American International Group Inc. plans to absorb losses for a dozen insurance units after their securities-lending accounts suffered $13 billion in write-downs tied to the subprime mortgage collapse during the past year, Bloomberg reported.

The world’s largest insurer will assume as much as $5 billion of any losses on sales of the investments, up from a previous commitment of $500 million, said Christopher Swift, vice president for life and retirement services, in an interview. AIG also will inject an undisclosed amount of capital into some of the subsidiaries, he said.

Moody’s Investors Service and A.M. Best Co. both cited the write-downs in May when they downgraded New York-based AIG’s credit ratings. State regulators in Texas said they didn’t know AIG was investing cash collateral from the securities-lending business in subprime-linked assets and were concerned that the insurance units hadn’t put aside enough capital to cover potential losses.



The reduction of asset values in the securities-lending portfolio was part of the $38 billion in pretax write-downs that AIG reported during the past three quarters. That total included reductions of $20 billion on guarantees known as credit-default swaps and $18 billion on mortgage- and asset-backed securities, including some tied to subprime home loans. Most of the mortgage-related holdings are in the securities-lending pool.

The securities-lending business caters to banks and brokerages that borrow for themselves and clients to hedge trades, cover bets that a stock will fall and avoid trade-settlement failures. AIG’s life-insurance subsidiaries invest their premiums in stocks and bonds. To make extra money, they lend out those securities through a central pool that invests cash collateral.

AIG said in regulatory filings that about $9 billion of the markdowns on mortgage-backed securities resulted from temporary market-value declines that it expects to be reversed. Those unrealized losses don’t affect earnings.