American International Group (AIG), the struggling insurer, has already used up three quarters of a $123 billion (£78 billion) rescue loan from the US Government and has given warning that the bailout may not be enough to save it.

The Government swooped in to rescue AIG from meltdown last month by extending to it an $85 billion loan, in exchange for a 79.9 per cent stake in the group. On October 8, the Government authorised a second cash infusion, this time of $37.8 billion, as it emerged that AIG had spent most of the first loan.

AIG had borrowed $90.3 billion from the Fed's credit line as of Thursday night, with much of it being used to honour payouts on insurance contracts relating to defaulted debts.

Edward Liddy, AIG's chief executive, said that whether the government bailout succeeded in its aim was “very much a function of two things: one, our ability to stop the bleeding that we have in the financial products areas ... [and] what happens to the capital markets”.

However, Mr Liddy added that, on balance, he was optimistic about AIG's prospects: “Some of the moves that the Federal Reserve has put in place over the last couple of weeks since our rescue ... seem to be working, they seem to be lubricating the markets, and I think we should be OK.”

Details of how much of its loans AIG has spent emerged two days after it agreed to freeze any compensation payments that had been due to Martin Sullivan, its British-born former chief executive, whose contract calls for $19million plus other benefits.

AIG has also agreed with Andrew Cuomo, the New York attorney-general, to freeze the $600 million deferred payment and bonus pot of its financial products unit. Mr Cuomo said this week: “The American taxpayer is now supporting AIG, making the preservation of these taxpayer funds a vital obligation.” The financial products unit was “largely responsible for AIG's collapse”, he said.

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