US Insurance Giant Must Be Rescued, Say Bosses

Policyholders, politicians and business leaders put pressure on the US government to bail out the world's biggest insurer, AIG, which was on the brink of bankruptcy last night under the weight of huge losses on policies to insure financial investors.

As emergency talks to save the company broke up last night, AIG's shares dived 40% in after-hours trading on rumors that the US treasury was considering taking control of the company by putting it under conservatorship.

That would be similar to the rescue this month of the mortgage companies Fannie Mae and Freddie Mac. It would allow the government to oversee the businesses and to protect their assets.

The insurer, which needs at least $75bn to survive, employs 106,000 people in 130 countries and sells 12m policies annually in Britain - including travel insurance and product protection under retailers' own brands such as Boots, Argos, Comet and Sainsbury's.

AIG said it continued to "pursue alternatives to increase short-term liquidity". It sought to reassure customers by saying its insurance operations continue to operate normally and are "fully capable of meeting their obligations to policyholders".

Hank Greenberg, AIG's chief executive from 1967 to 2005, warned that it would be a "dramatic mistake" to allow the company to go under because this could cause repercussions for investors and businesses around the globe. Greenberg, who described AIG as a "national treasure", said the company merely needed a bridging loan giving it time to sell some of its large collection of insurance businesses.

"Given some time, they could raise more funds and sell assets," he told CNBC television. "That would be in our national interests, let alone the interests of the 100,000 people who work at AIG."

The billionaire 83-year-old tycoon continued: "If you can't raise it any other way in the private sector, the Fed should make a loan. It's not a gift, not a bailout, because it's a solvent company."

Experts believe the insurer, which has a £56m shirt sponsorship deal with Manchester United, has barely 24 hours to find a huge cash injection. The crisis was triggered on Monday evening when credit rating agencies downgraded AIG, triggering contractual clauses requiring the company to provide $14bn in extra collateral to satisfy trading partners.

The roots of AIG's problems lie in a strategy of expanding in financial insurance. In recent years it has provided billions of dollars in cover for investors seeking protection against default on complex instruments including sub-prime mortgage-related securities. AIG has written off $25bn in losses on its exposure.

There were signs that confidence in AIG was beginning to break down. In Singapore, hundreds of investors besieged an AIG office seeking cash redemption of their policies. In the US, brokers said they were getting calls from clients asking whether they should cash in annuities and similar products.

The governor of AIG's home state of New York, David Paterson, has granted the company an exemption from insurance regulations to allow it to raid its subsidiaries' reserves for $20bn.

"We're in a terrible situation if we let the world's largest industrial and commercial insurer go down," he said.

The Fed, which hired Morgan Stanley for advice, was trying to persuade the stronger of Wall Street's remaining banks, such as Goldman Sachs and JP Morgan, to lend the money needed by AIG.

Analysts believe sovereign wealth funds controlled by governments in the Middle East or east Asia could still step forward.