Net premiums written in AIG's general insurance business declined 16.3%, while premiums, deposits and other considerations in its life insurance and retirement division dropped 38.5%. General insurance -- which includes commercial, catastrophe, workers compensation and foreign insurance, as well as investments related to those businesses -- posted an operating loss of $2.8 billion, vs. a profit of $2.1 billion a year ago, excluding capital gains and losses. Operating income from AIG's life insurance and retirement business plunged 73% to $742 million from $2.7 billion.

"They're struggling to retain confidence both with employees and with customers," says Bill Bergman, who analyzes the company for Morningstar. "And competitors are concerned that this is irrational pricing, in their minds."

AIG spokesman Peter Tulupman disagrees, saying the company's commercial insurance operations, were remarkably successful, given the situation for AIG and the broader markets. AIG rolled those operations into a new entity called AIU Holdings, which recorded $4.4 billion in net premium underwriting in the fourth quarter, and $21.2 billion for the full year.

Tulupman also notes that AIU's statutory policyholder surplus -- a mandatory reserve that insurers must hold against claims -- rose by 1.1% and is higher than all U.S. competitors, and cites AIU's "excellent" financial strength ratings, which were affirmed by AM Best, S&P, Moody's and Fitch on Monday.

"Given the economic environment, market conditions and AIG's ongoing issues, commercial insurance performed well in 2008," Tulupman said. He characterized it as a "well-capitalized businesses that holds substantial liquidity and has not required capital funded through AIG's agreement with the U.S. government to support its financial strength."

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