Net earnings in the third quarter came to 1.72 billion dollars, or 65 cents a share, down from a restated 2.69 billion dollars a year earlier, AIG reported.

Hurricane Katrina and other catastrophes cost the company 1.57 billion dollars, or 60 cents a share, it added.

The fall in earnings comes at a difficult time for the giant insurance company.

AIG and its long-time former boss, Maurice "Hank" Greenberg, face fraud charges filed by New York state Attorney General Eliot Spitzer over suspect accounting practices that he alleges propped up its stock price.

As investigations by Spitzer and the Securities and Exchange Commission deepened, Greenberg in March was forced out of the company that he ran for 38 years.

AIG chief executive Martin Sullivan said the third quarter was "the most costly quarter for catastrophes ever recorded to date by the property-casualty industry".

But he added: "AIG's ability and commitment to continue as the leader in the property-casualty business is unwavering.

"Although reinsurance capacity could be constrained in the near future, AIG has the capital and financial resources to respond to our customers' needs."

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