AIG posts $9 billion loss

NEW YORK (CNNMoney.com) -- AIG reported a substantial fourth-quarter loss Friday, largely due to costs associated with selling off large stakes in its insurance businesses to reduce the debt it owes to taxpayers.

The insurance giant said it lost $8.9 billion, or $65.51 per share, during the three-month period ended Dec. 31. A year earlier, AIG lost $61.7 billion, the largest quarterly loss in history.

The announcement on Friday underscores the still-tenuous condition of AIG, which was on the verge of collapse when it was bailed out by the government in 2008.

AIG has received up to $131.9 billion in loans and direct payments from the Federal Reserve and the Treasury Department, and is in the middle of a high-stakes turnaround plan whose fate will determine how much taxpayers get paid back.

The fourth-quarter loss includes billions AIG set aside to increase its cash cushion and spent for layoffs and other expenses after selling assets. The company says that the transactions, while hurting its financial position in the near term, will eventually help it pay back the roughly $70 billion dollars it owes the U.S. government.

The insurer has also made a strong push to stabilize its insurance units -- another key step toward paying back its government loans. While those core businesses showed signs of improvement, AIG collected fewer premiums. Disappointed investors sent shares of AIG (AIG, Fortune 500) down 8% on Friday.

"While a tremendous amount of work remains to be done, and there are no guarantees in life, we believe we are on our way to regaining our stature as one of the world's largest and most successful property casualty insurance operations," Chief Executive Robert Benmosche on a recorded message posted on AIG's Web site.

The majority of AIG's fourth-quarter loss came from its December sale of large stakes in Alico and AIA, two giant foreign life insurance businesses, to the U.S. government. In exchange for those transactions, the Fed reduced the amount AIG has to repay taxpayers by $25 billion. AIG said it took a $5.2 billion charge for that sale last quarter.

The company also took a $2.8 billion loss after selling off Hong Kong-based life insurance company Nan Shan, its largest asset sale since its bailout. Since 2009, AIG has collected $5.6 billion from its asset sales, which it plans to use to pay back taxpayers.

"I think it's fair to say that we made substantial progress in refocusing our businesses on growth and profitability, and we set in place the framework for repaying the U.S. taxpayers for their support of our company during its darkest days," Benmosche said.

Revenue totaled $24.4 billion in the fourth quarter and $96 billion for the year, up from just $6.9 billion for all of 2008.

The insurer also continued to wind down its controversial derivatives portfolio in its Financial Products unit, which plummeted in value when the housing market bottomed and nearly caused the company to collapse. AIG reduced the size of the portfolio by 41% in 2009 to $940 billion from $1.6 trillion at the end of 2008.

Last week, AIG said it would keep approximately $300 billion worth of the derivatives in its portfolio -- money it plans to use to pay back taxpayers.

AIG also said it is increasingly confident in its ability to sell off non-core assets of the company, which is the primary means the company is using to pay down its debt to the government.

As the markets continue to improve and AIG is getting better value for its asset sales, the company no longer plans to use cash flows from life insurance policies help pay down its debt, according to a report Friday in The Wall Street Journal. AIG had planned to sell life insurance securities to the Fed to reduce its debt by $8.5 million, but it is now reportedly confident that it will be able to pay down the rest of its debt by selling off assets.

As reported by other news operations, AIG said in a separate filing with the Securities and Exchange Commission that it would need more funding from taxpayers if the financial markets took a turn for the worse.

"Should certain of these risks emerge, AIG may need additional support from the U.S. government," the company said in the 10-K filing.

But that exact same language appeared in the company's previous 10-K. A spokeswoman for AIG confirmed that the company's potential need for more government assistance if financial conditions worsen was "not new."