NEW YORK (Dow Jones) – American International Group Inc. (AIG) posted a nearly $9 billion fourth-quarter loss as the troubled insurance giant continued to be hammered by investment writedowns and divestment charges.

The results were a significant improvement from the year-ago period when AIG reported a $62 billion quarterly loss, the biggest in the company’s history. But shares of the giant government-controlled insurer were down 8.4% in early trading at $25.19.

The company’s annual report gave little encouragement regarding prospects for the company’s insurance business, or the value of its common stock, which is heavily outweighed by the company’s large obligations to repay the U.S. government.

The mortgage, credit and stock markets have all improved significantly since AIG’s government bailout in September 2008. But the insurer is still struggling to rebound from the government’s multi-billion-dollar bailout. As stock markets rallied, write-ups in its financial-products division and higher investment income helped the bottom line, but they couldn’t veil the fact that AIG’s main insurance businesses have remained weak.

Chief Executive Robert H. Benmosche said Friday in a press release the company made progress in strengthening the insurance business last year and reducing exposures in the financial-products division, the segment that was key to AIG’s deterioration. Since being appointed to the job in August, Benmosche has been divesting two of the company’s biggest foreign life insurance units to raise cash to repay bailout funds and credit lines backed by the U.S. government.

He said in a statement published on the company’s Web site that the company’s strategy is to focus on its global general insurance business, its U.S. life insurance and retirement services operations, and certain foreign life insurance units. Benmosche added that AIG will slim down after its restructuring, keeping its property and casualty insurance operations and several other core businesses.

“Clearly we will be a smaller and more focused company than in the past,” Benmosche said in a pre-recorded call to investors. “The only way we can repay taxpayers is to divest parts of the organization, and we are.”

At the end of 2009, AIG owed the New York Federal Reserve and Treasury Department $23.4 billion and $46.9 billion respectively, and had $4.7 billion in short-term debt outstanding under a Fed commercial paper funding facility. AIG had total debt of $141.5 billion, compared with a market capitalization of $4 billion. Since the year end, AIG has had to draw $3.1 billion more from its Fed credit facility to help repay $3.5 billion of commercial paper issued by its units under the CPFF.

The company also decided to scrap a plan to use cash flows from life-insurance policies to repay $8.5 billion in debt to the Federal Reserve Bank of New York. The decision follows a market recovery over the past year that could improve the government-controlled insurer’s chances of repaying its debts to U.S. taxpayers.

AIG also said Friday that it will extend financial support to its aircraft-leasing unit until February 2011, and that it is evaluating offers for parts of the business.

In 2010, AIG expects both property and casualty market pricing will continue to decline. AIG expects modest growth in net premiums this year, driven mostly by foreign general insurance.

The domestic life-insurance division swung to a profit during the fourth quarter, while the international division’s earnings declined 13%.

AIG posted a loss of $8.87 billion, or $65.51 a share, compared with a year-earlier loss of $61.66 billion, or $458.99 a share. Adjusting for capital losses, losses from divested businesses and derivative hedging, the loss narrowed to $53.23 from $287.69 as the latest results included $12 billion of charges.

AIG also said it does not anticipate paying dividends on the common stock in the “forseeable future.”

The shares, which have more than doubled in the past year on a split-adjusted basis from their all-time low last year, have remained highly leveraged with $49.6 billion worth of preferred stock owned by the Treasury Department. That hurts common shareholders who would be paid after the government in the case of a liquidation, placing stress on common shareholders.

The insurer did not hold a conference call with analysts to discuss the results.

-By Joe Bel Bruno, Dow Jones Newswires; 212-416-2469; joe.belbruno@dowjones.com and Serena Ng, The Wall Street Journal; serena.ng@wsj.com

(Doug Cameron in Chicago and Joan E. Solsman in New York contributed to this article.)

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