AIG chief seen honing sprawling operations

By Lilla Zuill - Analysis

NEW YORK (Reuters) - When former Citigroup executive Robert Willumstad lays out his turnaround plan for insurer American International Group (AIG.N: Quote, Profile, Research, Stock Buzz) in September, it will likely include plans to shed some of the sprawling group's non-insurance entities.

Willumstad, who was tapped late on Sunday to take over the helm at the world's largest insurer, has vowed to undertake a thorough review of its worldwide operations and indicated that he could shed people and units as part of his plan to turn around the company.

Willumstad is no stranger to the company, having been chairman for two years.

"We expect the company to de-lever its balance sheet through asset sales, with a focus on preserving and strengthening its core insurance franchise," said Standard & Poor's analyst Catherine Seifert, in a research note.

AIG Financial Products, a unit which took risky mortgage bets resulting in large losses, is the division most likely to be cut, said Bill Fitzpatrick, a financial stock analyst at Optique Capital in Racine, Wisconsin, which owns about 400,000 AIG shares.

"The P&C (property-casualty insurance) business will probably remain intact, and the same thing for life insurance," said Fitzpatrick.

Willumstad told investors on a Monday conference call that he sees AIG's insurance business as its "core franchise and the core skill set" of the group, which may hearten those who have recently grown concerned that AIG's insurance operations could be losing their edge.

AIG, which has been in the insurance business for 89 years, posted lower than expected operating earnings for the last quarter, rattling investors already spooked by large losses from risky subprime investments.