MOODY'S CONFIRMS AMERICAN INTERNATIONAL GROUP, INC. RATINGS (SENIOR DEBT AT Aaa), FOLLOWING ANNOUNCEMENT OF ACQUISITION OF SUNAMERICA, INC.
New York, August 21, 1998 -- Moody's Investors Service confirmed the Aaa senior debt rating of American International Group, Inc. (AIG), as well as the senior debt ratings of its guaranteed subsidiaries, following AIG's announcement yesterday of a definitive agreement to acquire SunAmerica, Inc. in a stock-for-stock transaction that values SunAmerica at approximately $18 billion. Insurance financial strength ratings and non-guaranteed debt ratings of its operating subsidiaries were not affected by the rating action. Consistent with a pooling of interests, AIG will also assume the debt and preferred stock obligations of SunAmerica, Inc. The transaction, which is subject to shareholder and regulatory approvals, is expected to close near year-end 1998. According to Moody's, the rating confirmation reflects AIG's market leadership in numerous business lines and geographic areas, its superior profitability, and its exceptionally strong capitalization, as well as its ability to absorb any incremental financial strain associated with this acquisition. Moody's stated that the ratings outlook is stable.
Expanding on its rationale for the rating confirmation, Moody's noted that SunAmerica's highly-regarded variable annuity underwriting and distribution capabilities are viewed as a good complement to AIG's existing product line, which could likely be expanded to include variable life products. The business combination also provides AIG the opportunity to leverage its international infrastructure to build a leading personal retirement savings business abroad. The rating agency added that the combination should also improve the profitability of SunAmerica's current operations, by reducing its cost of funding. Moody's noted that on a pro forma basis, SunAmerica will represent about 15% of AIG's capital and operations.
While recognizing that the transaction provides AIG with enhanced business opportunities and somewhat greater diversification of cash flows and earnings, Moody's also said that AIG's risk profile will be incrementally altered. Specifically, Moody's cited the relatively higher financial leverage and business risk profile at SunAmerica, compared to AIG's existing core business. Furthermore, AIG's high valuation for SunAmerica's shares implies continued aggressive growth expectations for SunAmerica's annuity and higher-risk GIC business. Moody's believes that the depth and strength of AIG's franchise, and the group's superior earnings power mitigates the increased volatility associated with the acquired business. Although future material acquisitions in businesses with higher risk profiles could affect AIG's ratings, Moody's does not anticipate such acquisitions to be pursued in the foreseeable future, given management's stated business plan.
The following ratings were confirmed:
American International Group, Inc - senior debt at Aaa, issuer rating at Aaa, rating for commercial paper at Prime-1;
AIG Financial Products Corp. - senior debt at Aaa, rating for commercial paper at Prime-1;
AIG Financial Products (Japan) - guaranteed senior debt at Aaa;
AIG Financial Products (UK) Ltd. - guaranteed senior debt at Aaa;
AIG Financial Products (Australia) - guaranteed senior debt at Aaa;
AIG-FP Deutschland CP GMBH - rating for guaranteed commercial paper program at Prime-1;
A.I. Credit Corp. - rating for guaranteed commercial paper program at Prime-1;
AIG Funding - rating for guaranteed commercial paper program at Prime-1;
AIG Liquidity Corp - rating for guaranteed commercial paper program at Prime-1;
AIG Matched Funding Corp. - guaranteed senior debt at Aaa;
Banque AIG SA - guaranteed senior debt at Aaa;
AIG Financial Services (UK) Ltd. - guaranteed senior debt at Aaa.
AIG, based in New York City, is a holding company for a group of worldwide subsidiaries engaged in general insurance, life insurance, financial services, and various fee-based and commission-based services. The group writes insurance in over 100 countries and jurisdictions. It is the largest U.S. writer of commercial property & casualty lines in the USA, as well as a leading life insurer in several non-U.S. markets, and it is the largest US-based international insurance organization. As of June 30, 1998, AIG reported year-to-date revenues and net income of $15.8 billion and $1.8 billion, respectively, total assets of $176.1 billion and shareholders' equity of $25.7 billion.
SunAmerica, based in Los Angeles, California, is a leading provider of retirement saving products, such as fixed and variable annuities, as well as guaranteed investment contracts and other investment-oriented products. As of June 30, 1998, SunAmerica reported year-to-date (since September 30, 1997) net income of $402 million, total assets of $39.9 billion, and shareholders' equity of $3.0 billion.
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