American International Group Inc on Monday named a KeyCorp vice chairman and financial services veteran to a newly created post overseeing finance, risk and investments.

Peter Hancock, who will report to AIG Chief Executive Robert Benmosche, was named executive vice president. He will also oversee audit, strategic planning and the AIG Financial Products unit.

Hancock, 51, a former JPMorgan Chase & Co chief financial officer, brings risk management, finance and investment expertise to AIG and will play mentor and coach to other managers. He will help reduce risk at Financial Products while balancing it with the insurer's ability to handle investments.

I am very pleased that Peter, a recognized expert in risk and finance, will be joining AIG in this important new role, Benmosche said in a statement. Peter's comprehensive experience in financial services will help accelerate our existing team's efforts toward AIG's re-emergence as a strong, independent company.

Once the world's largest insurer, AIG nearly collapsed in September 2008 due to obligations from credit default swaps, a type of derivative that had been sold by the Financial Products unit. The insurer has since been winding down the unit.

Hancock, who was pursued by AIG for two months, will get a 2010 cash and stock salary of $7.5 million, which includes $3.9 million in fixed compensation and $3.6 million in variable pay linked to performance.

In 2011, his compensation will total $7 million, including $1.8 million in base pay, $4.4 million in stock salary and $800,000 in long-term restricted stock.

U.S. pay czar Kenneth Feinberg has cleared Hancock's compensation, according to a regulatory filing.

Hancock is the latest senior hire by Benmosche, who has been trying to steady AIG and retain executives in the face of restrictions on compensation imposed by Feinberg.

In recent comments to an internal publication, Benmosche said he envisions a smaller AIG in the future, with global property-casualty and U.S. life operations at its core.

Last week, AIG named Thomas Russo, a former top Lehman Brothers Holdings Inc lawyer, as its general counsel, filling a position that became vacant on December 30 when Anastasia Kelly resigned in protest over pay curbs imposed by Feinberg.

At AIG Financial Products, Chief Operating Officer Gerry Pasciucco will report to Hancock, who oversaw national banking at KeyCorp and has expertise in risk management and derivatives markets.

Hancock, who joined KeyCorp in December 2008, began his career in 1980 at JPMorgan, where over 20 years he founded the global derivatives group, managed fixed income and credit businesses, and finally served as CFO and chief risk officer.

In 2002 he founded Integrated Finance Ltd, which provided asset management, strategic advice and pension solutions to institutions. IFL merged with Marakon Associates to become Trinsum.

I look forward to joining the first-class leadership team at AIG dedicated to restoring AIG to health for the benefit of all its stakeholders, Hancock said.

AIG shares were down 37 cents, or 1.7 percent, at $22.04 in morning trade, while KeyCorp was off 15 cents, or 2.2 percent, at $6.74, both on the New York Stock Exchange.

(Reporting by Paritosh Bansal; Editing by John Wallace)