AIG, the giant insurer bailed out by U.S. taxpayers, said on Thursday two top managers in Paris have resigned but will remain in place to oversee an orderly transition, reducing the risk of default on derivatives contracts.

American International Group Inc said it was in talks with regulators about the resignations from the division responsible for the company's financial woes.

The Wall Street Journal on Thursday reported that the resignations could put billions of dollars in derivatives contracts at risk of default.

AIG said that given the commitment of the two executives to oversee an orderly transition, we believe that the status of the Banque AIG derivatives book will remain unchanged and in good standing.

It said it was in ongoing discussions with French and UK regulators, as well as with the Federal Reserve Bank of New York and the U.S. Treasury Department, about this matter.

The resignations were tendered last Friday by executives of Banque AIG, a Paris-based division of AIG's financial products unit. Mauro Gabriele, president and chief executive of Banque AIG, and Jim Shephard, deputy CEO, resigned because of shared concerns regarding their ability to conduct business in the current hostile environment, AIG said.

Employees of the financial products division have been vilified following news that they received $165 million in retention bonuses on March 15.

The payments are contentious because AIG is being supported by billions of dollars in taxpayer money after losses in the financial products division. The division is based in Wilton, Connecticut, and has a large office in London, including a branch of Banque AIG.

U.S. lawmakers have decried the bonus payments and proposed legislation to heavily tax them. Attorneys general in a number of states have demanded the payments be returned.

AIG Chief Executive Edward Liddy told Congress last week that current employees had little or no involvement in the investments that left AIG deeply in the red.

The company has said many executives in the Connecticut headquarters will return their bonus payments. On Thursday, it said a number of European executives of the financial products division were also returning their bonuses.

AIG, once the world's largest insurer, received $85 billion from the government last September after the financial products division suffered more than $30 billion in losses on guarantees of debt linked to U.S. subprime mortgages.

Financial support from the Federal Reserve Bank of New York and U.S. Treasury has since grown to as much as $180 billion.

Retention bonuses were agreed more than a year ago on the condition that employees would remain long enough to wind down their parts of the business.

Liddy has said AIG needed to pay to retain employees or risk the collapse of the financial products division, a potential catastrophe since the division has yet to unwind $1.6 trillion in derivatives trades.

(Reporting by Lilla Zuill; editing by John Wallace)

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