NEW YORK (AP) — Battered insurer American International Group Inc. said yesterday its first-quarter loss narrowed, and was sharply lower than the record-setting loss it posted a quarter ago.

The New York-based insurance giant said it lost $4.35 billion, or $1.98 per share, during the quarter ended March 31, compared with $7.81 billion, or $3.09 per share, during the same quarter last year.

AIG lost $61.7 billion during the fourth quarter — the most ever in a quarter by a US corporation — amid the mushrooming credit crisis and shortly after its near collapse.

AIG's first-quarter operating loss, which excludes impairment and accounting charges, totaled $1.6 billion, or 97 cents per share. The impairment charge for the quarter totalled $2.63 billion, compared with $3.96 billion during the year-ago period.

The first-quarter loss was primarily tied to costs from the winding down of its financial products unit, which was the at the centre of the insurer's near collapse last fall.

AIG was bailed out by the government on the same weekend in September that investment bank Lehman Brothers Holdings Inc. failed. Since that time, AIG has received four rounds of government support to help it remain in business amid fears that a full collapse of the insurer that was once the world's largest would create widespread devastation in the financial markets.

The US government provided AIG with an $85 billion loan in September. As market conditions worsened and losses piled up at the insurer, the government revised and expanded its loan package several times. Loans available to AIG total nearly $180 billion after being expanded in March. In return, the government has taken an 80 percent stake in the firm.

Unlike when it announced its fourth-quarter results, AIG said there were no new loans or deals with the government.

"We are simply executing on what we have previously announced," chairman and chief executive Edward Liddy said during a conference call of the insurer's plans to repay the government loans. Liddy added that AIG continues to repay a portion of its outstanding government loans with preferred interests in various subsidiaries, as well as more traditional cash and interest repayments.

The government has also taken over some of the insurer's investments as part of the bailout. AIG reported $1.43 billion in losses in the first quarter from its retained stake in those investments.

AIG recorded $1.21 billion in charges related to the ongoing restructuring of its operations. Those charges were primarily tied to the unwinding of the financial products division.

AIG was hurt not by its traditional insurance operations, but by its financial products business, which underwrote risky credit derivatives contracts known as credit default swaps. The swaps are essentially insurance contracts protecting an investor against default on an underlying investment, such as mortgage-backed securities.

Rising defaults among the underlying investments led to worries that AIG would not be able to cover all the outstanding swaps contracts and the effects would touch off a new, even more intense period of the credit crisis. In March, AIG said it would spin off AIU Holdings, its property and casualty insurance business, and give the company its own board of directors, management team and brand distinct from that of the embattled company.