American insurance giant American International Group announced Thursday it has reached a deal with the U.S. government to repay the billions of dollars it received in a government bailout during the credit crisis.

"This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers," CEO Robert Benmosche said in a statement.


U.S. taxpayers could make a profit on their bailout of AIG. ((Stephen Chernin/Associated Press))

"We are very pleased that this agreement vastly simplifies current government support of AIG."

The plan could return a profit to taxpayers who rescued New York-based AIG from near collapse in September 2008.

The new deal provides for the government to get about 1.66 billion shares of AIG common stock in exchange for the $49.1 billion in preferred shares it holds in AIG.

The conversion price of the government's shares is equal to about $29.67 a share.

With AIG shares trading slightly below $40, it's conceivable — if the government were able to sell its huge stake in shares over a period long enough that didn't affect the price — that Washington could make a $16.25 billion profit.

Until this point, AIG was primarily repaying the government as it took in money from asset sales, but there was no timeline for repayment.

AIG received as much as $180 billion US, the largest bailout the government doled out to financial institutions.

In return, Washington took an 80 per cent stake in the company.

The government stepped in to rescue AIG because the insurer worked with hundreds of financial institutions throughout the world and Washington believed that a collapse of AIG would further hurt already fragile credit markets.

With files from The Associated Press