NEW YORK--Last week marked a period of increased turmoil for American International Group Inc., as reports of its need for additional federal help created even more questions about the company's future condition and even its prospects for survival.

Concerns about AIG's future intensified after CNBC reported Monday that the company was set to announce a roughly $60 billion fourth-quarter loss today and would need to revise terms of its federal bailout to avoid potentially crippling ratings downgrades and a potential bankruptcy.

In the wake of that and other reports about ongoing talks to rework its bailout terms, AIG acknowledged that it may have to revisit its plan to repay its $60 billion federal loan by selling noncore units while retaining its property/casualty and other core operations.

New York-based AIG's plan to emerge a smaller, leaner company so far has proven unworkable because of financial markets' overall illiquidity, as well as the "fire sale" nature of the insurer's efforts to dispose of its operations, observers say.

So far, the asset sale appears to have netted AIG about $2 billion to $2.5 billion since it began last fall (see related story). And, to date, no announcement has been made on one of the more desirable units AIG had been expected to shed, airplane leasing unit International Lease Finance Corp. Some had expected that operation to fetch around $8 billion.

An AIG spokesman referred to the asset sale problems early last week, saying the company faces an "extremely difficult" market in which to sell assets. If AIG cannot get "full and fair market value for these great properties, then all options are on the table, and we'll rethink our sales strategy," he said.

Also looming over AIG last week was the prospect of a roughly $60 billion quarterly loss, which is expected to be driven by writedowns on a variety of assets, including commercial real estate.

Ratings at risk?

Observers say that in the absence of alternative arrangements, a loss of that size would lead to ratings downgrades and, in turn, billions of dollars in collateral calls to counterparties, raising the specter of bankruptcy.

"It appears that the most immediate concern would be the domino effect on rating agencies and regulators, and the requirement that if they have a writedown, it would cause posting additional collateral for their various sources of borrowing," said John L. Ward, chief executive officer of the Cincinnati-based Cincinnatus Financial Group.

Yet most agree that, because of AIG's size and the scope, the U.S. government will not allow it to fail.

The phase of events began in September, when AIG faced the prospect of collapse because of its disastrous involvement in the credit default swap market. AIG signed a definitive agreement with the Federal Reserve Bank for a two-year, $85 billion revolving credit facility in return for the government taking a 79.9% ownership of the insurer, the maximum stake it can have without consolidating AIG's financial results on its own balance sheet.

But the initial loan was not sufficient, and a new $37.8 billion credit agreement was announced in October, taking AIG's total available bailout funding to $122.8 billion. Then, in November, AIG and federal officials unveiled a new plan that included a revised $60 billion credit facility, the purchase of AIG preferred shares and warrants, and establishment of two special-purpose vehicles.

Reports of new rescue terms emerged over the course of last week. Initially, it was reported that the insurer was in discussions with the government to secure additional funds to keep it operating after it issued its earnings report.

The talks between AIG and the government reportedly were focused on how the company could swap some of the debt held by the government for equity in AIG, including perhaps having the government directly take over some AIG units.

Later in the week, reports said that AIG and the federal government were in advanced discussions over a radical restructuring that would split the insurer into at least three government-controlled divisions.

Under that plan, the government reportedly would swap its 79.9% holding for large stakes in AIG's Asian operations, its international life insurance business and the U.S. personal lines business.

In return, the government would relax the terms or even cancel the $60 billion loan and convert its $40 billion worth of preferred shares into common stock. Doing so would eliminate AIG's need to pay dividends on the preferred stock.

Subsequently, Bloomberg reported last week that with the insurer grappling with a loss of clients and staff, the government may take over even AIG's commercial property/ casualty operations.

The AIG spokesman strongly denied the Bloomberg report.

"I can assure you that the P/C company is staying part of AIG. It's the crown jewel of this company," he said. He said he had no comment on "speculative press reports" about changes in the terms of its arrangement with the federal government.

The issue of retaining good people in light of the "continued ambiguity regarding the future of AIG" is "what keeps me awake at night," said John Wicher of John Wicher & Associates Inc. in San Francisco.

Also under consideration is a plan for AIG to get a backstop from the federal government to protect against further losses on credit-default swaps, according to reports. Financing some buyers of AIG units also was among the options reported.

Mr. Wicher said neither time nor market conditions have been on AIG's side since its bailout.

"No one really knows what the valuation associated with many of the problem assets is, and the important thing for AIG, I think, was to have time to organize and identify those assets which were not a strategic priority and to sell those to create cash to repay the government," he said.

Meanwhile, "market conditions are horrible," Mr. Wicher said. "The general economic uncertainties and the specific economics of the insurance industry right now...have made even the most forward-leaning buyers stand back." While some relatively small deals are being made, those requiring going to the capital markets are "getting a lot harder to do."

Cliff Gallant, an analyst with Keefe, Bruyette & Woods Inc. in New York, said, "Everyone in the world is in a distressed position right now, and getting fair value for an insurance company" is difficult.

AIG's stock closed at 42 cents on Friday, down 19.23%.