American International Group (AIG) is reportedly believed to file a lawsuit against Morgan Stanley over $3.7bn mortgage-backed securities.

The announcement was made in the Morgan Stanley’s 10-Q filing with the US Securities and Exchange Commission (SEC).

The mortgage pass-through certificates underwritten by Morgan were purchased by the insurer in 2005 through 2007, the statement said.

The insurer has terminated a tolling agreement, which will be effective from 7 November, with Morgan providing more time to bring claims, and it allows both the firms to try to settle their dispute out of court.

Morgan Stanley was quoted by Bloomberg as saying, "The company expects future litigation accruals in general to continue to be elevated.

"Changes in accruals from period to period may fluctuate significantly given the current environment regarding financial crisis-related government investigations and private litigation affecting global financial services firms, including the company."

In August 2011, AIG filed a law suit against Bank of America (BAC) for altering the value of mortgage-backed-securities; however, the bank denied the incident and the case remained pending.

In 2008, the New York-based insurer was bailed out by taxpayers after it faced huge losses.