New York insurance regulator in talks with AIG

NEW YORK (Reuters) - Officials from the New York Insurance Department and executives of American International Group Inc (AIG.N) were in talks on Sunday to find a way for the embattled insurer to boost capital and protect policyholders.

Insurance department officials including Superintendent Eric Dinallo have been meeting at AIG's New York offices for the past two days working with AIG and other parties.

"We are working to craft a solution to protect the company and policyholders," said a person from the New York Insurance Department, who asked not to be named.

AIG, which has been hit by $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor's putting the company's credit ratings on negative watch, indicating a possible downgrade. Ratings downgrades could force it to post up to $14.5 billion more in collateral.

The insurer is pursuing a three-part plan, including asset sales, shifting regulated capital from the insurance operations to the holding company, and thirdly, working with private equity investors, said a person familiar with developments.

Another person familiar with the negotiations said parties in discussions with AIG over raising capital included buyout firms Kohlberg Kravis Roberts & Co KKR.UL and J.C. Flowers & Co.

It was not clear when AIG would emerge with details of its plan.

An AIG spokesman confirmed the company was evaluating a wide range of options, including asset sales.

He did not confirm earlier media reports that one of the company's on the sales block was AIG's highly-profitable aircraft leasing arm.

AIG in late June said that unit, International Lease Finance Corp, would remain part of the insurer's stable of businesses.

(Editing by Ted Kerr)