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AIG puts Katrina losses at $1.1 billion

American International Group said Tuesday that it expects $1.1 billion in after-tax losses for the third quarter, mainly because of claims from Hurricane Katrina.
/ Source: The Associated Press

American International Group, one of the world's largest insurers, said Tuesday that it expects $1.1 billion in after-tax losses for the third quarter, mainly because of claims from Hurricane Katrina.

The estimate from the New York-based firm is among the highest released so far by global insurance and reinsurance companies.

Risk assessment firms have estimated that Katrina — which caused extensive damage when it hit Louisiana, Alabama and Mississippi on Aug. 29 — could result in insurance claims of $40 billion to $60 billion.

AIG's president and chief executive, Martin J. Sullivan, said in a statement accompanying the estimate that the company has the capital to absorb the losses.

AIG said that after-tax insurance related losses to be recorded in the July-September period would be approximately $900 million. In addition, it said, AIG expects to record an after-tax charge of approximately $170 million relating to reinstatement premiums. These are premiums that AIG pays to reinstate reinsurance coverage after AIG has surpassed its reinsurance limit.

Reinsurance is purchased by insurance companies to help spread policy risk.

AIG said it also would incur about $60 million in after-tax losses in non-insurance businesses, including consumer finance operations, investment portfolio impairments and AIG owned and leased facilities.

The company said that "due to the unprecedented nature of this event, including legal and regulatory uncertainty," its eventual losses could be higher than the current estimates.

The announcement came after the close of regular trading Tuesday on the New York Stock Exchange; AIG shares had risen 16 cents to $60.51 for the day.

A number of other insurance companies have issued preliminary loss calculations due to Katrina, including Lloyd's of London, which estimated its losses at $2.55 billion _ its second-biggest loss ever.

Swiss Reinsurance Co., the world's second-largest reinsurance company based in Geneva, last week estimated its exposure to Katrina at $1.2 billion.

AIG has been at the center of regulatory probes into insurance sales practices and accounting procedures. New York Attorney General Eliot Spitzer last May filed a civil suit against AIG and two former officers, including ousted CEO Maurice "Hank" Greenberg, accusing them of orchestrating an accounting scheme that made AIG's financial picture appear brighter than it was, misleading both investors and state regulators.

Soon after, AIG filed its delayed annual report and, working with PricewaterhouseCoopers, restated earnings back to 2000.