As of December 31, 2009, the outstanding balance of the assistance provided to AIG was $129.1 billion, about $8.4 billion more than the balance on September 2, 2009.

The report said the GAO believes that several indicators on the status of AIG's insurance companies illustrate that AIG's insurance operations are showing signs of recovery, but "federal assistance has been a critical factor," citing the decision by the Federal Reserve Board and the Treasury to swap cash provided to AIG in the form of debt to equity.

Moreover, the new report links the ability of AIG to fully repay the government to the health of the economy.

"The government's ability to fully recoup the federal assistance will be determined by the long-term health of AIG, the company's success in selling businesses as it restructures, and other market factors such as the performance of the insurance sectors and the credit derivatives markets that are beyond the control of AIG or the government," the report said.

GAO noted that AIG's troubled Financial Products unit, which brought it to the brink of bankruptcy, has continued to unwind its credit default swap positions.

AIGFP also has shown progress in unwinding its super senior credit default swap portfolio but has made less progress in reducing the remaining multi-sector collateralized debt obligations (securities backed by a pool of bonds, loans, or other assets) portfolio, the report said.

The GAO found that for the first time since the second quarter of 2008, additions to AIG life and retirement policyholder contract deposits have exceeded withdrawals.

AIG's property/casualty companies "also have shown some improvements," the company said.

"AIG is continuing to repay its debt to the federal government, but much of the progress reflects the numerous exchanges of debt that AIG owed the Federal Reserve Bank of New York Revolving Credit Facility (facility) with various issues of preferred equity," the GAO said.

As a result of this shift from debt to equity, which has occurred gradually, the authorized amount of the facility has decreased and the amount of preferred equity interests held in AIG and various special purpose vehicles for the government has increased, the report said.