By Lilla Zuill

NEW YORK (Reuters) - American International Group (AIG.N: Quote, Profile, Research) Chief Executive Martin Sullivan on Sunday bowed to investor demands, stepping down in the face of increasing calls for his departure, as losses from risky subprime mortgage investments mounted.

AIG installed Robert Willumstad, a former Citigroup Inc executive, to replace Sullivan.

Sullivan's departure, after only three years on the job, comes after AIG in February and May posted two consecutive quarters of record losses, stemming from about $20 billion (10.2 billion pounds) in write-downs in the market value of assets linked to subprime mortgages, tarnishing Sullivan's reputation.

The U.S. Securities and Exchange Commission is investigating whether the insurer overstated the value of these investment contracts, held by a financial products unit.

In stepping down, Sullivan joins a growing list of Wall Street executives, including Citigroup's (C.N: Quote, Profile, Research) Charles Prince, and Merrill Lynch & Co's MER.N Stan O'Neil, who have lost their jobs as risky subprime investments took a toll on each corporation's bottom line.

For Sullivan, it is a fairly abrupt turn of events -- in his first year as CEO he won widespread investor support by bringing AIG through a rough regulatory probe.

He continued to build on that with AIG, the world's largest insurer, posting record adjusted net income for 2006 and early 2007. But he fell out of favour with investors in recent months, as unrealized losses from the mortgage investments mounted.

The large losses, and a precipitous drop in AIG's share price, led several large shareholders to push for Sullivan's ouster.