The board of the government-controlled US insurance giant has reportedly approved the sale of its Asian life insurance business to Prudential, scrapping a planned $10-20bn partial listing of the unit.
The deal, if finalised, will be the largest asset sale for AIG. The British firm will pay about $25bn in cash, with the balance in equity, which could be preferred stocks, options or warrants.
Prudential is expected to raise £15bn through a rights issue, backstopped by investment banks Credit Suisse, JPMorgan and HSBC Holdings.
Prudential's chief executive Tidjane Thiam personally made the offer to the AIG board in New York, although both parties declined to comment on the deal.
The agreement would require US government approval. AIG is nearly 80 per cent owned by the federal government after a $182bn rescue package in 2008.
The cash-and-shares deal for AIG's American International Assurance (AIA) would help the US government recoup the billions it spent on its bailout, and take the British insurer to the top position in Asian market. The UK insurer already has 11 million customers in Asia, spread across 13 markets in the region.
Buying AIA would offer 20 million new customers to Prudential and give it a dominant position in Asia, which is a region seen as a key growth driver for the business.