NEW YORK (Bloomberg) — American International Group Inc., the largest U.S. insurer by assets, fell the most since going public in 1969 after a report about Lehman Brothers Holdings Inc. clouded AIG's prospects for raising capital.

AIG fell $4.39, or 19 percent, to $18.37 in New York Stock Exchange composite trading. The insurer has dropped 68 percent this year. Lehman Brothers' negotiations for an investment from the Korea Development Bank ended, said a person familiar with the discussions.

"The fear is rolling out the door" after news about Lehman, said Robert Bolton, managing director for trading at Mendon Capital Advisors Corp. in Rochester, New York. "AIG couldn't be in a worse predicament having to come to the market to raise capital right now, if they need to."

AIG may need $15 billion to cushion more losses tied to the US housing market, Morgan Stanley analyst Nigel Dally said on September 5. The New York-based insurer posted losses in three straight quarters as it wrote down credit-default swaps tied to home loans by about $25 billion.

AIG's financial products unit sold protection to fixed-income investors guaranteeing $441 billion of assets at the end of June, including $57.8 billion in securities tied to sub-prime mortgages.

Chief executive officer Robert Willumstad hasn't ruled out seeking more capital after the company raised $20.3 billion in May selling debt and equity, diluting the holdings of longtime investors. The insurer had said earlier that month that it needed to raise $12.5 billion.

Willumstad, 63, took over at AIG in June after investors including former CEO Maurice (Hank) Greenberg called for the ouster of Martin Sullivan. Willumstad has said AIG made too many bets on the US housing market, and promised to announce a turnaround plan on September 25.