New York Ins Dept says has to OK AIG insurance deals

NEW YORK (Reuters) - American International Group Inc (AIG.N), under pressure to raise funds to pay off a federal loan, will need regulatory approval before selling off any insurance units, the New York Insurance Department said.

In a statement on Thursday, the state regulator said it had hired boutique investment bank Centerview Partners to advise it on the terms of any potential AIG sales.

"It is critical to ensure policyholders' interests are protected during this process," said New York Insurance Superintendent Eric Dinallo.

AIG CEO Edward Liddy, who was named to the post as part of a federal bailout, has said he plans to quickly raise funds through asset sales, but hopes to hold on to as many of the insurance operations as he can.

The National Association of Insurance Commissioners, a national body of state insurance regulators, has named Dinallo chair of a group established to oversee AIG's insurance business while it is under a credit line from the U.S. Federal Reserve.

AIG last week agreed to a $85 billion federal bailout that will give the government 80 percent ownership, averting a possible collapse under mounting mortgage losses.

The deal carries heavy interest and fees, and must be repaid within a two-year term, leading some analysts to predict AIG will have to sell off some of its most valuable assets, including a highly-profitable aircraft leasing arm, and insurance units.

The company, established in Shanghai, China 89 years ago, sells a wide range of insurance policies across 130 countries and territories. It was until recently the most highly-valued global insurer, but its market value has shrunk as it recorded $18 billion in losses, mostly from bad mortgage bets, in the past three quarters.

(Reporting by Lilla Zuill; Editing by Bernard Orr)