AIG, Other Mortgage Insurers’ Stocks Fall on Mortgage Loss Fears

July 11, 2008

Shares of American International Group Inc, the world’s largest insurer, fell 8.2 percent Thursday on concerns that a rating cut at its mortgage insurance unit could signal more losses in the pipeline.

“Everything is bleeding together,” said Rob Haines, an analyst with research firm CreditSights, pointing to a broad decline in mortgage insurance stocks after Moody’s Investors Service downgraded mortgage insurance units at AIG, PMI Group Inc. and Mortgage Guaranty Insurance Co.

AIG closed down $2.15 to a 12-year low of $23.99, making it the biggest drag on the Dow Jones industrial average and Standard & Poor’s 500 index.

Meanwhile, PMI fell 4.4 percent and MGIC closed down 22 percent.

Mortgage insurers sell coverage that pays out in the event of defaults on private mortgages.

“Everyone is concerned about where the next shoe will drop,” said Haines. He added that AIG investors are also skittish about new and unproven management.

Late Wednesday, Moody’s cut the insurance financial strength ratings on AIG’s mortgage insurance arms one notch to “Aa3,” the fourth-highest investment grade. The outlook is also negative.

United Guaranty Corp., AIG’s mortgage insurance unit, reported an operating loss of $352 million in the first quarter. In May, AIG said it saw trouble in the U.S. mortgage market affecting this business into 2009.

AIG’s shares have fallen more than 65 percent in the last year as it has posted more than $20 billion in write-downs on assets linked to subprime mortgages, leading some shareholders to call for a management shuffle.

AIG tapped Chairman Robert Willumstad to take over as chief executive from Martin Sullivan, who had held the job since 2005. The company is also seeking a new chief financial officer.

(Reporting by Lilla Zuill, editing by Richard Chang/Jeffrey Benkoe)

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