The U.S. government may take a step beyond bailing out some of the country's companies to actually owning one: an insurer.

American International Group

(AIG) - Get Report

is reportedly in advanced discussions to split into as many as four government-controlled companies.

AIG, struggling to find interested buyers and sinking under the burden of losses and interest and fees owed to the government for the bailout,

cannot survive

as is.

The insurer could move ahead with a takeover of

Citigroup

(C) - Get Report

to become the first business owned by the U.S. government that acts like a corporate raider.

The government already has a 79% ownership in AIG through $40 billion in preferred stock given in exchange for the massive

bailout restructuring

in November.

AIG was originally scheduled to report fourth-quarter earnings Monday. The company, which may delay the report, might say it will convert preferred shares into new common stock as part of a buyout deal. The benefit of a stock swap would be that, rather than attempting to force a sale, a piecemeal divestment over a longer period would garner higher prices. Thus, taxpayers would recover all -- or at least more -- of their investment.

The company received $35.2 billion in net property and casualty premiums in 2007, 7.8% of the market. That included $3 billion in private auto premiums and $6.2 billion for workers compensation. The life and health business got $51.3 billion in net premiums, 8.3% of the industry total. Annuities of $19.4 billion and life premiums of $27.8 billion were part of that sum.

Common stock holders would also hope that any plan agreed with the government would include the forgiveness of debt. AIG has a $60 billion loan facility, with $39 billion undrawn in November, costing up to $6.6 million a day in interest and fees. The relief from converting the preferred stock into common shares would be $4 billion, or $11 million a day.

AIG hasn't disclosed which units the government may consider buying. A spokesman declined to comment.

AIG insurance companies that offer life and health, and property and casualty, insurance in the U.S. had a capital value of $69.4 billion at the end of the third quarter. Even assuming significant additional losses in the fourth quarter, the insurers should still have a value of at least $55 billion.

A sticking point could be that AIG customers might not want the government as their insurer. Lines such as auto insurance, being renewable, would be exposed to potentially large numbers of policyholders fleeing to other insurance firms.

General Motors

(GM) - Get Report

would face the same problem if it were forced to enter into Chapter 11 bankruptcy.

Gavin Magor joined TheStreet.com Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.