American International Group Inc., the world's largest insurer, said Wednesday its third-quarter profit dropped 27 percent, hurt by tight credit and the ailing U.S. housing market.Shares dropped 3.3 percent, or $1.90, to $56 in after-hours trading, when the report was released. They plunged almost 7 percent close at $57.90 in regular trading Wednesday. AIG's $872.3 billion-investment portfolio lost $864 million, its credit-swap portfolio lost $352 million and its mortgage-insurance business lost $215 million.

Those declines dampened the insurer's net income, which fell to $3.09 billion, or $1.19 per share, in the July to September period, from $4.22 billion, or $1.61 per share, in the same period last year.

Adjusted to exclude certain items, earnings totaled $3.49 billion, or $1.35 per share, versus $4.02 billion, or $1.53 per share, last year.



Revenue edged up to $29.84 billion from $29.25 billion.

The results fell short of estimates. Analysts surveyed by Thomson Financial projected, on average, profit of $1.62 per share on revenue of $29.91 billion. The estimates usually exclude one-time items.

Back in August, AIG called exposure to subprime debt "minimal," and said Wednesday that despite some losses due to mortgage-backed bonds, its exposure to the debt remains "high quality," with "substantial protection."

"While U.S. residential mortgage and credit market conditions adversely affected our results, our active and strong risk management processes helped contain the exposure," said AIG President and Chief Executive Officer Martin J. Sullivan in a statement.

AIG's investment portfolio does include collateralized debt obligations, instruments that bundle up different types of debt, and which have been giving banks the bulk of their losses.

Investors have been worried about how AIG has been affected by plunging home prices and soaring mortgage defaults, particularly after banks such as Citigroup Inc. and Merrill Lynch & Co. have slashed the value of their mortgage-backed investments by several billions of dollars.

Before releasing its results, AIG was the biggest loser Wednesday among the 30 companies that make up the Dow Jones industrial average, and just last week, it briefly touched a two-year low.

Maurice "Hank" Greenberg, AIG's former chief executive, said in a regulatory filing Friday he is considering "strategic alternatives" to boost the value of his AIG stake. Investors speculated he might want to bid for the company or parts of the company, or force AIG to spin off one of its businesses.

Greenberg was ousted in 2005, when then-New York State Attorney General Eliot Spitzer accused him of fraudulent accounting. The 82-year-old holds a 14 percent stake in AIG through his firm C.V. Starr, and said in last week's filing he plans to hold discussions with other major shareholders.

Going forward, AIG could possibly end up booking charges completely separate from the subprime crisis.

Police in Brazil cracking down on tax evasion have detained 19 people allegedly tied to a money-laundering scheme that involves AIG and two Swiss banks. The scheme allegedly helped large Brazilian companies evade taxes by laundering money through AIG, the Swiss banks, and black market money changers.

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AP Business Writer Dan Seymour contributed to this report.