MOODY'S RAISES THE INSURANCE FINANCIAL STRENGTH RATINGS OF THREE SUNAMERICA LIFE INSURANCE SUBSIDIARIES TO Aaa FOLLOWING AIG'S ACQUISITION OF SUNAMERICA; DEBT RATING RAISED (SENIOR TO Aaa)
Moody's Investors Service raised the insurance financial strength ratings of SunAmerica's wholly owned life insurance companies -- SunAmerica Life Insurance Company (SunAmerica Life), Anchor National Life Insurance Company (Anchor National), and First SunAmerica Life Insurance Company to Aaa from A2 following the completion of the acquisition by American International Group, Inc.'s (AIG) of SunAmerica Inc. (SunAmerica). The rating agency also upgraded SunAmerica's Baa1 senior debt rating to Aaa, as well as SunAmerica's Prime-2 rating for commercial paper to Prime-1 based on the assumption of SunAmerica's obligations by AIG. These rating actions complete a rating review for possible upgrade initiated on August 21, 1998.
According to Moody's, the Aaa insurance financial strength ratings of the SunAmerica insurance companies are based on the explicit support provided to them from AIG. The ratings also reflect the companies' strong positions in the markets for individual annuities and guaranteed investment contracts (GICs), their expanding, partly-captive distribution network, advanced processing technology, solid profitability and increasing brand awareness. These strengths are tempered somewhat by the companies' narrow focus on low-margin, interest-sensitive accumulation products; by their dependence on GICs for a significant percentage of their profits; and by their high tolerance for risk assets (including below-investment grade and unrated securities, and partnership assets).
The rating agency stated that the union of SunAmerica with AIG will allow SunAmerica to capitalize on AIG's market leadership in numerous business lines and geographic areas, its superior profitability, and its exceptionally strong capitalization. Furthermore, Moody's believes that AIG has the earnings power and balance sheet strength to absorb any incremental financial strain associated with this acquisition.
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.
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, Moody's believes that AIG's high valuation for SunAmerica's shares implies continued aggressive growth expectations for SunAmerica's annuity and related asset management 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. Moreover, the rating agency stated that it expects AIG to temper some of the credit risk in SunAmerica's investment portfolio. Moody's also noted that future material acquisitions in businesses with higher risk profiles could affect AIG's and, thus, SunAmerica's ratings.
Moody's stated that the outlook for the ratings of the SunAmerica companies are stable, but depend on the rating of their ultimate parent, AIG.
The following ratings were raised:
SunAmerica Life Insurance Company--Insurance financial strength rating to Aaa from A2;
Anchor National Life Insurance Company--Insurance financial strength rating to Aaa from A2;
First SunAmerica Life Insurance Company--Insurance financial strength rating to Aaa from A2;
The following ratings were raised:
SunAmerica Inc.-- Senior debt rating to Aaa from Baa1, preferred stock rating to "aaa" from "baa2", and the rating of the company for commercial paper to Prime-1 from Prime-2; provisional senior debt rating to (P)Aaa from (P)Baa1, provisional subordinated debt rating to (P)Aa1 from (P)Baa1; provisional junior subordinated debt to (P)Aa1 from (P)Baa3; senior cumulative preferred stock and depositary shares to (P)"aaa" from (P)"baa2"; senior noncumulative preferred stock and depositary shares to (P)"aa1" from (P)"baa3"; junior cumulative preferred stock and depositary shares to (P)"aa1" from (P)"baa3"; and junior noncumulative preferred stock and depositary shares to (P)"aa1" from (P)"baa3".
SunAmerica Capital Trusts IV,V and VI: preferred stock rating to (P)"aaa" from (P)"baa2".
SunAmerica Capital Trusts II and III--preferred stock ratings to "aaa" from "baa2".
The following new ratings were assigned:
SunAmerica Life Insurance Company - Prime-1 short-term rating for its senior short-term policyholder claims and obligations.
Anchor National Life Insurance Company - Prime-1 short-term rating for its senior short-term policyholder claims and obligations.
First SunAmerica Life Insurance Company -- Prime-1 short-term rating for its senior short-term policyholder claims and obligations.
The following ratings of SunAmerica and its subsidiaries were withdrawn:
SunAmerica Inc. - "baal" preferred stock rating of Preferred Equity Redemption Cumulative Security Units (PERCS Units); these securities were converted to shares of SunAmerica common stock. SunAmerica's short-term rating for commercial paper at Prime-1 was withdrawn because the program was cancelled.
SunAmerica Life Insurance Company - short-term rating for commercial paper at Prime-1 was withdrawn because the program was cancelled;
Anchor National Life Insurance Company - short-term rating for commercial paper at Prime-1 was withdrawn because the program was cancelled.
SunAmerica Inc., headquartered in Los Angeles, California, is a financial services holding company specializing in the sale of savings and investment products to the pre-retirement market. At September 30, 1998, SunAmerica had consolidated assets of approximately $40 billion and shareholders' equity of $3 billion.
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.
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