Maurice Greenberg, the head of American International Group Inc., New York, for nearly 40 years, has notified AIG in a letter that he will not seek reelection as chairman and will retire by week’s end.[@@]

The AIG board replaced Greenberg as chief executive officer with Martin Sullivan 2 weeks ago, and the board announced Monday that Frank Zarb, the board’s lead director, will assume the post of chairman.

Greenberg is expected to retire Wednesday or Thursday when he returns from a business trip to China and Europe, the AIG board says.

The board says it was informed of Greenberg’s decision in a letter from his attorney, David Boies, to the board’s lawyer, Richard Beattie.

AIG in February said it was subpoenaed by the U.S. Securities and Exchange Commission and New York Attorney General Eliot Spitzer’s office in an investigation of nontraditional insurance products. Investigators said the products might have been used improperly to improve the company’s financial picture.

AIG has delayed the release of its annual financial report while it investigates the possibility that it might have to change its financial reporting.

AIG also has announced the departure of 2 senior AIG executives, former chief financial officer Howard Smith and Christian Milton, a vice president for reinsurance, the AFL-CIO, Washington, an organization that represents unions that are major AIG shareholders, sent the AIG board a letter urging it to remove Greenberg as chairman.

Boies writes in the letter announcing Greenberg’s retirement that Greenberg recognized the need to resolve speedily investigations of the company that are under way. Boies also complains of press leaks about board discussions and suggests that the company look for a chairman with international financial and insurance experience.

“Over the last 35 years, Mr. Greenberg has had the opportunity to lead AIG through its greatest years of growth and development,” Boies writes. “When AIG first became a public company, it had net income in the 10s of millions of dollars. Now it is in the 10s of billions of dollars. The company is stronger by every measure, financial and nonfinancial.”

Zarb, who serves as chairman of the executive committee of AIG’s board, says Greenberg was thanked “for one of the most spectacular performances in any business career.”

M. Bernard Aidinoff, chairman of the board’s nominating and corporate governance committee, has called Greenberg “one of the pillars of the international financial services business, and his accomplishments will live on through AIG and the insurance industry, as well as through his philanthropic leadership.”

Spitzer thinks the replacement of Greenberg would help resolve his investigation and that the AIG board has acted wisely, according to a spokesman.