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

American International Group’s future success without government support will depend on a number of factors that are hard to predict right 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 to Julie Burke, a managing director of Fitch, during a conference call to 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 a critical moment when AIG will no longer benefit from government ownership. Somewhere at the 50 percent ownership threshold (the government 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” and insurance financial strength of “A.”

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

• Chartis’ underwriting profitability improves along with reserve stability.

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

• Chartis combined ratio’s also improve.

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

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

• Deterioration in SunAmerica sales and profits.

• Deterioration in either SunAmerica or Chartis’ combined ratios.

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

The company faces some unique challenges because of a concentration in “long duration excess business lines” unlike other insurers. On the positive side, Rouck says the company has shifted to more consumer-oriented products that have less volatility.

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

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