US insurer AIG is in a “relatively stable” condition due in part to improving property and casualty operations, according to a report by the US Government Accountability Office (GAO).

A GAO report released last week reveals AIG remains indebted to the US Government for $US129.1 billion ($138.9 billion) as at December 31, $US8.4 billion ($9 billion) more than the outstanding balance on September 2.

The GAO is the investigative arm of the US Congress charged with examining matters relating to the receipt and payment of public funds.

It has noted that the AIG financial products unit continues to wind down its credit default exposure, after the investment strategy nearly forced the collapse of AIG in 2008.

“For the first time since the second quarter of 2008, additions to AIG life and retirement policyholder contract deposits have exceeded withdrawals,” the report said.

“AIG’s property and casualty companies have also shown some improvements.”

As AIG debt repayment has been converted into preferred equity, GAO says the US Government’s exposure to AIG “is increasingly tied to the future health of AIG, its restructuring efforts, and its ongoing performance”.

“However, the sustainability of any positive trends in AIG’s operations depends on how well it manages its business in this current economic environment.”