New York, February 26, 2010 -- Moody's Investors Service has affirmed the ratings of American International
Group, Inc. (NYSE: AIG -- long-term issuer
rating of A3, short-term issuer rating of Prime-1)
following the company's announcement of results for the fourth quarter
and full year of 2009. Also affirmed were the Aa3 insurance financial
strength ratings (IFSRs) of Chartis U.S. and the A1 IFSRs
of SunAmerica Financial Group (SFG). The rating affirmations reflect
the strong market presence of Chartis and SFG, a general stabilization
of these businesses since AIG's credit crisis in 2008, and
Moody's understanding that the government will continue to support
AIG throughout its restructuring. The rating outlook for AIG and
Chartis remains negative. The rating outlook for SFG has been changed
to negative from developing, given that these operations are no
longer for sale. (See below for a complete list of rating actions.)
The current ratings of AIG and its core subsidiaries reflect uplift from
their stand-alone credit profiles given the government support.
The ratings are positioned at levels expected to be appropriate for the
group on a stand-alone basis when the restructuring is complete
and the government's support and ownership of AIG ends. The
expectation is that the stand-alone credit profile of the group
will improve over the next 2-3 years as Chartis and SFG continue
to strengthen their business and financial profiles and as AIG continues
to dispose of and de-risk its non-core businesses.
The negative outlook reflects the headwinds of a weak global economy and
a soft commercial property & casualty (P&C) market as well as
the significant execution risk associated with AIG's restructuring
plan.
AIG's core operations include global P&C insurance (Chartis),
domestic life insurance and retirement services (SFG) and two Japanese
life insurers (AIG Edison Life Insurance Company and AIG Star Life Insurance
Co., Ltd.). "All of these businesses
were negatively impacted by AIG's credit crisis in 2008,"
said Bruce Ballentine, Moody's lead analyst for AIG.
"In general, they experienced higher client surrenders and
non-renewals, lower new business volumes and an erosion of
market share." Some business lines saw their premium volumes
shrink by 20% or more versus pre-crisis levels. Gradually,
the government intervention has given greater confidence to AIG's
clients, distributors and employees, leading to more favorable
client retentions and new business volumes in recent quarters.
For Chartis, another challenge has been the need to strengthen loss
reserves for prior years in an environment with steady competitive pressures
and soft commercial P&C pricing. In the fourth quarter of 2009,
following internal and external reserve analyses, Chartis took a
$2.3 billion pretax reserve charge (about 3.5%
of net reserves before the charge) pertaining mainly to the excess casualty
and excess workers' compensation lines. "Given the
company's willingness to write large and complex risks, we
believe it is more prone to adverse loss development than most similarly
rated peers," said Mr. Ballentine. "Still,
Chartis has sufficient resources to boost reserves and keep investing
in its business."
Government-funded support for AIG's core operations has included
large capital contributions to SFG and the purchase of illiquid,
non-core affiliates from Chartis for cash. These transactions
have improved the amount and quality of capital within these operations
along with their regulatory capital ratios. The IFSRs of Chartis
U.S. and SFG incorporate one notch of rating uplift versus
their intrinsic credit profiles. "The sound capitalization,
and the availability of additional funding if needed, will help
Chartis and SFG to strengthen their intrinsic credit profiles over time,"
said Mr. Ballentine. "Should their profitability and
other credit metrics fail to improve as expected, then their ratings
would likely be downgraded."
The A3 rating of AIG is notched downward from the IFSRs of its main operating
units to reflect the parent's structural subordination. At
the same time, the parent rating benefits from government support,
which offsets the downward rating pressure from various non-core
businesses with weaker credit profiles, such as AIG Financial Products
Corp., International Lease Finance Corporation, American
General Finance Corporation, United Guaranty Residential Insurance
Company and the parent company's Matched Investment Program.
The rating also reflects Moody's expectation that these weaker non-core
businesses will either be sold or become immaterial to AIG's overall
risk profile prior to the government's exit. Without government
support to facilitate the restructuring, the parent rating would
be lower.
