AIG officials are reportedly seeking an emergency bridge loan of $40 billion from the Federal Reserve Board in order to avoid a devastating ratings downgrade that could trigger a potential insolvency.

Over the weekend, the insurer has been working on a three-part plan involving asset sales, shifting regulated capital from insurance operations to the holding company, and working with private equity investors, said a person familiar with the negotiations.

AIG’s board is considering the carrier’s options after additional weekend meetings with New York insurance department officials to find a way for the carrier to avoid a downgrade and survive the subprime-generated financial market tsunami that has already forced Lehman Brothers to seek bankruptcy protection this morning.

The discussions followed Friday’s announcement by S&P that because of the increasing likelihood that credit swaps involving AIG would force the carrier to pay counterparties, it wanted AIG to increase its capital.

S&P cited the $18 billion in losses over the past three quarters from credit swaps AIG wrote to insure mortgage-backed securities that included subprime loans, which have been deteriorating in value.

AIG reported $13.2 billion in losses in the first six months of 2008, largely owing to declining values in mortgage-related securities held in its investment portfolio and collateralized debt obligations it owns.

Ratings downgrades could force AIG to post up to $14.5 billion more in collateral, according to a regulatory filing last month.

Cuts in ratings could also be severely detrimental to AIG’s commercial insurance business, since some policies carry clauses that nullify a contract in the event of downgrades below a certain level.

As of the most recent quarter, AIG had $20 billion of subprime mortgages marked at 69 cents on the dollar, and $24 billion in Alt-A securities valued at 67 cents on the dollar.

AIG–until recently the world’s biggest insurer by market capitalization–has been attempting to hammer out an emergency strategic plan after its shares fell nearly 50 percent last week on fears it faced a liquidity crisis.

AIG stock opened at $5.08 per share, down 41 percent from its stock price Friday.