Jan. 13 (Bloomberg) -- American International Group Inc. may sell its Canadian life insurance operations to Bank of Montreal, Canada’s fourth-largest bank by assets, said a person with knowledge of the matter.

AIG is in talks with the Toronto-based bank and may reach an agreement as soon as today, said the person, who spoke on condition of anonymity because the talks are private.

Once the world’s biggest insurer by assets, New York-based AIG is being forced to sell dozens of divisions, including a jet-leasing company and insurance operations from the U.S. to Japan, to repay a $60 billion U.S. government loan. It’s already agreed to about $1.8 billion of sales, including an equipment insurer and a private banking business.

AIG spokesman Nick Ashooh declined to comment. Paul Deegan, a spokesman for Toronto-based Bank of Montreal, said his firm won’t discuss rumors or speculation.

For Bank of Montreal, the acquisition would add bulk to an insurance operation that accounted for 4.3 percent of non- interest revenue last year. AIG’s Canadian life operations, based in Toronto, had C$571.4 million ($468 million) of revenue in the first six months of 2008, according to an Oct. 3 letter to customers, compared with Bank of Montreal’s C$222 million in insurance revenue for the year ended Oct. 31.

Bank of Montreal’s total non-interest revenue for the year was C$5.12 billion.

Canadian banks have been pushing to boost insurance sales even as federal law prohibits them from selling policies in bank branches. Royal Bank of Canada, the country’s largest bank, began opening insurance offices adjacent to its branches in 2005.

Separately, AIG may run into obstacles trying to sell its financial products unit because of the unit’s holdings of risky credit-default swaps, the Wall Street Journal reported today. AIG needs to post collateral if value of the default-swaps declines. The sale of one business line could be announced in several days, the Journal said, citing Gerry Pasciucco, head of AIG Financial Products.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

Last Updated: January 13, 2009 04:34 EST