Phil Angelides, California's treasurer, on Tuesday urged the state's two biggest public pension funds to file a lawsuit against AIG to cover losses from the fall in its shares and push for wider reforms at the insurer.

Since AIG revealed investigators were examining its accounting practices last February, California public employees' retirement holdings in the insurer have fallen by $240m. In separate letters, Mr Angelides urged CalPERS and CalSTRS, its sister fund for state teachers, to take action and recruit other institutional investors to do the same.