AIG’s Losses Drag Down Insurance ETFs

American International Group (AIG) notched its third consecutive quarterly loss, which is putting the hurt on financial exchange traded funds (ETFs).

The world’s largest insurer lost more than $5.6 billion in credit default swaps - insurance policies to protect bondholders against defaults, reports Madlen Read for the Associated Press. Before taxes, AIG has lost more than $25 billion in the last three quarters in the swaps and another $15 billion in other investments.

Shares fell by the most in at least 28 years, says Hugh Son for Bloomberg. The losses suggest that despite raising $20 billion in capital, the company’s financial position is questionable.

Particularly hard-hit by the news are insurance ETFs, which could AIG as a top holding:

• KBW Insurance (KIE): down 17.5% year-to-date; AIG is 5.5%
• iShares Dow Jones US Insurance (IAK): down 22.6% year-to-date; AIG is 13.4%

In better news, home sales contracts signed in June rose across the country to their highest level since October 2007. They’re still below last year’s levels, though. Overall, the Pending Home Sales Index is up 5.3%, reports Glenn Somerville for Reuters. Economists were forecasting a loss of 1%.

The positive news might not be enough to overcome the negative reports from AIG, as real estate ETFs are trading lower today:

• iShares FTSE NAREIT Real Estate 50 Index Fund (FTY), up 1.4% year-to-date
• SJ Wilshire REIT (RWR), up 2.2% year-to-date
• Vanguard REIT Index (VNQ), up 2.7% year-to-date

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