American Insurance Group, the largest US insurance company, is in discussions with the government to secure additional funds so it can keep operating, said CNBC on Monday.

AIG, which is 80-percent owned by the US government, will disclose a loss near US$60 billion next week, due to write downs on a variety of assets including commercial real estate.

That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.

Talks between the government and AIG are focused on how the company can swap some of the debt held by the government for equity in AIG.

AIG has borrowed roughly US$40 billion from a US$60 billion credit facility provided it by the Federal Reserve Bank of New York.