MOODY'S DOWNGRADES AIG'S LONG-TERM CREDIT RATINGS TO Aa2; RATINGS REMAIN ON REVIEW FOR POSSIBLE FURTHER DOWNGRADE
Insurance Financial Strength Ratings also Affected.
New York, May 02, 2005 -- Moody's Investors Service has lowered its long-term senior debt
ratings on American International Group, Inc. (NYSE:
AIG) to Aa2 from Aa1; these ratings remain on review for possible
further downgrade. The debt and insurance financial strength ratings
of several supported entities including the group's supported life insurance
and mortgage insurance subsidiaries, and of members of AIG's Domestic
Brokerage Group, have also been lowered to Aa2 from Aa1, and
remain on review for further possible downgrade.
The short-term Prime-1 debt ratings of AIG Funding,
Inc. and AIG Liquidity Corp. are confirmed with a stable
outlook, and the short-term (Prime-1) and long-term
(senior unsecured at A1) ratings of the company's principal commercial
and consumer finance subsidiaries (International Lease Finance Corporation
and American General Finance Corporation) are not affected and have been
affirmed with a stable outlook (see separate press releases). Moody's
added that it will be assessing whether revisions may be appropriate for
structured finance ratings that benefit from AIG support or that of its
subsidiaries.
These rating actions follow the company's announcement earlier today that
the filing of its 2004 Form 10-K continues to be delayed and that
the extensive financial review, which is not yet complete,
has yielded further evidence of financial mis-statements.
AIG has also announced that it will restate its financial statements for
the first three quarters of 2004 and for the full years 2003, 2002,
2001 and 2000. Since AIG's last announcement on March 30,
2005, the ongoing investigations and internal reviews indicate that
a) the number of transactions that appear to have been undertaken primarily
to enhance reported financial results, and b) the range of categories
and operating units involved in potential financial mis-statements
have increased. The company has also increased its estimate of
the after-tax financial impact of these items, up to a $2.7
billion reduction of shareholders' equity. While the estimated
aggregate affect of these mis-statements on AIG's equity
remains small relative to the company's total resources, Moody's
said that the breadth of these problems confirm that aggressive accounting
practices were greater and more widespread than Moody's had anticipated.
The extent of these problems leads Moody's to take a more conservative
perspective on the company's financial statements and indicative
financial metrics, even after considering adjustments identified
by the company's internal investigations. AIG's financial
profile, even after adjustments identified to-date,
is considered to be quite strong for the current rating category.
Moody's notes that AIG's Board has continued to act quickly and aggressively
to address both accounting-related issues and regulatory investigations
through an intensified internal review and associated management changes,
as well as recent changes to the composition of the Board of Directors
itself. Moody's believes that there is the potential for
further management changes at AIG, at least below the senior executive
level, as the company and the Board seek to strengthen leadership
in key operational and control-related areas, and that the
composition and structure of the Board will likely evolve as well,
to tighten its oversight processes and capabilities.
In leaving AIG Inc.'s long-term debt ratings on review
for possible further downgrade, Moody's cited continuing uncertainty
about the scope of ongoing regulatory investigations, internal reviews
and financial restatements and/or adjustments. Furthermore,
Moody's noted that -- as has already occurred -- the expanded
scope of AIG's accounting reviews and possible regulatory investigations
suggests continuing potential for further delay in the 10-K filing
and additional negative findings. Moody's noted that a favorable
resolution of internal and external accounting reviews and regulatory
actions, including filing of the company's 10-K annual
report with the SEC on or before May 31, 2005 would lead to a confirmation
of the Aa2 senior debt rating.
Conversely, a delay in the filing of the 10-K annual report
beyond May 31, 2005, or a downward adjustment by more than
10% of the company's shareholders' equity from that
reported at September 30, 2004 could result in a further downgrade
of the long-term ratings. Specifically, Moody's
noted that these conditions have been specified by recently-approved
waivers to certain covenants in AIG, Inc.'s and AIG
Funding, Inc.'s combined 5-year and 364-day
bank credit agreements. Moody's added that it believes that
AIG's cash flow, including the free cash flow of its finance
subsidiaries and the dividend capacity of its diverse insurance company
subsidiaries, together with flexibility provided by its $2
billion inter-company Credit Facility, provide AIG with substantial
internal liquidity to support its Prime-1 short-term ratings.
However, the external bank credit facilities are also an important
component of the company's alternative liquidity program.
Moody's continues to believe that the extent of ultimate financial restatements,
together with costs associated with potential regulatory or litigation
settlements or fines, will not likely be material to the enterprise's
overall earnings or capital strength, but noted, as before,
that they have become increasingly material to those of its Domestic Brokerage
Group operations, which constitute just under one-fifth of
the group's consolidated earnings. Moody's believes that AIG's
core operations are sufficiently well positioned that they can continue
to operate without material disruption, but that some of the group's
more credit-sensitive businesses could be impacted at the margin
from the group's recent troubles.
