AIG's 'Zombie' Stock Will Kill You

The credibility of Moody's is questionable because of its slavish production of AAA ratings. The ratings company appears to believe that a significant drop in insurance premiums reflects "stabilization." The opposite is true. Sadly, investors are reacting as if AIG had announced it found $150 billion forgotten in someone's desk drawer.

What's more, AIG's third-quarter results weren't as impressive as they seemed. Liberty Mutual Chief Executive Officer Edmund Kelly complained about "extremely aggressive" actions, indicating his displeasure at issuing unheard of multi-year policies and "ridiculously low pricing." AIG policy income was down more than $1.7 billion in the third quarter, translating to a drop of 10% from the previous quarter and 24% since the end of 2008. Policy income is crucial to AIG, providing cash flow and investment funding.

Operating income also was off, down 66% from the end of June, and cash and cash equivalents fell by $845 million, even as AIG revealed in a 10Q filing last week that it intends to dig into the government's coffers to borrow $2.1 billion to help restructure two units.

AIG's future looks uncertain. But one thing's for sure: Get out of the stock now.

Reported by Gavin Magor in Jupiter, Fla.

>To order reprints of this article, click here: Reprints