Two of AIG's non-core businesses, American Life Insurance
Company (ALICO) and AIA Group Limited (AIA), are high-quality
international life insurers designated for sale either to a strategic
buyer or through a series of public offerings. Moody's understands
that proceeds from such divestitures would be applied first, toward
repayment of the respective preferred interests ($9 billion in
ALICO, $16 billion in AIA) in these entities held by the
Federal Reserve Bank of New York (FRBNY), second, toward repayment
of AIG's senior secured credit facility with the FRBNY, and
third, toward repayment of other debts.
Moody's expects that the government ownership and support of AIG
will remain in place until the group can demonstrate intrinsic credit
strengths that are consistent with current ratings. This expectation
is based on (i) government funding commitments that are already in place,
(ii) the record of creditor-friendly actions taken by the Fed and
Treasury throughout the restructuring process, and (iii) most importantly,
the Treasury's economic incentive to maximize recoveries from its
preferred interests in AIG. Once the FRBNY loan is repaid,
the most likely repayment mechanism for the Treasury, in Moody's
view, would be to convert its preferred interests to common stock
to be sold through one or more public offerings. The rating agency
believes that such sales would be most effective if AIG's core insurance
operations were performing well and the non-core businesses were
divested or de-risked.
For the fourth quarter of 2009, AIG reported consolidated revenues
of $96 billion and a net loss attributable to AIG of $8.9
billion. Much of the quarterly loss pertains to the accelerated
amortization of a prepaid commitment fee and a loss on the sale of Taiwan-based
Nan Shan Life Insurance Company, Ltd., both of which
were previously announced. The quarterly result also reflects the
reserve charge at Chartis ($1.5 billion after taxes) and
a charge for tax benefits that are not presently recognizable ($2.7
billion).
AIG, based in New York City, is a leading international insurance
organization with operations in more than 130 countries and jurisdictions.
Shareholders' equity attributable to AIG was $70 billion as of
December 31, 2009.
The last rating action affecting AIG took place on March 2, 2009,
when Moody's confirmed the A3 senior unsecured debt rating, concluding
a review for possible downgrade, and assigned a negative outlook.
The principal methodologies used in rating AIG and its subsidiaries were
Moody's Global Rating Methodology for Property and Casualty Insurers,
published in July 2008, and Moody's Global Rating Methodology for
Life Insurers, published in September 2006, both available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Rating Methodologies sub-directory on Moody's
website.
Moody's has affirmed the following ratings with a negative outlook:
American International Group, Inc. -- long-term
issuer rating at A3, senior unsecured debt at A3, subordinated
debt at Ba2, short-term issuer rating at Prime-1;
Chartis Insurance UK Limited -- insurance financial strength at A1;
Chartis U.S. -- AIU Insurance Company; American
Home Assurance Company; Chartis Property Casualty Company; Chartis
Specialty Insurance Company; Commerce and Industry Insurance Company;
National Union Fire Insurance Company of Pittsburgh, Pennsylvania;
New Hampshire Insurance Company; The Insurance Company of the State
of Pennsylvania -- insurance financial strength at Aa3.
Moody's has affirmed the following ratings and changed the outlook
to negative from developing:
SunAmerica Financial Group -- American General Life and Accident
Insurance Company, American General Life Insurance Company,
American General Life Insurance Company of Delaware, American International
Life Assurance Company of New York, First SunAmerica Life Insurance
Company, SunAmerica Annuity and Life Assurance Company, SunAmerica
Life Insurance Company, The United States Life Insurance Company
in the City of New York, The Variable Annuity Life Insurance Company,
Western National Life Insurance Company -- insurance financial strength
at A1;
SunAmerica Financial Group (funding agreement-backed note programs)
-- AIG SunAmerica Global Financing Trusts, ASIF I & II,
ASIF III (Jersey) Limited, ASIF Global Financing Trusts --
senior secured debt at A1;
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually pay senior policyholder claims and
obligations. For more information, please visit our website
at www.moodys.com/insurance.
New York
Bruce Ballentine
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
Moody's affirms AIG's A3 senior debt rating with negative outlook
