Affirms A2 insurance financial strength ratings of AIG Life and Retirement with stable outlook
New York, January 26, 2016 -- Moody's Investors Service has affirmed the Baa1 senior unsecured
debt rating of American International Group, Inc. (NYSE:
AIG), and has downgraded the insurance financial strength (IFS)
ratings of AIG's property casualty (P&C) subsidiaries in the
US and Canada to A2 from A1. The rating agency also affirmed the
A2 IFS ratings of AIG Life and Retirement (AIG L&R). These
actions follow AIG's announcement of a large P&C reserve charge
along with an updated strategic plan to narrow its focus through selected
divestitures, improve its financial performance, and return
at least $25 billion of capital to shareholders over the next two
years. The rating outlook for these entities is stable.
Moody's placed on review for downgrade the Baa1 IFS rating of United
Guaranty Residential Insurance Company (UGRIC) based on AIG's plan
to conduct an initial public stock offering of up to 19.9%
of UGRIC's parent, United Guaranty Corporation, as a
first step toward full separation. The rating agency also placed
on review for downgrade the A2 IFS rating of AIG's P&C subsidiary
in China given that this rating reflects implicit and explicit support
from AIG P&C affiliates. (Please see below for a complete list
of affected ratings.)
RATINGS RATIONALE
"The downgrade of AIG's main P&C units reflects persistent
adverse loss development and weak underwriting results plus the ongoing
challenge of setting reserves for long-tail casualty lines,"
said Bruce Ballentine, Moody's lead analyst for AIG.
AIG took a $3.6 billion charge to strengthen its P&C
loss reserves, effective in Q4 2015, continuing a history
of reserve problems that included charges totaling about $7 billion
in 2009-10. The company has announced underwriting and expense
initiatives to boost its P&C profits, but these efforts will
be constrained by increasingly difficult market conditions, said
Moody's. Offsetting the reserve charge, AIG contributed
about $3 billion of capital to its P&C subsidiaries,
drawing on the large liquidity pool the parent holds to support its operating
subsidiaries as needed.
In affirming the AIG L&R ratings, Moody's cited the group's
strong market presence and good capitalization. "AIG L&R
is a large, diversified US life insurer, although streamlining
initiatives under the new strategic plan could weaken the credit profile,"
said Laura Bazer, Moody's lead analyst for AIG L&R.
With the AIG L&R and P&C ratings aligned at A2, AIG now
has a two-notch differential between its main IFS ratings and the
parent senior debt rating, rather than the standard three-notch
spread. "Our affirmation of the parent ratings, with
narrower notching, reflects the diversification benefit from owning
sizable P&C and life insurance businesses along with the company's
good geographic spread," said Mr. Ballentine.
AIG PARENT
AIG's Baa1 senior debt rating is based on its leading market positions
in global P&C insurance and US life insurance, its diversification
across products and geographic regions, its successful divestment/unwinding
of noncore holdings, and the healthy liquidity of the parent company.
These strengths are tempered by the company's record of weak profits and
volatile reserves in P&C insurance, its above-average
exposure to structured and alternative investments (although the company
plans to reduce its hedge fund allocation), and the complexity of
risk management across its many business lines and countries/regions.
AIG aims to return at least $25 billion of capital to shareholders
over the next two years, funded through a combination of ordinary
dividends and tax-sharing payments from operating companies,
capital released from operating companies through reinsurance transactions
and reduced hedge fund investments, proceeds from divestitures,
and increased financial leverage at the parent company. Moody's
expects that AIG will manage these initiatives so as to balance the interests
of creditors and shareholders, maintaining ample resources to support
the operating subsidiaries as needed.
Moody's cited the following factors that could lead to a rating upgrade
for AIG: (i) improvement in the stand-alone credit profiles
of the US P&C operations and AIG L&R, (ii) consolidated
return on capital in the high single digits, and (iii) improvement
in financial flexibility (e.g., total leverage below
25%, pretax interest coverage in the high single digits).
