AIG Sinks on Mortgage-Related Losses

That stood out in stark contrast to the company's assurances in December that it had "little to no exposure" to asset-backed commercial paper, structured investment vehicles or collateralized debt obligations tied to residential mortgage-backed securities. It reported a $4.88 billion writedown in gross market value for its credit default swap portfolio in October and November -- more than four times the $1.15 billion executives reported earlier.

The full quarterly writedown the company reported on the portfolio on Thursday suggests that market conditions for credit default swaps worsened steadily in December. Meanwhile, the world's financial markets for derivative securities tied to the U.S. mortgage market remain in tatters amid a dramatic downturn in the nation's housing market.

"AIG's results in 2007 were clearly unsatisfactory," Sullivan said. "This was a challenging year in which the deterioration of both the U.S. residential mortgage and credit markets significantly affected several of our operations and investments."

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