June 15 (Bloomberg) -- American International Group Inc.'s board is meeting today and may accept the resignation of Chief Executive Officer Martin Sullivan, the Wall Street Journal reported, citing an unidentified person familiar with the situation.

Sullivan's resignation is ``highly likely'' to happen, the newspaper said, citing the person.

AIG may replace Sullivan after turmoil in housing and credit markets caused the worst loss in the company's 89-year history. The company, ranked No. 1 by assets among insurers, has lost more than a third of its market value since Sullivan took the top job following the ouster of Maurice ``Hank'' Greenberg in 2005.

Sullivan, 53, would join former CEOs including Citigroup Inc.'s Charles ``Chuck'' Prince and Merrill Lynch & Co.'s Stan O'Neal who lost their jobs in the collapse of the U.S. subprime mortgage market. AIG posted a $5.29 billion fourth-quarter loss, two months after Sullivan reassured investors that any drop in the value of its holdings would be ``manageable.''

AIG rose 50 cents, or 1.5 percent, to $34.18 in New York Stock Exchange composite trading on June 13. The company has dropped 41 percent this year and 52 percent in the past 12 months.

Calls to AIG spokesmen Nick Ashooh and Chris Winans weren't returned, and a call to Sullivan wasn't answered.

Credit-Default Swaps

While AIG earned a record $14 billion in 2006, the first full year under Sullivan, profit dropped 56 percent last year as the U.S. housing market fell deeper into its slump, the worst in a quarter-century.

AIG's financial products unit issues contracts called credit-default swaps that promise to reimburse investors for losses on securities that included subprime assets. The business started issuing swaps a decade ago.

Those guarantees declined in value by $4.88 billion in October and November, four times a previous estimate, AIG said Feb. 11. Auditors said the company's accounting for the swaps was faulty. AIG also had $3.27 billion in losses before taxes on impaired holdings in its investment portfolio.

AIG tumbled 12 percent that day on the Big Board, the stock's biggest drop since the market crash of Oct. 19, 1987.

Start in London

New York Insurance Superintendent Eric Dinallo, the state's top insurance regulator, is reviewing AIG for understating losses from credit-default swaps, his spokesman David Neustadt said last week. The U.S. Securities and Exchange Commission and the Justice Department are also examining the matter.

Sullivan, who started at AIG as a 17-year-old clerk in the insurer's London office, succeeded Greenberg in March 2005. Two months later, then-New York Attorney General Eliot Spitzer sued AIG and Greenberg, accusing him of ordering improper transactions to hide losses and inflate reserves.

Greenberg denies any wrongdoing in the case, which is still pending. Spitzer dropped portions of the lawsuit in 2006 that included four other allegations tied to the investigation.

Sullivan steered the insurer through a $1.64 billion settlement of probes by federal regulators and Spitzer, as well as restatements of 2000 to 2005 results that cut profit by $3.4 billion. Greenberg has said the restatements weren't necessary.

If Sullivan is fired without ``cause,'' he is entitled to $35 million in pay and benefits, AIG said in an April 4 filing. If he's fired ``for cause,'' Sullivan may get nothing, AIG said.

To contact the reporter on this story: Dan Hart in Washington at dahart@bloomberg.net.

Last Updated: June 15, 2008 15:27 EDT