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Rating Action:

MOODY'S DOWNGRADES TO Aa3 RATING OF IDS LIFE; CONFIRMS RATINGS OF AMERICAN EXPRESS COMPANY

18 Jul 2001
MOODY'S DOWNGRADES TO Aa3 RATING OF IDS LIFE; CONFIRMS RATINGS OF AMERICAN EXPRESS COMPANY

New York, July 18, 2001 -- Moody's Investors Service today downgraded to Aa3 from Aa2 the insurance financial strength ratings of IDS Life Insurance Company (IDS Life) and its two wholly owned life insurance subsidiaries, IDS Life Insurance Company of New York (IDS Life of NY) and American Enterprise Life Insurance Company (American Enterprise). Moody's simultaneously changed the rating outlooks on these companies to stable from negative.

At the same time, Moody's confirmed its ratings of the insurance companies' ultimate parent corporation, American Express Company (senior debt at A1), and its financial services affiliates, based on solid consolidated earnings that cover the charge-offs and enable capital levels to be maintained. American Express management's decision to effectively divert funds from its share buyback program to bolster its net investment position is a credit positive. The rating outlooks are stable.

American Express announced that it is taking a $826 million second quarter charge on account of poor investment performance in American Express Financial Advisors' high yield portfolio. This is the third charge in three consecutive quarters that American Express has taken in response to an elevated level of high yield defaults and credit losses occurring and expected to occur in the future. The majority of these losses are occurring in the life insurance company investment portfolios. These losses are arising primarily in the company's direct and structured high yield portfolios, and secondarily in its structured securities investment grade holdings where the underlying collateral consisted of high yield instruments.

American Express' cumulative investment charges have exceeded $1.1 billion dollars on a pre-tax basis during the last nine months. In addition to recognizing credit losses that have or are expected to occur, about one-third of these charges relate to realized losses that are expected to be incurred as part of a portfolio restructuring process. This process should improve the risk/reward profile of the company's investment portfolios and reduce the credit risk of the remaining investments. The portfolio changes include a reduction in the gross amount of high yield exposure to a level in line with industry norms, a shift to better quality high yield investments, and reduced credit concentrations. Moody's views all these moves as credit positives.

IDS Life, its subsidiaries and affiliates will continue to benefit from the strong support of American Express, the company's well-known brand, a large financial planner network, and favorable persistency. Further evidence of American Express's strong support for the operation is a $400 million capital contribution that American Express will make to the life companies to offset the reduction in their capital positions. Moody's believes that the ratings of IDS Life and its subsidiaries are more appropriately positioned at the Aa3 rating level given their clear reliance on American Express for financial support in such circumstances.

Negative factors affecting IDS Life and its affiliates include an increasingly competitive environment for financial planning and investment products, a heavy concentration in lower margined separate accounts and other products that are sensitive to equity market fluctuations, and continuing reorganizations of its planner network.

American Express Company's ratings reflect Moody's recognition of the global American Express brand and service quality, its well-established lines of business, and robust cash flow. Diverse products are offered worldwide through its principal operating subsidiaries: American Express Travel Related Services (TRS), American Express Financial Advisors (AEFA), and American Express Bank, Limited.

The ratings also reflect sound financial management. Profitability and cash flow are strong, and share buybacks have been tempered to ensure appropriate capital formation rates. Management's decision to strengthen its portfolio position through the diversion of funds from its share buyback program should be a long-term benefit for company creditors.

The charges will reduce the parent's financial flexibility over the near-term, however. Furthermore, macroeconomic challenges may have multifaceted impacts on the company: TRS's charge card profitability is reduced by the slowdown in business spending during a recession, AEFA's profitability is hurt by stock market declines, and rising unemployment would pressure consumer credit metrics. Nevertheless, the company has demonstrated its capacity and willingness to balance creditor interests in the face of corporate challenges.

Subsidiary ratings also incorporate a case-by-case assessment of the benefits of implicit (or in some instances, explicit) support from affiliates; American Express Company's capital infusion into AEFA illustrates the parent's interest in maintaining the credit standing of this subsidiary.

The following ratings have been changed:

IDS Life Insurance Company - long-term insurance financial strength rating to Aa3 from Aa2.

IDS Life Insurance Company of New York - long-term insurance financial strength rating to Aa3 from Aa2.

American Enterprise Life Insurance Company - long-term insurance financial strength rating to Aa3 from Aa2.

The following ratings have been confirmed:

American Express Company - senior debt at A1; subordinate debt at A2; short-term debt at P-1; issuer rating at A1; senior and subordinate debt shelf at (P)A1 and (P)A2; and cumulative preferred stock and noncumulative preferred stock shelf at (P)"a1" and (P)"a2".

American Express Bank Ltd. - senior debt at A2; subordinate debt at A3; and short-term debt at P-1.

American Express Centurion Bank - senior debt at Aa3; short-term debt at P-1; long-term deposits at Aa3; short-term deposits at P-1; issuer rating at Aa3; long-term and short-term OSO ratings at Aa3 and P-1.

American Express Company Capital Trust I - preferred stock at "a1".

American Express Company Capital Trust II - preferred stock at (P)"a1".

American Express Credit Corporation - senior debt at Aa3; subordinate debt at A1; short-term debt at P-1; issuer rating at Aa3; senior debt shelf at (P) Aa3.

American Express Financial Advisors - issuer rating at A1

American Express Financial Corp. - senior debt at A1; issuer rating at A1.

American Express O/S Credit Corporation Ltd. - senior debt at Aa3; subordinate debt at A1; short-term debt at P-1.

American Express Travel Related Services Co., Inc. -- senior debt at Aa3; subordinate debt at A1; short-term debt at P-1; issuer rating at Aa3.

IDS Life is headquartered in Minneapolis, Minnesota and at March 31, 2001 had approximately $45 billion in statutory assets and $2.0 billion in statutory capital. As of the same date, IDS Life of NY had approximately $2.6 billion in statutory assets and $236 million in statutory capital, and American Enterprise had approximately $4.4 billion in statutory assets and $323 million in statutory capital.

Moody's Insurance Financial Strength Ratings are opinions of the ability of insurance companies to punctually repay senior policyholder claims and obligations. For more information, visit our Web site at www.moodys.com/insurance.

New York
Robert Riegel
Managing Director
Life Insurance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Arthur Fliegelman
VP - Senior Credit Officer
Life Insurance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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