Despite recent problems, Moody's believes that AIG continues to
distinguish itself as the leading global insurance enterprise, in
terms of business breadth, consolidated revenues and earnings,
and market capitalization. The rating agency added that the group
maintains excellent market positions and franchise strength in each of
its major business segments: US and international general insurance,
life insurance, consumer and commercial finance, and retirement
services. Moody's also noted that AIG's financial flexibility is
supported by its formidable business franchise value, strong and
stable earnings capacity, robust internal capital generation,
modest holding company leverage, very high fixed-charge coverage,
and a favorable liquidity profile.
The following long-term debt ratings of AIG, Inc.
and its supported debt-issuing subsidiaries have been downgraded
and remain on review for possible further downgrade:
American International Group, Inc. - senior unsecured
debt to Aa2 from Aa1;
American General Corporation - guaranteed senior unsecured debt
to Aa2 from Aa1;
American General Capital II, III - guaranteed trust preferred
securities to Aa3 from Aa2;
American General Institutional Capital A and B - guaranteed trust
preferred stock to Aa3 from Aa2;
AIG Financial Products Corp. - guaranteed senior unsecured
debt to Aa2 from Aa1;
AIG Financial Products (Japan) Ltd. - guaranteed senior
unsecured debt to Aa2 from Aa1;
AIG Matched Funding Corp. - guaranteed senior unsecured
debt to Aa2 from Aa1;
AIG-FP Matched Funding Corp. - guaranteed senior
unsecured debt to Aa2 from Aa1;
Banque AIG SA - guaranteed senior unsecured debt to Aa2 from Aa1;
SunAmerica Inc. - supported senior unsecured debt to Aa2
from Aa1; supported convertible preferred to A1 from Aa3;
AIG SunAmerica Institutional Funding I, II and III (Jersey) Limited
-- funding agreement-backed senior debt to Aa2 from
Aa1;
AIG SunAmerica Global Financing II, III, IV, V,
VI, VII, IX, XI, XIII, XIV, XV,
XVI, XVII, XVIII, XIX, XX, XXI, XXII,
XXIII, XXIV, XV, XVI, XVII, XVIII,
XXIX -- funding agreement-backed senior debt to Aa2
from Aa1.
Ratings on the guaranteed debts of AIG's debt-issuing subsidiaries,
reflect the existence of an unconditional and irrevocable guarantee from
AIG Inc. with respect to these obligations. Ratings on the
funding agreement-backed notes of AIG SunAmerica entities reflect
their direct support from members of the SunAmerica Life Insurance group
(see below) as well as the SunAmerica companies' explicit support
from AIG Inc.
The following unsupported insurance financial strength ratings of members
of AIG's Domestic General Insurance Group subsidiaries have been
lowered, and remain under review for possible downgrade:
National Union Fire Insurance Company of Pittsburgh, PA -
insurance financial strength to Aa2 from Aa1;
American Home Assurance Company - insurance financial strength
to Aa2 from Aa1;
Birmingham Fire Insurance Company of Pennsylvania - insurance
financial strength to Aa2 from Aa1;
Commerce & Industry Insurance Company - insurance financial
strength to Aa2 from Aa1;
AIU Insurance Company - insurance financial strength to Aa2 from
Aa1;
New Hampshire Insurance Company - insurance financial strength
to Aa2 from Aa1;
Insurance Company of the State of Pennsylvania - insurance financial
strength to Aa2 from Aa1;
American International Specialty Lines Insurance Company - insurance
financial strength to Aa2 from Aa1.
Ratings on member of the Domestic Brokerage Group have been lowered in
consideration of the fact that the preponderance of the ongoing regulatory
investigations and potential accounting restatements or adjustments identified
to date are related to DBG's operations. Furthermore,
the group's continued significant trend of adverse reserve development
exceeding Moody's expectations in 2004 and continuing a trend from
prior years, is a heightened concern. The review will focus
on whether the intrinsic ratings on these operations support their current
ratings, and will include a review of DBG's loss reserve adequacy
and the likelihood of further additions to reserves -- especially
for excess and specialty casualty lines and asbestos and mass tort liabilities.
The following supported insurance financial strength ratings of members
of AIG's Mortgage Insurance Group have been lowered:
United Guaranty Residential Insurance Company (UGRIC) - supported
insurance financial strength to Aa2 from Aa1 (outlook: stable),
concluding the review;
United Guaranty Mortgage Indemnity Company (UGMIC) - supported
insurance financial strength to Aa2 from Aa1 (outlook: stable),
concluding the review
United Guaranty Residential Insurance Company of North Carolina (UGRIC
NC)- supported insurance financial strength to Aa2 from Aa1 (this
rating remains under review for possible downgrade).
