"Several top shareholders of AIG have called me expressing deep concern about the persistent and seemingly endless destruction of value at AIG," Greenberg said in the May 11 letter to the board, a copy of which was filed with the U.S. Securities and Exchange Commission on Monday.
AIG shares fell nearly 5 percent after news of the letter, with the stock ending the day at its lowest point since October 1998.
The letter followed AIG's reporting last Thursday a $7.8 billion first-quarter loss, its largest-ever, as a result of a large write-down to the value of securities linked to subprime mortgages. Overall results also disappointed, with lackluster operating results reported by a number of units.
The company also said it was raising capital to bolster its balance sheet.
The company late on Monday raised $11.9 billion, according to an underwriter -- more than the $7.5 billion that the offerings of common stock and mandatory convertibles were expected to raise. AIG plans to raise $5 billion more at a later date with the issue of fixed-income securities.
AIG's loss came after it a quarter earlier posted a then record net loss of $5.3 billion, also as a result of writing down the value of the same securities -- credit default swaps -- which basically guaranteed subprime mortgage bonds and other assets against default.
"AIG is in crisis," Greenberg said, in the letter calling on AIG's board to postpone its annual general meeting.
Greenberg is chairman of C.V. Starr and Starr International, entities that were once affiliated with AIG and continue to be the insurer's largest shareholders.
Along with a personal stake, Greenberg controls roughly 12 percent of AIG stock, according to Reuters data.
"The company's shareholders need to absorb the significance of the company's first quarter losses," wrote Greenberg in the letter to AIG's board. "They (investors) also need time to consider the board's response to the crisis and the issues raised by this letter.
"For this reason and others, a postponement of this week's annual meeting should be considered, so that all shareholders can give careful thought to how best to move AIG forward," Greenberg added.
Greenberg parted ways with the insurer in 2005 after building it into the world's largest insurer during a 38-year tenure as CEO. He was forced out by the board after then-attorney general Eliot Spitzer and the SEC accused the company and him of financial misconduct.
Martin Sullivan, an Briton who joined AIG at 17 and had worked his way up through the insurer's ranks, took over from Greenberg, who had been his mentor.
CreditSights analyst Rob Haines said Greenberg's letter of protest could be viewed as "saber rattling" but added that it raised some valid points.
For example, Greenberg, in the letter, said AIG had not articulated why it chose to raise money in the capital markets instead of via a divestiture of non-core assets or by an infusion of capital from outside investors as some other financial institutions have done.
Greenberg is not the only one to question whether AIG is ripe for a restructuring of its assets. Its rising losses have raised wide concerns that the company has grown too big to effectively manage its risks, and prompted increasing calls for restructuring and a management shuffle.
One of its most profitable units, an aircraft leasing unit, is seeking a split from the company, according to a report in the Wall Street Journal earlier on Monday.
"Some are coming to the conclusion that it might be too big to manage," said Haines, who added that either a restructuring or replacing Sullivan as chief executive could be on tap. "Sullivan has had a few years to right the ship.
"It is not necessarily his fault -- it is kind of a perfect storm of falling prices and this problem with the (credit default swaps.) But the company simply hasn't returned, and there are calls for (him) to fall on his sword."
Greenberg's letter followed a lawsuit filed last week by the Starr Foundation, a charitable foundation that Greenberg controls, against AIG, Sullivan and Steven Bensinger, who on Thursday announced he would step aside as chief financial officer to assume another post at AIG.
The suit, filed in New York State Supreme Court in Manhattan, alleges fraud, claiming the insurer misrepresented its exposure to credit default swaps, and seeks to recover at least $300 million in damages.
AIG shares closed down 4.74 percent to $38.37 on the New York Stock Exchange.