The following factors could lead to a rating downgrade: (i) deterioration
in the stand-alone credit profiles of major operating units,
(ii) insufficient liquidity within operating units or at the parent relative
to the company's or Moody's stress tests, or (iii) a decline in
financial flexibility (e.g., total leverage of 35%
or higher, pretax interest coverage below four times). To
the extent AIG sheds major businesses and reduces its diversification,
Moody's could widen the notching between the IFS ratings of the
operating companies and the senior debt rating of the parent.
PROPERTY CASUALTY
AIG has one of the world's largest P&C networks, writing
a broad range of commercial and consumer coverages. The A2 IFS
ratings of the US and Canadian subsidiaries are based on their market
leadership in commercial and specialty lines, diversified product
offerings, and expertise in writing large and complex risks.
These units also benefit from AIG's global footprint, which
helps the group serve multinational accounts and deploy resources to markets
and business lines that offer favorable returns.
Challenges for the P&C group include a record of adverse loss development
and weak profitability, along with exposure to natural and man-made
catastrophes. A majority of the reserves are in long-tail
casualty lines, heightening the risk and uncertainty regarding ultimate
losses. AIG aims to improve its profitability through better client
segmentation and risk selection, exiting subpar business units,
greater use of reinsurance, and reducing its expenses. However,
this effort may be hampered by a downward trend in commercial P&C
pricing, continued low yields on fixed-income investments,
and modest global economic growth.
Moody's cited the following factors that could lead to a rating
upgrade for AIG's US pool members: (i) improvement in underwriting
results and profitability (e.g., combined ratio consistently
below 100%, return on capital above 8%), (ii)
consistent favorable development of loss reserves, and (iii) improvement
in AIG's financial flexibility (e.g., total
leverage below 25%, pretax interest coverage in the high
single digits).
The following factors could lead to a rating downgrade: (i) deterioration
in underwriting results (e.g., combined ratio above
103%, return on capital below 5%), (ii) significant
further adverse loss development, or (iii) a decline in statutory
surplus by more than 10% in a given year.
AIG's Canadian subsidiary could see a rating upgrade in the event
of: (i) a shift in business mix to more granular, less volatile
product lines, (ii) lower gross catastrophe risk, (iii) strong
profitability with a return on capital above 10%, and (iv)
rating upgrades of other AIG P&C companies.
The Canadian subsidiary's rating could be downgraded in the event
of: (i) outsized growth in more volatile product lines, (ii)
a return on capital below 8% on a sustained basis, (iii)
a meaningful decline in regulatory capital (e.g.,
decline of more than 10% in a given year or a Canadian MCT regulatory
solvency ratio below 230%), or (iv) rating downgrades of
other AIG P&C companies.
AIG's Chinese subsidiary is a leading foreign insurer in that market,
with good brand recognition and a global network to serve multinational
clients. However, the foreign ownership leads to regulatory
constraints, limiting the company's growth rate and elevating
its expense ratio. In reviewing this company's A2 IFS rating
for downgrade, Moody's will consider the implicit and explicit
support it receives from AIG, as well as the strategic importance
of the Chinese presence to AIG. Deep integration and support could
lead to a rating confirmation, whereas low growth potential and
limited parental support could lead to a downgrade.
AIG LIFE AND RETIREMENT
The A2 IFS ratings of AIG L&R are based on the group's continuing
significant (top 10 in several cases) positions in a number of individual
annuity, life insurance and retirement product markets along with
good capitalization, said Moody's. Reducing hedge fund
exposure, as the company has proposed, should improve the
quality of AIG L&R's investments, although it will incrementally
lower long-term net investment income and profitability.
Offsetting these strengths are AIG L&R's significant exposure to interest
rate risk and spread compression from its dominant fixed annuity businesses,
and a growing exposure to equity market and hedging risks, largely
through its growing individual variable annuity business.
AIG L&R's streamlining of distribution channels, including
the planned sale of AIG Advisor Group, and its greater use of life
reinsurance, will result in a smaller, more narrowly focused
life insurance operation with lower capital levels over the next two years.
Moody's still expects the group to maintain a consolidated NAIC
risk-based capital (RBC) ratio of at least 425% and statutory
return on capital (ROC) in the 4%-8% range,
consistent with its ratings.
