Concern over the future of AIG heightened today after two credit agencies cut their ratings on the American insurance group's debt, in a move that will drive up its cost of borrowing and put its $75 billion (£42 billion) fundraising efforts in jeopardy.

The three-notch downgrades by Standard & Poor's (S&P) and Fitch Ratings come as bankers working for AIG, until recently the world's biggest insurer, battle to secure an emergency financial package that would stop the group becoming the latest victim of the credit crunch.

It is understood that Goldman Sachs and JPMorgan Chase are trying to raise the money, partly from an emergency credit line from the US Federal Reserve.

A cut in AIG's credit ratings could make it more expensive to borrow the funds. A rating cut could also trigger calls for the group to post higher collateral against its billions of dollars of derivatives deals.

Analysts at Alliance Bernstein estimated that the downgrades would costs AIG at least $18 billion in additional collateral calls. Analysts at Credit Suisse suggested the figure was more like $25 billion.

S&P said it was cutting its long-term rating on AIG from AA minus to A minus. Its short-term rating was cut from AA plus to A plus.

The agency said AIG's ratings would remain on CreditWatch and could be downgraded further if it failed to find remedies for its financial woes.

AIG has suffered three successive quarterly losses but had been hoping to avoid the downgrade.

"The main reason for the rating actions is the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses," S&P said.

It said AIG was likely to lose less on its collateralised debt obligations — packages of differently rated structured debt sold in the wholesale market — than the reported $25 billion.

It also said ultimate impairments on securities backed by residential mortgages would be less than the reported $12 billion.

But it said that, if AIG was unable to complete a $20 billion asset transfer put together late yesterday, it would axe the ratings to BBB.

Much lower than that and AIG risks become a "junk" company regarded as potentially defaulting on its debt.

As Fitch downgraded AIG, it said the insurer's ability to raise capital was "extremely limited due to recent declines in the company's stock price, widening credit spreads and difficult capital market conditions".

Fitch also said it was keeping AIG under review and could downgrade its credit standing further.

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