Martin Sullivan, who has been chief executive officer of American International Group Inc. since 2005, is leaving the CEO post and the AIG board, the company says.

The board of AIG, New York, has picked Robert Willumstad, 62, the chairman, to take the CEO title, and it has named Stephen Bollenbach, 65, a banking executive affiliated with AIG shareholder Eli Broad, to be the “lead independent director.”

In May, AIG reported a $7.8 billion net loss on $14 billion in revenue. The price of the company’s shares has dropped to less than $35, from a price over $70 in the summer of 2007.

Willumstad, who was born in Brooklyn, N.Y., has been a director of AIG as well as the company’s chairman since 2006. He spent 20 years at Chemical Banking Corp., New York, and later was president of Citigroup Inc., New York, from 2002 to 2005. He attended Adelphi University and is a veteran of the Marine Corps reserve.

Bollenbach, who was elected to the AIG board in January, has been the chairman of Hilton Hotels Corp., Beverly Hills Corp., and the chief financial officer of the Walt Disney Company, Burbank, Calif.

Sullivan, 53, first began working for AIG in 1971. AIG chose him to succeed Maurice Greenberg as CEO after ousting Greenberg. Immediately before Sullivan became the CEO of AIG, he was president of AIG’s American International Underwriters unit.

“Martin successfully led AIG through the crisis it faced when he became CEO in 2005, and he has made significant contributions over the past three years in executing AIG’s strategy and building on its global franchise,” George Miles Jr., chairman of AIG’s nominating and corporate governance committee, says in a statement about Sullivan’s departure. “The board has determined that Bob’s broad managerial and financial services experience makes him the right person to lead AIG through today’s turbulent markets, drive further organizational change and rebuild shareholder value in the years ahead.”

Bollenbach has issued a statement emphasizing the ability of Willumstad to hit the ground running.

“The board has great confidence in Bob Willumstad’s leadership and his ability to restore AIG to its historic levels of performance,” Bollenbach says.

Willumstad says AIG will conduct a “thorough strategic and operational review of AIG’s businesses and their performance.”

“The board and I recognize that results over the past 2 quarters have been unacceptable, but we are confident in AIG’s future,” Willumstad says. “We are determined to get the organization back on track as quickly as possible and ensure it is well positioned for future success.”

AIG did not include a statement from Sullivan in the initial version of the announcement of Sullivan’s departure, and Sullivan could not immediately be reached for comment.

Insurance analysts at the securities arm of Bank of America Corp., Charlotte, N.C., says the departure of Sullivan does not “come as a large surprise, given the extremely disappointing results in recent quarters.”

Willumstad is well-qualified for the AIG CEO post, but he “will likely face a number of initial challenges as he stabilizes the business and takes steps to mitigate risk,” the Bank of America analysts write. “Beyond the financials, it is going to take long to change the culture built over the past 40 years.”

Andrew Kligerman, a securities analyst at UBS Investment Research, New York, he has heard positive comments about Willumstad’s capabilities.

But before the price of AIG’s stock will rise, “we think investors will need to see more than a new CEO, such as solid execution,” Kligerman writes.