PREVIEW-AIG seen posting another net loss in 1st-qtr

By Lilla Zuill

NEW YORK, May 7 (Reuters) - American International Group Inc (AIG.N), the world's largest insurer, is expected to post a second consecutive quarterly loss on Thursday, hurt once more by investment losses, including exposure to crippled mortgage investments.

Analysts polled by Reuters, on average, expect a first-quarter net loss of 95 cents a share, according to Reuters Estimates. However, excluding one-time losses, an adjusted profit of $1.47 a share is expected.

The insurer posted a $5.3 billion fourth-quarter loss, its largest ever, after an $11 billion write-down in the value of its super senior, or highly rated, credit default swap (CDS) portfolio.

Swiss Re (RUKN.VX), the world's biggest reinsurer, said on Tuesday its profits were halved, in part due to a fresh round of mark-to-market losses on its portfolio of credit default swaps.

Analysts are bracing for a further drop in the value of AIG's CDS portfolio in the first quarter, and see the possibility of wider problems, including poor returns from alternative investments, such as hedge funds and private equity.

In the fourth quarter, AIG forecast, under a worst-case scenario, realized losses on its CDS portfolio of up to $900 million, and expected unrealized market valuation losses to "reverse" over time.

Friedman Billings Ramsey analyst Bijan Moazami, in a research note earlier this week, projected $12.7 billion in possible unrealized, mark-to-market losses on AIG's portfolio of credit default swaps, based on an index that tracks CDS movements.

"The mark-to-market losses in the CDS portfolio could be even more devastating than those experienced in the (fourth quarter)," said Moazami.

A credit default swap is a type of guarantee on the credit-worthiness of the underlying investment, such as collateralized debt obligations (CDOs).

Moazami said a first-quarter write-down in the value of AIG's CDS portfolio could spur rating agencies to ask the insurer to shore up capital.

When AIG reported fourth-quarter earnings in February, it said it was halting its share buyback plan to preserve capital, but has not indicated any plans to raise capital through debt or equity issues.

Another analyst, Tom Gallagher at Credit Suisse, estimated AIG's CDS portfolio could deteriorate by $9 billion.

Gallagher said he saw several places where losses could emerge beyond the CDS portfolio, including impairments in a variety of mortgage investments, such as subprime.

There could also be "earnings pressure" on AIG's mortgage guarantee and consumer finance businesses, leading to "a need to harvest capital to replenish losses," Gallagher added.

"Although we see good value in AIG shares for investors over a one-year time horizon, we believe several near-term headwinds will limit upside."