AIG reported a 34 percent jump in earnings yesterday, with net income moving up to $4.28 billion in the second quarter from $3.19 billion in the year-ago period. The strong earnings came in spite of marked weakness in the insurance giant’s mortgage business, which posted a $78 million operating loss for the quarter; AIG’s mortgage business had posted a $100 million operating profit one year ago. From the LA Times:

[Morningstar analyst Matt Nellans] said the mortgage unit’s loss ratio was 318%, meaning the amount AIG paid out on mortgage policies was three times as much as it collected in premiums on such policies.

Driving that loss ratio was a spike in delinquencies, per CNNMoney:

… total delinquencies in [AIG’s] $25.9 billion mortgage insurance portfolio were 2.5 percent. It said 10.8 percent of subprime mortgages were 60 days overdue, compared with 4.6 percent in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading … It said delinquency rates for first mortgages had risen to 3.98 percent in June from 3.56 in April and a low of 3.08 in July 2005. First mortgages represent 90 percent of AIG’s domestic mortgage business … As of June 30, AIG’s finance arm, which originates first and second mortgages, recorded delinquencies of 3.68 percent in subprime, 2.13 percent in non-prime, and 0.81 percent in prime.

Given the delinquency rates I’ve seen elsewhere, these numbers actually don’t look all that bad. Soemthing tells me Countrywide would love to see subprime delinquencies at 10.8 percent right about now.