AIG modifies payback plan to New York Fed - report

(Reuters) - American International Group Inc (AIG.N) has decided not to use cash flows from life insurance policies to repay $8.5 billion (5.6 billion pound) loan to Federal Reserve Bank of New York, the Wall Street Journal said, citing people familiar with the matter.

AIG now expects to repay the loan through other means, such as with cash generated by its insurance businesses and asset sales, the people told the paper.

AIG had earlier created $8.5 billion in securities backed by cash flows from policies underwritten by some of AIG's U.S. life insurance units in order to repay the loan, according to the paper.

The decision not to use cash flows from life insurance policies comes as the bailed out U.S. insurer prepares to report fourth-quarter results on Friday, the paper said.

The latest decision follows a market recovery over the past year that could improve the government-controlled insurer's chances of repaying its debts to U.S. taxpayers, according to the paper.

AIG could not be immediately reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Sakthi Prasad in Bangalore; Editing by Muralikumar Anantharaman)