March 1 (Bloomberg) -- American International Group Inc., the insurer deemed too important to fail, may get a commitment for as much as $30 billion in new government capital after a record quarterly loss, said two people familiar with the matter.

The insurer may also be allowed to make lower payments on government loans, said the people, who declined to be identified because there was no public announcement. New York-based AIG may forfeit part of stakes in its two largest non-U.S. life insurance divisions to lower the firm’s debt, the people said.

AIG, first saved from collapse in September with a package that grew to $150 billion, had to restructure its bailout after failing to sell enough units to repay the U.S. Firms including banks relied on AIG to back more than $300 billion of assets through derivative contracts as of Sept. 30, making the insurer a “systematically significant failing institution” that has to be propped up, according to the Treasury.

“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “They are trying to protect the global financial system from a complete meltdown.”

AIG, which agreed in September to turn over an 80 percent stake to the government, is set to announce a fourth-quarter loss of about $60 billion tomorrow, according to three people familiar with the matter. The company’s board was scheduled to meet today to vote on the revised bailout, according to two other people familiar with the matter.

Credit Rating

David Monfried, an AIG spokesman, and Isaac Baker of the Treasury declined to comment.

The insurer had been in talks in the past week with regulators to restructure its bailout to stave off credit-rating downgrades that would have caused further costs tied to credit- default swaps. AIG had to seek an $85 billion federal loan in September after credit-rating downgrades left the company facing more than $10 billion in potential payments to debt investors who bought swaps from the insurer to protect against losses.

Downgrades by Moody’s Investors Service and Standard & Poor’s may force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units could also lose access to the federal commercial paper program if they are downgraded, the company said. Rating agencies have signed off on the latest rescue, the Wall Street Journal reported today, citing unidentified people.

China, U.K.

AIG may give up stakes in American International Assurance Co. and American Life Insurance Co., two life insurance divisions that operate in countries from China to the U.K. The holdings would go to a so-called special purpose vehicle to eventually position them for sale so AIG doesn’t have to divest them at distressed prices, according to one person familiar with the matter.

Chief Executive Officer Edward Liddy, appointed by the government to run AIG in September, had to scrap his strategy to repay a $60 billion government credit line by selling AIG units after potential buyers were hobbled by their own losses. AIG struck deals to raise about $2.4 billion through sales. Under Liddy’s plan, revealed in October, AIG was to emerge as a firm mostly providing property-casualty coverage to businesses.

The Standard & Poor’s 500 Insurance Index fell by half since Liddy announced his plan, reducing the prices AIG units could fetch and thinning the pool of companies strong enough to bid for them. The $60 billion credit may be reduced to under the latest revision, a person said. The company had tapped about $38.9 billion of the facility as of Dec. 31.

‘Road to Recovery’

Liddy said AIG was on the “road to recovery” after securing a bailout valued at $150 billion in November. That package included the $60 billion credit line, a $40 billion capital investment and $50 billion to wind down liabilities tied to mortgage-backed securities the insurer owned or backed through swaps. Liddy said then that terms of the original rescue, disclosed a day after Lehman Brothers Holdings Inc. collapsed, were unsustainable.

Goldman Sachs Group Inc., Societe Generale SA, Deutsche Bank AG and Merrill Lynch & Co. are among the largest banks that bought swaps from AIG, according to a person familiar with the situation. The insurer handed over about $18.7 billion to financial firms in the three weeks after the September bailout, said the person, who declined to be named because the information hasn’t been made public.

Liddy, the CEO at auto insurer Allstate Corp. for eight years through 2006, was appointed to AIG by then-Treasury Secretary Henry Paulson, who knew Liddy from the executive’s service on the board of Goldman Sachs, where Paulson was CEO.

Government Probes

AIG is winding down the trades and closing the unit that sold the swaps. The unit is under investigation by the U.S. Department of Justice, the Securities and Exchange Commission and U.K.’s Serious Fraud Office. The U.S. probes involve how AIG executives valued its swap portfolio and disclosed information about the contracts to investors, AIG said in a November regulatory filing.

AIG, once the world’s largest insurer, operates in more than 100 countries, providing protection to individuals and businesses. It insures against some of the biggest risks, covering planes and commercial shipping and providing protection against terrorist attacks.

The biggest insurers in North America posted more than $150 billion in writedowns and unrealized losses linked to the collapse of the mortgage market from the start of 2007, with AIG representing more than a third of that total. The company has units that insure, originate and invest in home loans.

The U.S. Senate’s banking committee has scheduled a hearing for March 5 to discuss AIG’s bailout and the government involvement. New York Insurance Superintendent Eric Dinallo and Donald Kohn, vice-chairman of the Federal Reserve Board of Governors, were scheduled to testify.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net

Last Updated: March 1, 2009 14:45 EST