American International Group Inc on Thursday posted its biggest-ever quarterly loss, missing Wall Street expectations after being hurt by a write-down of derivatives exposed to bad mortgage investments.

The world's largest insurer said its fourth-quarter loss was $5.29 billion, or $2.08 a share, compared with a profit of $3.44 billion, or $1.31 a share, in the year-ago quarter.

It was its first quarterly loss in five years and the largest in the company's 89-year history.

The period included a pretax charge of $11.12 billion for a net unrealized market valuation loss related to its credit default swap portfolio.

Analysts said AIG's woes were symptomatic of broader problems in financial services, but that it was still nothing to sneeze at.

It would be folly to see the write-down as the absolute truth regarding their likely claims, but it would be folly to ignore it, Morningstar analyst Matt Nellans said.

AIG, a multi-line carrier offering property, commercial and life insurance worldwide, said its adjusted fourth-quarter loss -- excluding capital gains, losses and hedging activity -- was $3.2 billion, or $1.25 a share, widely missing expectations.

Analysts, on average, expected a loss of 15 cents, according to Reuters Estimates.

In the year-ago quarter, New York-based AIG earned $3.85 billion, or $1.47 a share, from operations.

Chief Executive Martin Sullivan moved to assure investors that while the results were clearly unsatisfactory and the company did not rule out more write-downs, AIG does not expect derivatives portfolio deterioration to be material in the long run.

During 2008, we expect the U.S. housing market to remain weak and credit market uncertainty will likely persist, Sullivan said in a statement.

Continuing market deterioration would cause AIG to report additional unrealized market valuation losses and impairment charges. However ... AIG has the ability to absorb the current volatility while committing the resources to grow and take advantage of opportunities, he said.

AIG's fourth-quarter loss marred Sullivan's track record of posting a profit in every quarter since he was installed as CEO almost three years ago, replacing Maurice Hank Greenberg who quit after 37 years as CEO, under the cloud of an accounting scandal.

AIG shares fell 2.6 percent to $48.83 in after-market trading, after losing 4 percent in regular trade on Thursday.

What's going on with AIG is symptomatic (of) what's been happening with any company that has anything to do with finance -- whether on the asset side of the balance sheet or the liability side, said Charles Lieberman, chief investment officer of Advisors Capital Management LLC in Paramus, New Jersey.

It's a reflection of the markets discomfort with the subprime problem and the lack of clarity into balance sheets, and generalized fear, Lieberman added.