DOW JONES NEWSWIRES 
 

American International Group Inc.'s (AIG) first-quarter loss narrowed to $4.35 billion, paling in comparison to the record $61.7 billion loss the insurance giant posted for the fourth quarter, though it still saw hefty write-downs and charges tied to its investment portfolio.

Shares dropped 6.2% to $1.83 in after-hours trading. AIG's stock has more than quadrupled since March when the government overhauled the bailout and the stock market began its current rally.

Despite a federal commitment of more than $170 billion in aid, AIG's core insurance businesses continue to struggle amid the economic and capital-market turmoil.

Looking to preserve their value, AIG is forming a general insurance holding company to house its commercial insurance group and other property-and-casualty operations and selling some smaller assets. That move will free the new company from AIG's debt and bad investments and help retain key employees and customers. One risk is that AIG's franchises could lose value before the company can sell them to help repay taxpayers.

For the first quarter, AIG - which is 80% owned by the U.S. government - posted a loss of $4.35 billion, or $1.98 a share, compared with a year-earlier loss of $7.81 billion, or $3.09 a share. Excluding capital losses, the red ink amounted to $1.6 billion, down from $3.56 billion.

The latest results included $1.9 billion in charges tied to the wind down of the financial products group, the source of the insurer's plagued credit default swaps, and $2.5 billion in investment losses.

Operationally, operating income at AIG's general-insurance business drop by 72% amid investment losses, while general-insurance net premiums declined 18%.

Meanwhile, life-insurance and retirement-services profits dropped to $1.2 billion amid lower assets under management and losses on partnership investments.

The U.S. government in September rescued AIG after the tumbling value of its collateralized debt obligations pushed it to the brink of bankruptcy, and the government has since expanded its support. When it revised the bailout in March, AIG gained access to about $30 billion under the Troubled Asset Relief Program. It hasn't touched that money yet but could use it to help plug holes.

-By Lauren Pollock, Dow Jones Newswires; 201-938-5964; lauren.pollock@dowjones.com