American International Group, the world's biggest insurer, replaced Chief Executive Officer Martin Sullivan after record losses, a sagging...

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American International Group, the world’s biggest insurer, replaced Chief Executive Officer Martin Sullivan after record losses, a sagging stock price and criticism from the leader he succeeded in 2005, Maurice “Hank” Greenberg.

Chairman Robert Willumstad, 62, adds the CEO title, the insurer said Sunday. Stephen Bollenbach, 65, the chairman of KB Home and former CEO of Hilton Hotels who serves on AIG’s board, will be the lead independent director.

Sullivan joins an exodus of CEOs from companies that underestimated how badly profits would be hurt by the collapse of the subprime mortgage market.

AIG had more than $13 billion in losses over two quarters, after Sullivan assured investors in December that any drop in the value of its holdings would be “manageable.”

Investors including Greenberg and Legg Mason’s Bill Miller demanded a new chief after AIG, ranked No. 1 by assets among insurers, lost 46 percent of its market value since Sullivan took the top job.

AIG stock closed at $34.18 Friday, a 41 percent loss this year and the worst performance in the 30-company Dow Jones industrial average.

Pressure on Sullivan intensified June 6 when AIG said the Securities and Exchange Commission and the Justice Department were investigating the way AIG valued financial products that customers use to manage credit risk. New York state regulators disclosed their own inquiry Friday.

Willumstad, a former Citigroup president and chief operating officer, was added to AIG’s board in January 2006 and nine months later became the insurer’s first permanent chairman since Greenberg left in 2005.

Sullivan, who started at AIG as a 17-year-old clerk, got the top job in March 2005 when Greenberg stepped down. Two months later, then-New York Attorney General Eliot Spitzer sued AIG and Greenberg, accusing him of ordering improper transactions to hide losses and inflate reserves.

Sullivan steered the insurer to a $1.64 billion settlement of probes by regulators and Spitzer, plus restatements of 2000 to 2005 results that cut profit by $3.4 billion.

As AIG’s earnings waned last year, Greenberg criticized the insurer and Sullivan’s management.