NEW YORK (Reuters) - The world’s biggest insurer, American International Group Inc, replaced CEO Martin Sullivan on Sunday after it suffered two quarters of record losses from risky mortgage bets and its share price more than halved over the past year.

AIG Chief Executive Martin Sullivan listens to speeches during a photocall to announce Manchester United's new shirt sponsorship deal with US insurance and finance company, American International Group (AIG), at the Old Trafford Stadium in Manchester, northern England, April 6, 2006. REUTERS/Phil Noble

Sullivan is the latest Wall Street chief -- including former Citigroup Inc Chief Executive Charles Prince and Merrill Lynch & Co’s Stan O’Neill -- who have left their jobs amid large losses stemming from the collapse of the U.S. subprime mortgage market, which triggered a global credit crunch.

AIG named veteran former Citigroup banker Robert Willumstad, who was already AIG chairman, as its new CEO, effective immediately.

Willumstad told Reuters that he plans to craft a turnaround plan for AIG by early September.

Several large AIG shareholders had pushed in recent weeks for Sullivan’s ouster after it posted back-to-back quarters of record losses, stemming from more than $20 billion in write-downs on the market value of assets linked to subprime mortgages.

Willumstad told Reuters that his first priority will be to meet AIG’s regulators, credit rating agencies and top managers around the globe over the next three months.

He is also working to quickly hire a new CFO, after Steven Bensinger stepped aside last quarter. The company is poring over external candidates with financial services experience, he said.

“I have mixed feelings. It seems like he (Sullivan) was made a scapegoat for issues before he took over the helm,” said analyst Donn Vickrey at research firm Gradient Analytics, noting some derivatives contracts that contributed to AIG’s losses were entered into under former CEO Maurice “Hank” Greenberg.

“It would have been preferable to bring someone in from outside that had a core insurance pedigree,” Vickrey said.

While Willumstad does have the “deep, financial experience” to deal with AIG’s thorny subprime exposure, its insurance operations have also posted poor results recently, Vickrey added.

“It is unclear whether he has the background for that.”

Greenberg, who remains a large shareholder, has also been critical of management and AIG’s board.

Willumstad, who spent nearly two decades at Citi and about 40 years in banking, said his appointment may surprise some.

“It may seem like (a bank) would make a more natural fit,” he said, but added that he felt “very good” about taking up AIG’s helm, pointing to his two years as chairman of the firm and to his time at Citi, where several of Citi’s insurance businesses had reported to him when he was chief operating officer.

AIG last month posted the worst results in its 89-year history, resulting in some of its financial ratings being cut and forcing it to strengthen its balance sheet with a $20 billion capital raising.

Willumstad will be under pressure to boost AIG’s ailing share price and give investors a clearer idea of how much actual cash the company could lose after the subprime-related write-downs.

Failure on those two fronts led to Sullivan’s ouster.

BIG SHAREHOLDERS UPSET

AIG is also being investigated by the U.S. Securities and Exchange Commission on whether it may have overvalued the derivatives that have led to its costly write-downs.

AIG on Sunday said Sullivan was also quitting the board, where he has had a seat since 2002. Sullivan started with the company in London as a 17-year-old clerk.

“Bob’s broad managerial and financial services experience makes him the right person to lead AIG through today’s turbulent markets, drive further organizational change and rebuild shareholder value,” George Miles, chairman of AIG’s nominating and corporate governance committee, said in a statement.

In an interview, Miles characterized Willumstad’s financial experience as “world class.”

Willumstad said he had every intention of a long career at AIG, and might even last as long as former CEO Greenberg, who was almost 80 when he left the company in 2005.

“I am a very young 62,” Willumstad said.

Stephen Bollenbach, chairman of U.S. homebuilder KB Homes and a former Hilton executive, who was named to AIG’s board earlier this year, will become lead director, the company said. Bollenbach is favored by some of AIG’s most critical shareholders, including billionaire Eli Broad.

Broad, a former AIG director, said the appointments of Willumstad and Bollenbach were a “positive step forward.”

Broad, together with fund managers Shelby Davis of Davis Selected Advisers LP and Bill Miller of Legg Mason Inc, wrote in a letter seen by Reuters last week that “significant and immediate changes at both the management and board level are clearly called for.”

The group holds about 4 percent of AIG’s shares.

Sullivan, 53, replaced Greenberg as chief executive in 2005, after then-New York state Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission accused Greenberg and the company of financial misconduct.

Greenberg, through a spokesman, on Sunday declined to comment on the changes at AIG.

Sullivan, a quick-witted Englishman who spent almost 36 years with the insurer, ushered AIG through the difficult process of reaching a settlement with regulators, paying $1.64 billion to settle charges of fraud, bid rigging and improper accounting, one of the largest regulatory settlements in U.S. history.

Sullivan initially won investor favor by seeing AIG through the regulatory probe, but more recently saw his reputation become tarnished as losses mounted and AIG’s stock plunged.

AIG’s shares closed on Friday at $34.18. A year ago, they were trading at $72.91.