UPDATE 1-AIG must reorganize management and board-analyst

(Adds Morgan Stanley note, background, stock activity)

NEW YORK, June 12 (Reuters) - American International Group (AIG.N), the insurer battered by large losses from investments tied to subprime mortgages, needs to reorganize its management and board, Standard & Poor's analyst Catherine Seifert said in a note on Thursday.

Seifert said AIG needed to take this step to regain its competitive strength. She also said AIG, the world's largest insurer, needed to provide greater clarity to investors about its risky mortgage bets.

On Wednesday, a group of investors holding about 4 percent of AIG's outstanding shares sent a letter to the board, saying it should form a committee to search for new management.

To date, AIG's board has expressed support for management, including Chief Executive Martin Sullivan.

Some have taken a brighter view of AIG's circumstances. Morgan Stanley said on Thursday that it had added AIG to its U.S. Portfolio strategy.

"We believe recent price weakness is overdone for AIG," Morgan Stanley said in the note. "Despite recent market volatility, AIG remains a leading competitor in global insurance coverage and maintains strong advantages over its competitors."

AIG has said it expected, as credit markets ease, to see some of its $20 billion in mortgage-investment write-downs over the past two quarters result in gains.

"We believe there is the potential that a large portion of its unrealized losses will be reversed in the near future," Morgan Stanley's note said.

AIG shares, which have more than halved in value over the past year, were 2.2 percent higher at $34 in morning New York Stock Exchange trade. (Reporting by Lilla Zuill; Editing by Gerald E. McCormick and Lisa Von Ahn)