Zurich ups cash, cuts debt for AIG autos buy

* Zurich cuts debt part of deal as capital requirements down

* Farmers Exchanges underwriting increase also cut

ZURICH, July 2 (Reuters) - Swiss insurer Zurich Financial Services AG (ZURN.VX), which closed its acquisition of AIG's U.S. auto insurance business on Wednesday, said it paid for less of the deal in debt as its capital requirements have reduced.

It said it paid $1.7 billion in cash and $200 million in euro-denominated capital notes. The previous indication had been it would pay $1.5 billion in cash and $400 million in debt.

"Zurich's capital requirements have reduced so that a lower amount of capital notes could be issued ... reflecting Zurich's strong commitment to a prudent and efficient capital management," it said in a statement.

Zurich, Europe's fourth-largest insurer, said on Wednesday it expects the business to boost earnings at its Farmers division immediately. [ID:nN01519986]

The purchase is a significant step in Zurich's drive to build a bigger presence in the United States.

Under the purchase agreement Zurich also on Wednesday sold the regulated insurance entities acquired from AIG, which had recently been rebranded as 21st Century, for $1.4 billion in cash to Farmers Exchanges.

As part of the deal Zurich has provided increased underwriting capacity to Farmers Exchanges by increasing its existing quota share of reinsurance to 37.5 percent from 25 percent, albeit still below an initially-planned 40 percent due to the strong solvency position of Farmers Exchanges.

American International Group Inc (AIG.N) is trying to sell off assets to pay back government loans of about $83 billion, but has found it hard to find buyers for some big-ticket items. (Reporting by Emma Thomasson; Editing by Greg Mahlich)