Fitch Ratings has affirmed American International Group, Inc.'s issuer default rating (IDR) at "AA" and affirmed all of AIG's insurance subsidiaries. The rating outlook is stable.

Fitch said the affirmations "reflect AIG's pre-eminent global insurance organisation, with excellent worldwide brands and franchises and strong operating results".

The rating agency also views very favourably the diversified nature of the organisation's products, distribution systems and geographic reach. This diversification has contributed to AIG's ability to generate stable and predictable historical operating results.

Weighed against these positives is AIG's relatively large exposure to the current US residential mortgage crisis. Fitch believes AIG will not be immune to potential losses from this exposure, although at the present time the agency believes these losses should be absorbed by the existing capital base and future earnings stream.

If the residential mortgage market were to decline beyond current expectations and if weakness were to spread to other asset classes, then Fitch would revisit the current ratings and outlook.

Fitch believes the area of AIG most exposed to further deterioration is the credit derivative portfolio within AIG Financial Products Corp., with its large net notional exposure to credit derivatives of $505 billion at September 30, 2007. Included in this total is $62.4 billion of collateralised debt obligations backed by structured finance (SF CDOs) collateral, mainly sub-prime US residential mortgage-backed securities (RMBS).

While Fitch notes that this asset class has been under considerable credit deterioration in the past few months, Fitch is currently comforted by the fact that AIG FP's SF CDO portfolio was almost entirely underwritten before 2006. While under considerable stress, collateral from pre-2006 U.S. RMBS vintages is generally expected to perform better than 2006-2007 vintages.