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Related Issuers
AIA International Limited
AIG Edison Life Insurance Company
AIG Europe Limited
AIG Financial Products Corp.
AIG Life and Retirement
AIG Life Holdings, Inc.
AIG Property Casualty Company
AIG Property Casualty Inc.
AIG Specialty Insurance Company
AIG SunAmerica Global Financing II
AIG SunAmerica Global Financing III
AIG SunAmerica Global Financing IV
AIG SunAmerica Global Financing V
AIG SunAmerica Global Financing VI
AIG SunAmerica Global Financing VII
AIG SunAmerica Global Financing X
AIG SunAmerica Global Financing XI
AIG SunAmerica Global Financing XIII
AIG SunAmerica Global Financing XIV
AIU Insurance Company
American General Life & Accident Insurance Co
American General Life Ins. Co of Delaware
American General Life Insurance Company
American Home Assurance Company
American International Group, Inc.
American Intl. Life Assurance Co. of N.Y.
American Life Insurance Company
ASIF Global Financing XIX
ASIF Global Financing XV
ASIF Global Financing XVI
ASIF Global Financing XVIII
ASIF Global Financing XX
ASIF I
ASIF II
ASIF III (Jersey) Limited
Commerce and Industry Insurance Company
First SunAmerica Life Insurance Company
Insurance Co. of the State of Pennsylvania
International Lease Finance Corporation
National Union Fire Ins Co of Pittsburgh, Pa.
New Hampshire Insurance Company
SAFG Retirement Services, Inc.
Springleaf Finance Corporation
SunAmerica Annuity and Life Assurance Company
SunAmerica Life Insurance Company
United Guaranty Residential Insurance Co.
United States Life Ins. Co. in The City of NY
Variable Annuity Life Insurance Company
Western National Life Insurance Company
Rating Action:

Moody's affirms AIG's A3 senior debt rating with negative outlook

26 Feb 2010

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
No Related Data.
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