While not yet completely out of the woods, rays of light have begun to peek through the trees in regard to American International Group Inc.'s financial state.

The Government Accountability Office (GAO) yesterday reported that the troubled insurer had begun to stabilize. The government watchdog said AIG has shown signs of improvement since its property/casualty and life and retirement-services units have maintained capital levels above the minimum requirements. The GAO also said the insurer has made strides in winding down the financial-products division, where bets nearly toppled the company, the Wall Street Journal reports.

Additionally, Government Reform Committee Chairman Edolphus Towns told his staff yesterday that he would investigate a proposal from former AIG chief Hank Greenberg that could make it easier for the insurer to repay its federal bailout.

Greenberg's plan includes reducing the government's stake in AIG to about 20% from 80%, cutting the interest rate AIG is paying to both the Federal Reserve and the Treasury Department on the loans, and extending the term of the loan so that AIG wouldn't be forced into a fire sale of assets to pay it off, the Wall Street Journal reports.

However, the GAO questions whether U.S. taxpayers would ever be fully repaid, or whether AIG could pull off the restructuring of its business. The U.S. government remains exposed to risks, including credit risk and investment risk, which could result in the Federal Reserve and Treasury not being repaid in full, it said in its report.

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