The stable outlooks on UGRIC and UGMIC reflect Moody's view that
these companies' intrinsic financial strength, irrespective
of parental support, sustains their current ratings. The
continuing review of UGRIC NC's rating reflects support from AIG
Inc. and Moody's view that its stand-alone rating
is below the Aa2 level. For further discussion regarding the ratings
and outlooks on these subsidiaries, the reader is referred to Moody's
separate press release regarding AIG's United Guaranty Mortgage
Insurance operations.
The following insurance financial strength ratings of members of AIG's
Domestic and International Life Insurance Groups have been lowered,
and remain on review for possible downgrade:
SunAmerica Life Insurance Company - supported insurance financial
strength rating to Aa2 from Aa1;
First SunAmerica Life Insurance Company - supported insurance
financial strength rating to Aa2 from Aa1;
AIG SunAmerica Life Assurance Company - supported insurance financial
strength rating to Aa2 from Aa1;
American International Assurance Company (Bermuda) Ltd. (AIAB)
- supported insurance financial strength rating to Aa2 from Aa1;
American Life Insurance Company (ALICO) - insurance financial
strength rating to Aa2 from Aa1;
AIG Edison Life Insurance Company - insurance financial strength
rating to Aa2 from Aa1.
The ratings of the SunAmerica companies and of AIAB were lowered to AIG
Inc.'s senior unsecured rating level, because their
intrinsic ratings are viewed by Moody's as being below that of AIG
Inc., which provides explicit support to their ratings.
The ratings of ALICO and AIG Edison were lowered, in parallel with
AIG Inc., because the Japanese operations are viewed by Moody's
as an integrated business unit whose rating is lifted to the level of
the parent holding company due to its strong implicit support, given
that Moody's considers AIG's Japanese operations as being
a core franchise. Furthermore, ALICO's and AIAB's
balance sheet exposures to AIG Inc.'s common stock reduce
the quality of capital in these operations.
The following rating, whose outlook was previously negative,
has been placed on review for possible downgrade:
Transatlantic Reinsurance Company - insurance financial strength
rating at Aa2.
Moody's rating on Transatlantic, an AIG-majority owned subsidiary,
benefits from implied support of the Domestic Brokerage group and from
the holding company. The review will focus on whether Transatlantic's
intrinsic financial strength supports the current rating or one notch
lower at Aa3.
The following insurance financial strength ratings on members of AIG's
Domestic Life Insurance Group are not affected, but remain under
review for possible downgrade:
American General Life & Accident Insurance Company - insurance
financial strength rating at Aa1;
American General Life Insurance Company - insurance financial
strength rating at Aa1;
AIG Annuity Insurance Company - insurance financial strength rating
at Aa1;
United States Life Insurance Company in The City of New York -
insurance financial strength rating at Aa1;
Variable Annuity Life Insurance Company - insurance financial
strength rating at Aa1;
AIG Life Insurance Company -- (supported) insurance financial strength
rating at Aa1;
American International Life Assurance Company of New York -- (supported)
insurance financial strength rating at Aa1.
Moody's views AIG's Domestic Life operations as an integrated
business unit with a shared AIG brand, whose standalone creditworthiness
supports a rating level that is higher than the parent's.
The two subsidiaries within the Domestic Life group that have explicit
support from the parent holding company remain at Aa1 because of their
ties to Domestic Life and its higher intrinsic rating profile.
The following short-term ratings, which are supported by
AIG, Inc. - have been confirmed with a stable outlook:
AIG Funding, Inc. - rating for backed commercial
paper at Prime-1;
AIG Liquidity Corp. - backed short-term debt rating
at Prime-1.
The following ratings have been affirmed with a stable outlook:
International Lease Finance Corporation - senior unsecured debt
at A1, rating for commercial paper at Prime-1;
American General Finance Corporation - senior unsecured debt at
A1, rating for commercial paper at Prime-1;
American General Finance, Inc. - rating for commercial
paper at Prime-1;
Commo Loco, Inc. - commercial paper rating at Prime-1.
American International Group, Inc. (NYSE: AIG),
based in New York City, is the leading international insurance and
financial services organization, with operations in more than 130
countries and jurisdictions. The company is engaged through its
subsidiaries in international property and casualty insurance, life
insurance, retirement services, asset management and financial
services.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to repay punctually senior policyholder claims
and obligations. For more information, visit our website
at www.moodys.com/insurance.
New York
Alan Murray
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
