The offering represents a small fraction of the 1.6 billion shares the Treasury owns after it finalized a recapitalization plan with AIG in January.

The government is "sticking its toe in the water to see what is out there," says Cliff Gallant, an analyst with Keefe, Bruyette & Woods.

"Once they increase the float [of public shares] and shares are trading, we'll get a better understanding," he adds.

AIG says it will not pocket any of the proceeds of the sale of its stock by the Treasury, and $550 million will be put toward a July 2010 litigation settlement of a securities class-action lawsuit. Any balance after the sale will be used for "general corporate purposes," AIG says.

The Treasury authorized 45 million additional shares to be made available depending on demand.

Should the Treasury sell 245 million shares, it would represent about 15 percent of its stake in AIG. The Treasury holds a 92 percent stake in the insurer. After selling 200 million shares, the Treasury's stake would be reduced to about 77 percent, according to a filing with the U.S. Securities and Exchange Commission.

AIG stock reached a high during the first quarter of $62.87, says the SEC filing, but during the second quarter the sale price reached its lowest point since March 2010 when it hit $29.15 shortly after AIG reported an 85 percent drop in first-quarter net income on catastrophe losses and billion of dollars in charges related to paying back the federal debt loaned to it to prevent collapse in September 2008.

According to reports, the Treasury will break even on its investment with a share price of $28.73. Sources say the government is more concerned with getting out of the lending game than making a profit.

The company's outline of business operations in the filing reads like a sales pitch, as AIG attempts to convince investors it is worth a chance. AIG said its property and casualty unit, Chartis, has taken steps to better manage opportunities by reducing exposure in asbestos, excess casualty, excess workers' compensation, and specialty workers' compensation lines. It transferred much of its asbestos liability to a Berkshire Hathaway subsidiary last month.

The filing says Chartis strengthened reserves by $6.6 billion in these long-tail lines of business.

Reserves could still present a problem. The portfolio transfer with Berkshire does not include asbestos accounts that Chartis "believes have already been reserved." Additionally, Chartis could face liabilities from contingent business interruption claims related to the Tohoku, Japan earthquake. The filing says Chartis' estimated loss liabilities, including reserves, tied to the earthquake "are reasonable," but future development of these liabilities could differ from the amounts AIG included in its first quarter report.

About $1.3 billion of the $1.7 billion in catastrophe losses AIG posted during the first three months was attributed to the Japan quake.

More than two-thirds of Chartis' net written premiums in 2010 were from commercial specialty, personal, and accident and health lines – and half of these premiums are from outside the U.S. and Canada.

AIG says it reduced operating debt by $67 billion and financial debt by $44 billion since it was bailed out. The company continues to unwind risk in its Financial Products unit, AIG says.