The relationship between AIG and some of its US government paymasters has come close to breaking point after a heated exchange between the insurer’s board and the Obama administration “pay tsar” over compensation at the stricken company.

The long-simmering tensions between the new board of AIG, per cent-owned by the government, and Kenneth Feinberg, the administration’s special master on pay, came out into the open during a three-hour meeting in New York last week.