The spun-off unit will be AIU Holdings and will include its commercial insurance, foreign general insurance and private client group units.

It will result in AIU Holdings' having a board of directors, management team and brand distinct from AIG, the company said.

AIG will make it an independent entity by transferring the company to a special purpose vehicle in preparation for the potential sale of a minority stake in the business, the company said.

"This ultimately may include a public offering of shares, depending on market conditions," said AIG.

Under the special purpose vehicle arrangement, AIG will contribute the equity of AIU Holdings into an SPV in exchange for preferred and common interests in the SPV.

AIG also said it intends to purchase from AIU Holdings its equity interests in International Lease Finance Corporation, United Guaranty Corporation and Transatlantic Holdings Inc.

"The sale of these interests to AIG further separates the property-casualty operations from AIG and its other affiliates," AIG officials said.

Moreover, they added, "the sales clarify the businesses of AIU Holdings, improve the quality of its capital and help position the company for continued success in the future."

In connection with the decision, a spokesman for the Federal Reserve Bank of New York said, "This action is an important next step in the company's efforts to place key business units in the best position to optimize their operations and maximize their value."

The statement added, "It is in the best interests of the American taxpayers, the company, and its customers and employees that these efforts succeed."

The decision was announced only hours after Treasury Secretary Timothy Geithner was grilled by the Congressional Oversight Committee on the Troubled Asset Relief Program.

Data revealed at the hearing disclosed that AIG had received more TARP cash than anyone else from the program, $70 billion. The rest of the aid to AIG came from other facilities, including purchase of troubled assets.

According to the data disclosed to the committee by Treasury, the second largest recipients were Citigroup and BankAmerica, who were given $52.5 billion through the TARP program's targeted investment program and guarantees.

In opening remarks at the hearing, Rep. Jeb Hensarling, R-Tex., a member of the oversight panel, had noted that "most people are unimpressed with the Treasury's management of AIG." He did not elaborate.