Standard & Poor’s has upgraded American International Group Inc.’s long-term counterparty credit rating and raised its standard-alone credit profile five notches to reflect the federal government’s “extraordinary” financial support for the company.

At the same time, AIG announced that the U.S. Treasury Department had named 2 new directors to its board.

They are Donald H. Layton and Ronald A. Rittenmeyer. Layton is former chief executive of E-Trade and Rittenmeyer IS former CEO of Electronic Data Systems.

The appointments are effectively immediately.

Treasury is naming the board members because the federal government controls almost 80% of AIG’s stock and has not paid dividends for 4 quarters.

S&P also said it was raising its stand-alone credit profile because the company is showing “continuing momentum” in reestablishing its multiline insurance market presence through its Chartis property and casualty and its SunAmerica life insurance operations.

S&P also said the changed ratings were appropriate in light of the progress AIG is making in the unwinding of AIG Financial Products Corp., and the improved liquidity position of its noninsurance operations.

“In addition, we believe AIG’s recently announced transactions reflect solid progress in its challenging restructuring plan,” said S&P credit analyst credit analyst Kevin Ahern.

But S&P analysts said that while the credit agency is reaffirming AIG’s ratings, it maintains a negative outlook on the company.

The latter decision stems from S&P’s view of the challenges AIG faces in sustaining operating performance as well as maintaining suitable capitalization, especially in its life insurance businesses, its analysts said.