American International Group Inc has decided not to use securitized U.S. life insurance policies to repay the U.S. government after a $182.3 billion rescue, a source familiar with the matter said on Friday.

AIG, which is nearly 80 percent owned by the U.S. government, had planned to give the Federal Reserve Bank of New York securitization notes of up to $8.5 billion representing embedded value of certain of its U.S. life insurance businesses to pay down its loan.

AIG now expects to repay the loan through other means, such as with cash generated by its insurance businesses and asset sales, according to The Wall Street Journal, which first reported the news.

AIG still has about $25 billion outstanding under its Fed credit facility.

The company reported an $8.87 billion loss on Friday.

Chief Executive Robert Benmosche has said he envisions a smaller AIG in the future, with global property-casualty and U.S. life and annuity operations at its core.

AIG is in talks to sell its American Life Insurance Co unit to MetLife Inc , but that deal has been delayed over a tax matter.

It is also moving ahead with a massive initial public offering of American International Assurance, its Asian life insurance business.

AIG declined to comment.

(Reporting by Paritosh Bansal in New York and Sakthi Prasad in Bangalore; Editing by Muralikumar Anantharaman and Robert MacMillan)

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