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Rating Action:

MOODY'S ASSIGNS Aaa INSURANCE FINANCIAL STRENGTH RATING TO AIG LIFE UNIT, AMERICAN LIFE INSURANCE COMPANY

18 Nov 1998
MOODY'S ASSIGNS Aaa INSURANCE FINANCIAL STRENGTH RATING TO AIG LIFE UNIT, AMERICAN LIFE INSURANCE COMPANY Moody's Investors Service assigned a Aaa insurance financial strength rating to American Life Insurance Company (ALICO), a wholly-owned subsidiary of American International Group, Inc. (AIG.) The Aaa rating also applies to ALICO's policyholder obligations for Japanese branch operations.

Moody's rating is based on the strength and benefits ALICO derives as part of the AIG group, on ALICO's well-established and strong operations in several markets overseas, as well as ALICO's solid capitalization, high-quality investment portfolio, and strong profitability. AIG's global brand-name recognition and excellent financial flexibility provides ALICO with a competitive advantage by supporting its growth strategy in several emerging markets. The rating agency also noted that ALICO benefits from AIG's growing earnings base, which is diversified by product and geographic market. Moody's added that growth prospects are expected to remain good over the long-term.

Moody's noted that ALICO has operated exclusively in foreign markets for the past 75 years and has benefited from geographic diversification and lower competition in emerging markets. However, Japan accounts for almost 40% of ALICO's premiums and the Japanese operations have been negatively impacted by the current depressed economic environment in that country. Further, Moody's notes the political risks associated with a number of emerging markets in which ALICO operates. Moody's believes that ALICO mitigates its foreign exchange risk through active asset/liability management.

ALICO is one of the largest international life insurance companies in the world with operations in about 50 countries. Its revenues are earned principally in Japan, Europe, Latin America, the Middle East, Africa and the Caribbean. ALICO operates primarily through branches, but Moody's expects much of its future growth will be developed through subsidiary operations. The company markets a wide range of life and health insurance products through a network of insurance agents and brokers. Products include traditional life, health and hospitalization insurance, group insurance for large and small organizations, pensions and annuities. Moody's believes that ALICO's 75 year history is evidence of its long-term strategic importance to AIG's operations.

Japan remains ALICO's largest single market where the company is the second largest foreign insurer, according to Moody's. The rating agency added that ALICO Japan has achieved good growth in premiums and deposits relative to the industry, which Moody's believes will continue because of its financial strength and relatively smaller base of operations compared with domestic life insurers. Moody's believes that ALICO will continue to benefit from the higher level of current surrenders of life insurance policies at the expense of Japanese domestic companies.

The rating agency said that ALICO maintains a conservatively managed investment portfolio. The aggregate portfolio is concentrated in investment grade, fixed income securities, with the exception of a single investment in the parent's common stock, which has become significant due to market appreciation. Moody's believes that ALICO is well capitalized and has substantial financial flexibility to grow its operations through its access to the AIG international financial network.

Despite its many strengths, ALICO's future opportunities are likely to be somewhat affected by the current economic malaise in Japan and the uncertainty as to when economic recovery will begin there. In addition, ALICO will face a more competitive operating environment in Japan over the medium term as the government's plans to liberalize the financial services industry begins to unfold. The extremely low interest rate environment in Japan has created negative investment spread on some older blocks of life insurance for Japanese life insurers including ALICO, said Moody's, but ALICO's earnings from mortality and expense charges have offset the shortfall.

The turbulence of the global markets today also highlights some of the challenges ALICO faces outside of Japan. Instability in the political or economic systems of the various countries in which it conducts business may slow ALICO's growth opportunities, but Moody's believes the company is well positioned over the long-term to grow in several emerging market economies.

ALICO maintains its headquarters in Wilmington, Delaware. The company reported statutory assets and capital of $15.3 billion and $3.8 billion, as of December 31, 1997.


Visit our Website: http://www.moodys.com/insurance
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