NEW YORK (Bloomberg) - American International Group, the biggest insurer of US corporate boards, is asking clients about their involvement in the subprime mortgage market to avoid bad bets on companies that could be vulnerable to shareholder lawsuits.

AIG started distributing a three-page questionnaire to potential clients last week, asking corporate directors and officers to disclose whether their companies make home loans to the riskiest borrowers or invest in securities backed by them.

New Century Financial Corporation and Accredited Home Lenders Holding Company are among subprime lenders that already face shareholder suits over losses from record default rates on subprime loans.

AIG's move highlights insurers' concerns that the rout in the subprime market could damage one of their most profitable lines of business. Companies including AIG, Chubb and XL Capital together had their highest rate of return in at least 16 years in 2006 from selling coverage to directors and officers, Sanford Bernstein & Compay estimates.

"Insurers are on really high alert for anything that could be tangentially related to subprime," said Lauri Floresca, a D&O insurance broker with Carpenter Moore, a unit of Nasdaq Stock Market. "The concern is that this is the tip of the iceberg."

Subprime could add to D&O insurers' claims by as much as $1.5 billion to $3.6bn annually for three years, Sanford Bernstein analysts led by Todd Bault said. That scenario is "extremely unlikely," Bault wrote, predicting that actual losses will be 10 percent to 50 percent of those estimates.

New Century, of Irvine, California, is the biggest subprime lender in bankruptcy, and Accredited, based in San Diego, announced plans on August 22 to close more than half its operations and fire 1,600 people.

They are among "a dozen or so" companies facing lawsuits, a number that will swell to "hundreds," Floresca said. More than 100 mortgage companies have halted operations or sought buyers since the beginning of 2006.

Chubb and XL are among the insurers most vulnerable to a decline in D&O profitability, with 16 and 17 percent, respectively, of their 2006 premiums coming from D&O, Bault estimates. AIG depended on board insurance for only seven percent of its property and liability premiums, Bault said. He rates Chubb "market perform" and XL and AIG "outperform."

The questionnaires on subprime vulnerability show that New York-based AIG is "monitoring the situation closely," said spokesman Chris Winans, "but at this point it does not appear to be a significant issue" for the AIG unit that sells D&O insurance.

Other insurers will probably start using similar questionnaires, Floresca said. She advises clients to avoid giving written answers because they could be used later to deny coverage. Winans said the questionnaires are rarely mandatory.

Chubb, based in Warren, New Jersey, ranked behind only AIG in a survey of 2006 primary `D&O' premiums by Towers Perrin, a Stamford, Connecticut-based consultant. XL, based in Bermuda, was ranked third.

Chubb and XL ask about clients' vulnerability to the subprime industry without using a questionnaire, according to Chubb spokesman Mark Greenberg and XL spokeswoman Carol Parker Trott. "We sit down with the customer face to face and discuss all is or her exposures," Greenberg said.