American International Group Inc. (AIG) took a bigger hit than expected in the fourth quarter, posting a net loss of $8.87 billion, Bloomberg reported. Shares fell 8.5 percent in early trading.

The New York-based firm announced today that its net loss narrowed from $61.7 billion, or $458.99 a share, a year earlier, when it posted the largest loss in U.S. corporate history.

The fourth-quarter hit was attributed to setting aside more reserves for insurance claims and paying down bailout debts.

“The reserve boost is a little red flag, as the industry is seeing largely favorable trends in reserve development,” said Bill Bergman, an analyst at Chicago-based Morningstar Inc. “It was a messy quarter, and overall it shows you how deep a hole they’ve dug, and how hard it is for them to dig out.”

The figures include $6.7 billion in charges to pay down AIG’s Federal Reserve credit line and $1.8 billion to add to property-casualty insurance reserves, as sales in that division fell 2.2 percent.

AIG’s operating loss, which excludes some investment results, was $53.23 a share, far greater than a Bloomberg survey average estimate of a $3.94 per-share loss.

Though AIG’s annual loss narrowed to $10.9 billion for 2009 from $99.3 billion a year earlier, CEO Robert Benmosche said there is a still a lot of work to do. He was appointed to his post in August and is charged with increasing insurance profits to repay loans in AIG’s $182.3 billion bailout.

“While we are not out of the woods by any stretch, these numbers represent a substantial improvement from just one year ago,” Benmosche said in a recorded message on AIG’s Web site. “While a tremendous amount of work remains to be done, and there are no guarantees in life, we believe we are on our way to regaining our stature as one of the world’s largest and most successful property-casualty insurance operations.”

In 2007, the insurer earned $6.2 billion.