Giant insurer AIG is facing the subprime blowtorch as it deals with a shareholder lawsuit, the possibility of further writedowns and the disaffection of influential former CEO Maurice “Hank” Greenberg.

A suit filed in Manhattan alleges the insurer’s management concealed the true extent of its exposure to the subprime market and calls for an overhaul of the company’s corporate governance.

Earlier this month, AIG reported a 27% drop in third-quarter income and a 13% fall in profits, largely caused by its exposure to the subprime market, which resulted in losses of about $US1.4 billion ($1.6 billion).

And AIG is also facing calls for executive renewal from Mr Greenberg, whose company CV Starr has filed for change with the US Securities and Exchange Commission.

AIG’s share price dipped to $US50.86 ($57.72) last Wednesday, its lowest level since April 2005, but has since recovered to over $US53 ($60).

If the derivative lawsuit is successful, funds would be returned to the corporate entity, rather than shareholders.