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AIG is in talks to offload insurance operations connected to Lloyd’s of London, as it seeks to meet a pledge to streamline its sprawling operations and return $25bn of capital to shareholders over the next two years.

The New York-based insurer was elbowed into action towards the end of last year by a pair of shareholder activists, who had argued that the conglomerate needed to take more radical measures — including examining a break-up — to improve its return on equity.

In January Peter Hancock, president and chief executive, presented a plan that involved accelerated cost-cuts and a separation of low-earning “legacy” assets, accounting for more than a quarter of the equity, that the group planned to exit or wind down.

Canada Pension Plan Investment Board, the country’s largest pension fund, is interested in AIG’s Lloyd’s business, known as Ascot Underwriting, and a related reinsurance company based in Bermuda, said a person briefed on discussions. Talks are at a preliminary stage and could fall apart, the person said.

AIG and CPPIB declined to comment on the prospective sale, which was first reported by the Wall Street Journal. The price tag could run to hundreds of millions of dollars, the person said.

Since Mr Hancock unveiled his plan in January, AIG has offered board seats to Carl Icahn and John Paulson, the investors who were agitating for drastic changes. Both had argued that slimming down would enable AIG to shed its status as a “systemically important financial institution” — a designation that imposes tough capital requirements and heightened regulatory scrutiny.

Mr Hancock has resisted that idea, but continues to press ahead with asset sales, which netted proceeds of $4.3bn over the three quarters to the end of June. Last week AIG said it had struck a deal to sell its mortgage insurance business to Arch Capital, a Bermuda-based insurer and reinsurer, for $3.4bn.

Earlier this month AIG reported figures for the second quarter that were generally better than analysts’ forecasts. The group’s “normalised” ROE, excluding some non-core items, jumped to 8.6 per cent, from 6.8 per cent last year, thanks largely to cost cuts. AIG also returned $3.2bn of capital to investors through buybacks and dividends during the period, bringing this year’s running total to $7.9bn.

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