NEWARK, N.J. (AP) _ American International has become the second major auto insurer in as many weeks to take steps to get out of the New Jersey market, claiming it cannot make a profit.

American International, a subsidiary of AIG, has more than 200,000 policies in New Jersey, making it the state's sixth-biggest insurer. The largest insurer, State Farm Indemnity Co., which covers 800,000 drivers, announced last week it had filed the same legal papers to get permission to leave New Jersey.

Both companies have filed requests for rate increases above 10 percent that have not yet been approved by the state Insurance Department and which have drawn criticism from the candidates running for governor.

John Tiene, a spokesman for the Insurance Council of New Jersey, said AIG filed a plan with state regulators this week seeking permission to cancel its policies and to stop doing business in New Jersey. AIG is a member of the insurance council.

Tiene said the Insurance Department will require American International to phase out its policies over five years.

American International policyholders would be given 12 months' notice to find another insurance carrier if the plan is approved.

Tiene said the state will decide whether American International will have to make sure replacement coverage is available to some or all of its customers. New Jersey law requires all drivers to have auto insurance.

A letter from AIG officials to New Jersey employees said the company could reconsider if regulations are adjusted or rate increases approved. ``No company should be forced to do business at a loss,'' the letter stated.

Tiene said state regulations and price controls such as the mandatory 15 percent rollback in rates imposed by former Gov. Christie Whitman in 1998 forced insurers to forfeit revenues while claims rose.

``The attempts over the last two decades to create a regulatory environment that defies the laws of economics _ this demonstrates it doesn't work,'' Tiene said.

As they have for years, New Jersey drivers pay the highest auto premiums in the nation, according to the latest figures, from 1999, according to the Insurance Council.