AIG Will Drop to $40 a Share: Former Staffer

AIG's stock has yet to hit bottom, Ron Shelp, former head of government relations at AIG, told CNBC on Wednesday.

"Clearly the stock is going to drop," Shelp said. "It's already dropped this week I think about eight points, but I think it will drop more."

"I'd be surprised if it doesn't drop to at least $40 [a share] or maybe more," he added.

Shelp's comments come as AIG is issuing 75 million warrants, enabling shareholders to buy the stock for a discounted $45 a share. The U.S. government still owns about 92 percent of the insurer.

Shelp, who lost $2.5 million in AIG shares, said he is currently buying warrants and plans to monitor the situation over the next 12-18 months to actually buy stock.

"You want to buy when you can hold it at least a year for capital gains reasons," he said.

Shelp also pointed out positive signs for AIG including having raised $3 billion in funding from private banks, as well as its leadership.

"[Robert] Benmosche is terrific," he said. "He's the best CEO they've had since Greenberg."