Mr. Tse, who is in his early 70s, has worked at AIG since 1961, and was once considered a top candidate to take over the entire company.
He runs American International Assurance Co. and was named senior vice chairman of life insurance in 2001. Mr. Tse has also been a director on AIG's board since 1996.
The departure was announced in a memo from Chief Executive Edward Liddy and confirmed by a spokeswoman.
Mr. Tse was considered close to former AIG Chairman and Chief Executive Maurice R. Greenberg, and in 2002 was, along with Martin Sullivan, named the co-chief operating officer.
Mr. Sullivan succeeded Greenberg upon the latter’s ouster in 2005, and was himself replaced last June.
AIG is trying to sell businesses and shed debt exposure after massive losses led to roughly $180 billion of government bailouts, a $61.7 billion fourth-quarter loss, and wide outrage over bonus awards.
In the latest bailout, AIG this month agreed to convert some debt into a preferred equity stake for the government in American International Assurance and American Life Insurance Co., which also have significant Asian operations.
According to the Asian Wall Street Journal, AIG named Rodney Martin chairman of international life and retirement services, in charge of American International Assurance and AIG’s operations in Japan. It also said Mark Wilson was named chief executive of American International Assurance. The newspaper also said Mr. Tse will be honorary chairman of American International Assurance and non-executive chairman of its operations in Taiwan and the Philippines.