NEW YORK (Bloomberg) — American International Group Inc.'s first sale of an entire insurance unit since its $150 billion bailout signals the company's current divestiture plan may not raise enough money to settle its debts with the US government.

AIG, which is auctioning about 70 percent of the company to repay a $60 billion federal loan, agreed yesterday to sell Hartford Steam Boiler, an insurer of factories and power plants, to Munich Re for $742 million. That's about a third less than the New York-based firm paid for the unit eight years ago.

"If that is at all representative of the market opportunities out there, the value of a lot of other things AIG is selling will be fairly discounted," said Gary Ransom, an analyst at Fox-Pitt Kelton Cochran Caronia Waller. "It's bad news for the American taxpayer."

AIG's biggest planned asset sales, including life insurance units in Asia and North America, may be curtailed because potential bidders have been hobbled by plunging stock markets. Chief executive office Edward Liddy would be able to raise about $100 billion by liquidating the entire firm, 17 percent less than three months ago, said Ransom, who rates AIG "in-line".

Liddy told CNBC yesterday that asset sales may cover loans by the end of next year, and that the firm's subsidiaries are "incredibly valuable". Spokesman David Monfried said yesterday that the prices AIG fetches will "reflect the brand power and the nature of these companies".

"We remain sceptical that AIG will generate enough asset sales to fully repay this obligation," said Cathy Seifert, a Standard & Poor's analyst, in a note to investors.

AIG sold Hartford Steam for about 1.25 times book value, said a person with knowledge of the unit's finances. That's less than half the ratio the company paid in 2000 and may be more than what AIG can get for the life insurance divisions, based on the valuations of publicly traded competitors.