NEW YORK (Bloomberg) — American International Group Inc. rescinded an award of restricted shares to former chief executive officer Robert Willumstad, who was ousted before he could turn around the insurer.

Willumstad, AIG's CEO for about three months before being forced out in September amid a government rescue, agreed to forgo about 1.05 million shares, according to a letter from his successor, Edward Liddy, included this week in a regulatory filing.

Willumstad previously declined severance pay of $22.5 million, saying he was unable to stem losses at the New York- based insurer. Liddy was appointed by the US to replace Willumstad after a US bailout that has since expanded to about $150 billion.

"I prefer not to receive severance payments while shareholders and employees have lost considerable value in their AIG shares," Willumstad, 63, wrote in a separate letter included in the filing.

AIG has declined about 97 percent this year as the insurer posted more than $37 billion in losses tied to bad bets on the housing market.

Willumstad, a former Citigroup Inc. president who left the bank in 2005 to seek a CEO position, replaced Martin Sullivan as CEO in June. Willumstad joined AIG's board in January 2006 and became chairman nine months later. He worked for 31 years at lenders including Chemical Bank before helping create Citigroup in the 1998 merger of Travelers Group and Citicorp.

Downgrades and collateral calls to banks that bought credit protection from AIG forced the insurer to turn to the government in September before Willumstad could present his plan to revive the firm.

AIG was in talks with Warren Buffett's Berkshire Hathaway Inc. to improve AIG's liquidity if necessary, and was negotiating with banks including JPMorgan Chase & Co. to obtain more credit, Willumstad told Congress in October.

"These were precautionary steps," Willumstad said. "Through the first week of September, we believed AIG could weather the difficulties in the financial markets."

Liddy, who previously froze $19 million due to Sullivan and $600 million in compensation for other executives, will collect a $1 salary through 2009 and an unspecified number of equity grants.