AIG has up to $600 mln in Fan, Fred preferred: source

NEW YORK (Reuters) - American International Group Inc AIG.N, the world's largest insurer, has exposure to between $550 million and $600 million in Fannie Mae and Freddie Mac preferred shares, according to a source familiar with the investment.

A sign on an office building for AIG, American International Group, is pictured in Los Angeles, California in this May 8, 2008 file photo. REUTERS/Fred Prouser

The figure is a fraction of AIG’s holding of debt issued by the mortgage-funding giants, according to figures disclosed by the company last month, which did not break out equity holdings.

Fannie and Freddie shares have plunged amid the U.S. housing crisis, precipitating the U.S. government’s bailout of the companies last Sunday.

Amid the federal takeover, investors have been biting their nails over companies’ holdings of U.S. agency equity, fearful that government intervention will wipe out value.

Insurers in total have exposure to about $4 billion in Fannie Mae FNM.N and Freddie Mac FRE.N preferred stock, according to figures compiled by rating agency A.M. Best before the takeover.

Other insurers holding Fannie and Freddie preferred shares include Hartford Financial Services HIG.N and Genworth Financial GNW.N.

As with AIG, insurers’ total ownership of preferred stock represents a fraction of the sector’s holding of Fannie and Freddie debt. This fact could soothe insurance investors, since the agencies’ debt is seen as guaranteed from default under the federal bailout.

Insurers had poured close to $370 billion into agency-issued fixed-income securities, according to Oldwick, New Jersey-based A.M. Best’s earlier figures.

Fannie and Freddie, government-sponsored enterprises (GSE), own or guarantee almost half of all outstanding U.S. mortgages.

AIG, at the time of reporting second-quarter results in August, disclosed that a residential mortgage-backed securities portfolio held about $16.6 billion in debt issued by the GSEs.

Reporting by Lilla Zuill; Editing by Brian Moss and Gerald E. McCormick