Stock market ups and downs have had a smaller effect on the life insurance operations at American International Group Inc. than on other large U.S. life operations, according to analysts at Fitch Ratings.

Mark Rouck and Julie Burke, analysts in the Chicago office of Fitch, talked about the life operations of AIG, New York (NYSE:AIG), in a report in which they discuss how Fitch will treat AIG if the U.S. government continues to withdraw support from the company.

The U.S. Treasury Department and the Federal Reserve Bank of New York began helping AIG in late 2008, after the credit market freeze disrupted the company’s securities lending and credit default swaps operations.

The analysts note that 4 of the companies Fitch classifies as AIG peers in the U.S. life market also received government support as a result of the financial crisis.

“AIG was less of an outlier among its life competitors than it was among its non-life peers,” the analysts say.

But the AIG life subsidiaries needed more capital than the other companies that received government aid because of investment losses on securities lending arrangements, the analysts say.

Thanks to government support, the AIG life operations now have a balance sheet profile that is among the strongest in the industry, the analysts say.

The analysts say another difference between AIG and its life market peers involves exposure to variable annuity (VA) liabilities and other separate account liabilities.

“Variable annuities added significant volatility to earnings, reserves, and capital for the U.S. life insurance industry over the last several years,” the analysts say.

In the future, because AIG has less involvement in the VA market, its future financial performance will have less to do with the performance of the stock market, the analysts say.

Without government involvement, AIG would get a Fitch issuer default rating of BBB minus, the analysts say.

Fitch has increased the rating level 1 notch since November 2010 because of the success AIG has had with implementing its recapitalization plan, the analysts say.

Other AIG coverage from National Underwriter Life & Health: