May 20 (Bloomberg) -- American International Group Inc. will raise a total of $20 billion, 60 percent more than the New York- based insurer originally said it needed to protect against further writedowns, Chief Executive Officer Martin Sullivan said.

AIG, the world's largest insurer by assets, fell to the lowest since 1998 in New York trading. The company raised at least $13 billion through last week selling stock and units that can convert into shares, Sullivan told investors and analysts at a conference in London today. A sale of hybrid bonds is underway.

The insurer said May 9 its capital cushion became ``too low for comfort'' after it wrote down holdings to reflect their reduced market value, contributing to a record $7.81 billion first-quarter loss. Banks and securities firms have raised or announced plans to seek more than $260 billion since July to replenish capital depleted by the collapse of the U.S. subprime market, according to Bloomberg data.

Raising more capital ``begs the question, do they not believe the mark-to-market adjustments they took will recover any time soon?'' said Joyce Sharaf, an analyst at A.M. Best Co. in Oldwick, New Jersey.

AIG fell 83 cents, or 2.1 percent, to $38.12 at 4:01 p.m. in New York Stock Exchange composite trading. The insurer is the worst performer in the Dow Jones Industrial Average this year.

AIG sold $6.5 billion of common stock at $38 a share, $5.4 billion in equity units and about $1.5 billion in over allotments of both securities, spokesman Chris Winans said in an e-mail statement. The hybrid sale is expected to be completed by the end of this week. ``Demand was certainly stronger than we expected,'' Winans said.

`Continued Volatility'

The new capital ``enables us to take advantage of a lot of the attractive emerging markets we're in, as well as obviously be well-positioned for any continued volatility in the credit markets,'' Sullivan said.

AIG has units that originate, insure and invest in home loans. The insurer wrote down its investment portfolio in the first quarter by $6.09 billion as borrower defaults forced down the value of mortgage-backed securities.

Returns from private equity and hedge funds declined 84 percent from a year earlier to $197 million because of gridlock in the credit markets. AIG had $29.4 billion in so-called alternative holdings as of March 31, about 3.5 percent of its investment portfolio. The assets back AIG insurance policies.

Board Support

Sullivan, who has said some writedowns will reverse, has the support of the board of directors, Chairman Robert Willumstad told reporters last week after the company's annual meeting. Investors including former CEO Maurice ``Hank'' Greenberg have faulted Sullivan, 53, after more than $19 billion of losses on contracts that protect fixed-income investors.

Sullivan repeatedly acknowledged shareholders' unhappiness at last week's meeting, saying that he shared their disappointment in the stock price.

The insurer raised its quarterly dividend 10 percent to 22 cents a share after posting the first-quarter loss, saying the increase reflects the strength of the company's main insurance businesses.

AIG, which bought 76.4 million shares in 2007 and 12.2 million more through Feb. 15, said Feb. 28 it plans to halt repurchases after meeting commitments from last year.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net.

Last Updated: May 20, 2008 16:29 EDT