AIG sees up to $8.5 billion in cash losses from CDS

NEW YORK (Reuters) - American International Group Inc (AIG.N) said on Thursday potential cash losses on its portfolio of credit default swaps tied to risky mortgage debt could be as high as $8.5 billion, much more than previously disclosed.

Under two revised ways of assessing risk, losses were estimated at $5 billion to $8.5 billion, finance executive Steven Bensinger said.

The estimates are much higher than the $2.4 billion worst-case scenario disclosed by AIG, the world's largest insurance company, in the first quarter.

Losses on CDS, which guarantee underlying debt in the event of default, drove AIG to a second-quarter net loss of $5.36 billion.

On Wednesday the company disclosed its third consecutive quarterly loss greater than $5 billion. It has recorded nearly $25 billion in unrealized losses from writing down the value of its CDS portfolio, held by a financial products unit.

(Reporting by Lilla Zuill; editing by John Wallace)