Global insurer AIG is to be broken up into smaller business units, with the profitable Australian operation to become part of a holding company made up of all the company's general insurance businesses. It will also be rebranded, with the AIG name being discarded.

The break-up announced last night in New York is part of a stability plan that includes a $US30 billion ($47.6 billion) aid package from the US Government.

The troubled company has reported a record $US61.7 billion ($98 billion) loss for the last quarter, bringing its losses for 2008 to $US99.29 billion ($157.8 billion).

Under the new plan AIG will form a general insurance holding company, AIU Holdings Inc, that will include its commercial insurance group, foreign general unit and other property and casualty operations, including the Australian and New Zealand operations. AIU Holdings will have a separate board and management team and will not be called AIG.

The local life insurance business is understood to be part of a package of Asian life insurance businesses that will be sold off.

AIG Australia CEO Chris Townsend says the creation of AIU Holdings is "a powerful step forward".

In a letter to brokers this morning he said the move "provides our business with stability and a definitive long-term direction. It is a positive move towards protecting and enhancing the value of the key businesses that now comprise AIU Holdings, and positions them for the future as more independently run, transparent companies.

"As part of AIU Holdings, AIG Australia will be part of a well-capitalised business that won't be reliant on AIG's agreement with the US Government to support its financial strength. AIU Holdings will also have its own board of directors, management team, and a separate brand, distinct from that of AIG."

Mr Townsend says the ultimate success of the restructuring plan centres on ensuring the businesses that make up AIG can thrive on their own and build businesses "worthy of investor, customer and regulatory confidence".

"Simply put, these measures mean that our policyholders and other stakeholders can have continued confidence in AIG Australia's ability to support their interests. Policyholders are protected, and their policies are safe."

Described by business commentators Forbes as "too big to fail, too complicated to succeed", AIG has survived only because of capital injections from the US Government that now total $US180 billion ($284.7 billion) and give the Government 79.9% of the company. The new package cuts the interest and dividend payments that AIG must make to the Government and will enable it to maintain its credit rating.

The Government will take up to a $US26 billion ($41.3 billion) preferred interest in two AIG life insurance subsidiaries - American Life Insurance Co and American International Assurance Co - as well as lend $US8.5 billion ($13.5 billion) to the company's US life insurance subsidiaries.

Chairman and CEO Edward Liddy told journalists in New York overnight that AIG's conglomerate structure "is simply too complicated, unwieldy and opaque for its component businesses to be well-managed as a single mammoth corporation".

Mr Townsend says AIU Holdings will have more than 44,000 employees and 500 products and services, serving 40 million commercial and individual customers in 130 countries and jurisdictions. The companies comprising AIU Holdings posted $US45 billion ($71.1 billion) in premium last year.

AIG's general insurance business in Australia is at present conducted by a branch of American Home Assurance Company, trading under the name of AIG Australia.

No timeline for the transformation and rebrand has yet been announced.