As hedge funds face new regulations and increased scrutiny, the American International Group plans to offer managers and directors liability insurance, according to Reuters.

Coming just over a month before new rules will require managers with more than $15 million under management to register with the Securities and Exchange Commission.

The insurance could pay for legal fees resulting from SEC investigations and lawsuits launched by investors. The insurance will not cover cases in which a fund has acted illegally or settlements from impropriety.

Pittsburgh-based AIG also said it plans to launch other hedge fund specific products.

Hedge funds offer several opportunities for the insurance industry. Since 2000, the hedge fund industry has doubled in size. With increased interest from pension funds, charities and other institutional investors, hedge funds now manage more than $1 trillion in assets.

But that rapid growth, coupled with a history of headline-grabbing missteps, has drawn the attention of regulators. Costs incurred by regulators' questions about fee  structures, valuation methods and trading strategies would all likely be covered, as well  as lawsuits waged by investors who blame managers' revised investment strategies for losses.

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