Moody's said the following factors could lead to a rating upgrade
for AIG L&R: (i) continued leading market presence and business
diversification, (ii) consolidated statutory ROC consistently exceeding
8%, (iii) NAIC RBC ratio of at least 425% company
action level, with no decline in consolidated statutory surplus
exceeding 10% in a given year, and (iv) improvement in AIG's
financial flexibility (e.g., total leverage below
25%, pretax interest coverage in the high single digits).
The following factors could lead to a rating downgrade: (i) consolidated
statutory ROC below 4% and/or continued earnings volatility,
(ii) a decline in consolidated statutory surplus by more than 10%
in a given year, (iii) NAIC RBC ratio below 350% company
action level, or (iv) pretax gross asset losses of 35 basis points
or more in a given year.
UNITED GUARANTY
Moody's said the review for downgrade of UGRIC's Baa1 IFS
rating is based on AIG's planned initial public offering of up to
19.9% of UGRIC's parent, UGC, as a first
step towards full separation, pending regulatory and other approvals.
The rating agency will consider what implicit and explicit support AIG
will provide to UGRIC following the spinoff, including the potential
termination of a capital maintenance agreement. UGRIC's IFS
rating currently reflects a Baa2 stand-alone assessment plus one
notch of rating uplift based on AIG support.
Moody's cited aspects of the proposed spinoff that would be credit
negative for UGC and UGRIC, including fewer funding sources,
a higher cost of capital, and higher reporting and compliance expenses
as a public company. Nevertheless, the rating agency expects
that UGRIC will remain a leading mortgage insurer, with AIG providing
reinsurance protection for a transition period, or arranging for
substitutes, to ensure that UGRIC complies with capital standards
of Fannie Mae and Freddie Mae.
A multi-year extension of AIG's capital maintenance agreement
and reinsurance support could lead to a rating confirmation for UGRIC.
Absent such support, Moody's would likely downgrade UGRIC's
IFS rating to its stand-alone credit profile of Baa2.
RATING ACTIONS
Moody's has affirmed the following ratings with a stable outlook:
American International Group, Inc. -- long-term
issuer rating Baa1, senior unsecured debt Baa1, junior subordinated
debt Baa2 (hyb), short-term issuer rating Prime-2,
senior unsecured shelf/MTN program (P)Baa1, subordinated shelf (P)Baa2,
junior subordinated shelf (P)Baa2, short-term note issuance
program (P)Prime-2;
AIG Life and Retirement -- American General Life Insurance Company,
The United States Life Insurance Company in the City of New York,
The Variable Annuity Life Insurance Company -- insurance financial
strength A2;
AIG Life and Retirement funding agreement-backed notes --
AIG Global Funding, AIG SunAmerica Global Financing Trusts,
ASIF II, ASIF III (Jersey) Limited -- senior secured debt A2,
senior secured MTN program (P)A2;
AIG Life Holdings, Inc. -- backed senior unsecured debt
Baa1, backed junior subordinated debt Baa2 (hyb);
Global Capital Markets long-term ratings -- AIG Financial
Products Corp., AIG-FP Capital Funding Corp.,
AIG-FP Matched Funding Corp., AIG-FP Matched
Funding (Ireland) P.L.C., AIG Management France
S.A., AIG Matched Funding Corp. -- backed
long-term issuer rating or backed senior unsecured debt Baa1,
backed MTN program (P)Baa1;
Global Capital Markets short-term ratings -- AIG Financial
Products Corp., AIG Matched Funding Corp. --
backed short-term debt Prime-2;
SAFG Retirement Services, Inc. -- backed senior unsecured
debt Baa1.
Moody's has placed the following ratings on review for downgrade:
AIG Insurance Company China, Ltd. -- insurance financial
strength A2;
United Guaranty Residential Insurance Company -- insurance financial
strength Baa1.
Moody's has downgraded the following ratings and assigned a stable
outlook:
AIG Insurance Company of Canada -- insurance financial strength to
A2 from A1;
AIG Property Casualty U.S., Inc. -- AIG
Assurance Company, AIG Property Casualty Company, AIG Specialty
Insurance Company, AIU Insurance Company, American Home Assurance
Company, Commerce and Industry Insurance Company, Granite
State Insurance Company, Illinois National Insurance Co.,
Lexington Insurance Company, National Union Fire Insurance Company
of Pittsburgh, Pa., New Hampshire Insurance Company,
The Insurance Company of the State of Pennsylvania -- insurance financial
strength to A2 from A1.
