AIG said it would accelerate plans to separate its Asian subsidiary through an initial public offering as the bailed-out U.S. insurer seeks to raise cash and list the unit as soon as possible.

The offering could raise at least $4 billion based on targets set by AIG executives, making it one of the largest Hong Kong IPOs to hit the market in the last two years.

The IPO would allow AIG to raise money to pay back the U.S. government and allow the profitable Asia life insurance subsidiary, American International Assurance Co Ltd (AIA), to break from its ailing parent.

AIG said it has asked for requests for proposal to select global coordinators and bookrunners for the IPO, confirming a Reuters report last Thursday that the company was about to start the process.

The lead manager of the IPO will be The Blackstone Group , AIG's global financial adviser for its restructuring.

Hong Kong-based AIA has more than $60 billion of assets under management. During 2008, AIA said it recruited more than 52,000 agents, bumping its representation up to about 250,000 agents, and it has about 20,000 employees across 13 Asian markets.

It's known as AIG's Asia crown jewel, providing coverage to about 20 million customers, or close to a third of AIG's total customer base.

Still, analysts say that even with bright prospects, the IPO faces plenty of obstacles. AIG itself said the offering depends on market conditions and regulatory approvals.

We need to remember that AIA will be up against the China growth story. Anybody who wants exposure to the insurance sector has the choice of buying China Life (Insurance Co Ltd <601628.SS>) and Ping An (Insurance (Group) Co of China Ltd <601318.SS>), said Patrick Yiu, associate director with CASH Asset Management.

So, unless the terms of the IPO are very attractive, it may not be a huge success.

AIG said it would seek a listing on an Asian stock exchange for AIA, though it did not specify which one. CEO Edward Liddy has told Reuters the company is leaning toward a Hong Kong IPO in the first half of 2010.

The spin off would result in a separate board of directors and management team for AIA and AIG.

Today's announcement represents a clear and formal roadmap for our independence, Mark Wilson, President and CEO of AIA Group, said in a statement late on Sunday.

AIG first tried to sell AIA in a private transaction for up to $20 billion last year, but failed to find a buyer willing to pay a high enough price.

AIG previously suggested it could initially sell up to 20 percent of AIA's market value in an IPO. On that basis, the size of AIA's public listing could raise more than $4 billion.

Markets are very sensitive right now, especially with U.S. corporations. Although AIG's Asian business (has) almost nothing to do with the U.S., its tradition is with AIG, said Alfred Chang, chief dealer with Cheer Pearl Investment Ltd.

I think in general, though, because liquidity is still good in Asia, this IPO will be successful.

AIG was founded in 1919 in China, and was the first foreign insurer given the green light to reestablish itself there when the Communist government began to reopen the borders to outside business.

(Additional reporting by Jessica Hall in PHILADELPHIA and Parvathy Ullatil in HONG KONG)

(Editing by Ian Geoghegan)

China Investment Aig Launch