 billion in the fourth quarter, mainly because of a portfolio of contracts known as credit default swaps.

These contracts, which pledge to cover missed payments on $579 billion of debt, lost more than $11 billion in value during the fourth quarter because of the perception that the insured debt is less likely to be repaid.

The insurer also lost more than $3 billion in its investment portfolio because of "significant, rapid declines" in the value of mortgage debt.

Keefe, Bruyette & Woods analyst Cliff Gallant cut his rating on AIG's stock to "Market Perform" from "Outperform." AIG suffers from "lingering balance sheet questions and now signs of profit deterioration," he said.

Shares of AIG slipped $3.29, or 6.6 percent, to $46.86. The stock had fallen Thursday in anticipation of the company's report, and the shares have dropped 10 percent in the past two days.

AIG in a conference call Friday said it owns $42.2 billion in bonds insured by bond insurers. The bond insurance sector is in upheaval as people wonder whether the companies will be able to pay claims on the debt they cover as more debt is expected to go into default.

Three-quarters of the insured bonds AIG owns are municipal bonds, which are safe even without insurance, the company said. The company also owns $7.4 billion in insured mortgage bonds.

Even assuming no help from bond insurance, AIG said 84 percent of these bonds are rated "A" or higher, and less than 2 percent are "junk" credit quality.