American International Group Inc Chief Executive Robert Benmosche and Chairman Harvey Golub, at odds over a botched sale of the company's Asian life unit, have agreed to work out their differences, a source familiar with the situation said on Thursday.

AIG's board overruled Benmosche in deciding against revising the terms, including cutting the price, of a $35.5 billion sale of the insurer's Asian life unit to Britain's Prudential Plc , sources have said.

That led to tensions within the boardroom, with media reports saying that Benmosche told the board at a meeting last week he wanted Golub to leave the company and would himself resign if that did not happen.

The issue for Benmosche was that if the board were making such decisions, what was he doing as chief executive, the source said, declining to be named because these talks are private.

The two sides had to work that through, and there is a conciliatory direction now, the source said, adding that everyone was dedicated to paying back taxpayers.

Benmosche and Golub now agree the insurer should work toward an initial public offering for the unit, American International Assurance (AIA), by the end of this year, said the Wall Street Journal, which first reported news of reconciliation.

Separately, the Journal also reported that AIG was reconsidering the sale of two Japanese life insurance units -- AIG Star Life Insurance Co and AIG Edison Life Insurance Co. It said a sale could fetch some $5 billion.

AIG declined to comment.

AIG was well on its way to an IPO for AIA when Prudential swooped in with its offer.

AIG has not seen another buyer emerge for AIA since the deal fell apart last month, making resurrecting an IPO the natural way to move forward, the source said.

AIG was counting on the AIA sale as a big step forward in its efforts to repay taxpayers, who have pledged $182.3 billion to support the insurer. AIG needs to repay about $101 billion and is nearly 80 percent owned by the U.S. government.

Benmosche favored the new terms in a deal with Prudential for AIA because, even at a lower price, it offered more liquidity, and sooner. But some AIG directors were unhappy with Benmosche's handling of the transaction, another source told Reuters earlier this month.

However, Benmosche's position -- he is the fourth CEO since June 2008 -- was seen as safe, with the board wanting him to remain, the source said at the time.

An important concern for the board was the difficulty of finding another person to take on the job, according to the source at the time.

AIG's shares were off 1.3 percent at $34.00 during afternoon trading on the New York Stock Exchange.

(Reporting by Paritosh Bansal; editing by Andre Grenon and Gerald E. McCormick)

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