NU Online News Service, May 12, 1:53 p.m.EDT

American International Group’s future success without governmentsupport will depend on a number of factors that are hard to predictright now, say analysts at Fitch Ratings.

Over the next 12 to 18 months it is anticipated that the U.S.Treasury Department will sell off its ownership of AIG, says toJulie Burke, a managing director of Fitch, during a conference callto discuss an AIG report Fitch released a week ago.

AIG and the Treasury on May 11 announced a plan to sell 300 million shares of the company.

Burke says that from a ratings standpoint, there will be acritical moment when AIG will no longer benefit from governmentownership. Somewhere at the 50 percent ownership threshold (thegovernment currently owns approximately 92 percent, says Fitch),AIG will be open to a reevaluation of its ratings.

Currently Fitch gives AIG a credit rating of “triple-B” andinsurance financial strength of “A.”

Mark Rouck, senior director for Fitch says that AIG could see arating upgrade if:

• Chartis’ underwriting profitability improves along withreserve stability.

• The company’s life insurance division, Sun America experiencesimprovements in its profits.

• Chartis combined ratio’s also improve.

On the downside, he says there are several factors that couldproduce downgrades at the company’s divisions. These include:

• Chartis fails to improve profitability or sees reservereleases “that are inconsistent with industry trends.”

• Deterioration in SunAmerica sales and profits.

• Deterioration in either SunAmerica or Chartis’ combinedratios.

Rouck says the company’s earnings in 2010 were considered“poor,” which resulted in a one-notch drop in its financialstrength rating in February to “A” to reflect concerns about itscombined ratio of 109 – higher than combined ratios in the low- tomid-90s from their peers.

The company faces some unique challenges because of aconcentration in “long duration excess business lines” unlike otherinsurers. On the positive side, Rouck says the company has shiftedto more consumer-oriented products that have less volatility.

AIG’s life company is still recovering from the economicdownturn and is working to retrench its business, he adds.

The company has an enormous debt to deal with, he says, but itshould see improvement as it runs-off its credit default swapportfolio.