A top American International Group official said the company made a “tragic” but necessary move last week in creating a corporate entity housing AIG’s healthy property-casualty operations separately from the parent firm’s “damaged brand.”

Last Monday, AIG announced the latest moves being taken to avoid bankruptcy–highlighted by the commitment of an additional $30 billion in federal bailout funds.

However, one major restructuring move received less attention, in which AIG formed a “general insurance holding company”–AIU Holdings Inc.–to include its Commercial Insurance Group, Foreign General unit and other p-c operations.

“It is tragic, but we think it’s best if we distance ourselves from the damaged brand of our parent,” said John Doyle, president and chief executive officer of AIG Commercial Insurance.

The launch of AIU Holdings is “the first step to create a new business separate from our parent company,” Mr. Doyle added during a Friday luncheon address in New York City before the Conference of Special Risk Underwriters.

“This will enable us to better distinguish ourselves from our AIG parent,” said Mr. Doyle, who is also executive vice president of the AIG Property Casualty Group, as well as a senior vice president of AIG.

He noted that AIU Holdings, encompassing 16 insurance entities, will have its own board of directors, management team and brand identity distinct from AIG–which initially will own 100 percent of the holding company.

Sometime next year, however, AIU hopes to diversify its ownership and raise capital by selling off a minority stake in the business–”probably 20 percent” of the new company, noted Mr. Doyle–perhaps via an initial public offering, depending on market conditions.

“In spite of our best efforts to separate ourselves from the problems of our parent and get the message out that our insurance company assets are separate and secure, we did conclude that we needed to create more distinction between us,” according to Mr. Doyle. “That way, market noise or negative news about AIG does not affect our insurance business.”

He said AIU Holdings would likely issue its own financial statements and hold separate calls with the analyst community to further establish the new company as independent from AIG.

Mr. Doyle said the restructuring was also critical “to provide direct access to the debt and equity markets, as well as offer stock to attract and retain key people, since we’ve long had an ownership culture here.”

He told CSRU that “AIG’s brand damage has caused some problems for our insurance operations,” but added that “our strong balance sheet and superior products and people have kept us in the game.”

He emphasized that AIG’s insurance entities remain profitable, well-capitalized and separated by regulatory firewalls from their troubled corporate parent.

However, the reputational risk of being closely associated with AIG as it struggles to repay federal loans and overcome the financial problems caused by its Financial Products unit–which traded credit default swaps based on subprime mortgage-backed securities–prompted the firm to reorganize and re-brand its p-c facilities, Mr. Doyle explained.

“At the end of the day, we can’t satisfy or solve AIG’s [non-insurance] problems,” he said. “They know that, and we know that.”