The principal methodologies used in rating AIG Financial Products Corp.,
AIG Life Holdings, Inc., AIG Management France S.A.,
AIG Matched Funding Corp., AIG-FP Capital Funding
Corp., AIG-FP Matched Funding (Ireland) P.L.C.,
AIG-FP Matched Funding Corp., American International
Group, Inc., and SAFG Retirement Services, Inc.
were Global Life Insurers published in December 2015, Global Property
and Casualty Insurers published in December 2015, and Mortgage Insurers
published in December 2015. The principal methodology used in rating
AIG SunAmerica Global Financing X, American General Life Insurance
Company, ASIF II, ASIF III (Jersey) Limited, United
States Life Ins. Co. in The City of NY, Variable Annuity
Life Insurance Company, and AIG Global Funding were Global Life
Insurers published in December 2015. The principal methodology
used in rating AIG Assurance Company, AIG Property Casualty Company,
AIG Specialty Insurance Company, AIU Insurance Company, American
Home Assurance Company, Commerce and Industry Insurance Company,
Granite State Insurance Company, Illinois National Insurance Co.,
Insurance Co. of the State of Pennsylvania, Lexington Insurance
Company, National Union Fire Ins Co of Pittsburgh, Pa.,
New Hampshire Insurance Company, AIG Insurance Company of Canada,
and AIG Insurance Company China, Ltd. were Global Property
and Casualty Insurers published in December 2015. The principal
methodology used in rating United Guaranty Residential Insurance Co.
were Mortgage Insurers published in December 2015. Please see the
Credit Policy page on www.moodys.com for a copy of these
methodologies.
Moody's insurance financial strength ratings are opinions of the
ability of insurance companies to pay senior policyholder claims and obligations.
AIG, based in New York City, is a leading international insurance
organization serving customers in more than 100 countries and jurisdictions.
AIG reported total revenues of $44 billion and net income attributable
to AIG of $4 billion for the first nine months of 2015.
AIG shareholders' equity was $99 billion as of September
30, 2015.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The rating for AIG Insurance Company of Canada has been disclosed to the
rated entity or its designated agent(s) and issued with no amendment resulting
from that disclosure.
Moody's has not provided advisory services but may have provided
Ancillary or Other Permissible Service(s) to the rated entity, its
related third parties and/or the party that requested the rating within
the past two years (including during the most recently ended fiscal year).
Please see the special report "Ancillary or other permissible services
provided to entities rated by MIS's credit rating agency in Canada"
on the ratings disclosure page www.moodys.com/disclosures
on our website for further information.
The person who approved American International Group, Inc.,
American General Life Insurance Company, The United States Life
Insurance Company in the City of New York, The Variable Annuity
Life Insurance Company, ASIF II, ASIF III (Jersey) Limited,
AIG Life Holdings, Inc., AIG Financial Products Corp.,
AIG-FP Capital Funding Corp., AIG-FP Matched
Funding Corp., AIG-FP Matched Funding (Ireland) P.L.C.,
AIG Management France S.A., AIG Matched Funding Corp.,
SAFG Retirement Services, Inc., United Guaranty Residential
Insurance Company, AIG Insurance Company of Canada, AIG Assurance
Company, AIG Property Casualty Company, AIG Specialty Insurance
Company, AIU Insurance Company, American Home Assurance Company,
Commerce and Industry Insurance Company, Granite State Insurance
Company, Illinois National Insurance Co., Lexington
Insurance Company, National Union Fire Insurance Company of Pittsburgh,
Pa., New Hampshire Insurance Company, The Insurance
Company of the State of Pennsylvania, and AIG Global Funding credit
ratings is Robert Riegel, MD-Insurance, Financial Institutions
Group, 212-553-4663. The person who approved
AIG Insurance Company China, Ltd. credit rating is Stephen
Long, MD-Financial Institutions, Financial Institutions
Group, 852-3758-1306.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the Website.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Bruce Ballentine
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms AIG's Baa1 senior debt rating, downgrades P&C insurance ratings to A2 from A1, stable outlook