Monday, American International Group Inc (AIG) stock declined sharply after reports that the insurance giant's loss reserves "are significantly deficient again," shedding as much as 14.71% at close of regular trading. Earlier, analysts at Sanford Bernstein cut AIG's price target by about 40%.
A Wall Street Journal report indicated analysts at Sanford Bernstein as concluding after a study of industry loss reserves as well as a look at paid and incurred ratios, real price adequacy and empirical loss development factors. The report also quoted an analyst indicating "AIG's results are worse than its industry counterparts and directionally worse than the company's booked reserves."
The New York Times believes AIG has a "shortfall of about $11 billion in its all-important property and casualty business."
Media reports on the announcement by Merrill Lynch & Co Inc (MER.N) on Wednesday that it had taken a $7.9 billion write-down largely due to bad investments related to risky subprime mortgages, has raised concerns about the mortgage exposures of other financial institutions.
MBIA Inc (MBI), a financial guarantee provider, also reported a third-quarter loss due to the declining value of credit derivatives, raising concerns that AIG may have similar exposures.
Analysts, including those at the Royal Bank of Scotland said Thursday that they anticipate AIG will report large write-downs. RBS anticipates the bulk of Merrill's write-down of approximately $5.8 billion to, came from the highest-rated senior pieces of Merrill's collateralized debt obligations.
Reports also said that AIG has acknowledged a senior portfolio of $465 billion, $64 billion of which is backed by subprime. The potential implications of the reserve issue are significant and that if the analysis is even directionally correct, it would indicate that AIG shareholders and the U.S. government face considerably more uncertainty than they may have bargained for.
Other reports quoting an analyst at Citi, indicated the insurer would see a mark-to-market loss of $1.6 billion in its portfolio, with the loss having no impact on its operating income.
AIG however believes that underlying tranches of CDOs would have to default before it faced losses and has also indicated that it does not mark its portfolio to market.
AIG closed Monday's last trade on the New York Stock Exchange at $28.40, down $4.90 or 14.71%. In after hours, the stock, however, gained $0.10 or 0.35%, trading at $28.50. In the last 52-week period, the stock trended in a broad range of $6.60 - $55.90, with a three-month average volume of 36.83 million shares.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.