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Announcement:

Moody's affirms AIG's long-term ratings and maintains negative outlook

30 Sep 2010

New York, September 30, 2010 -- Moody's Investors Service has affirmed the long-term ratings of American International Group, Inc. (NYSE: AIG -- long-term issuer rating of A3) following the announcement of a plan for AIG to repay the U.S. government. Also affirmed were the Aa3 insurance financial strength (IFS) ratings of Chartis U.S. and the A1 IFS ratings of SunAmerica Financial Group (SFG). The rating outlook for these entities remains negative, reflecting the risk that the government would conclude its ownership and support of AIG before the company achieves a full recovery of its core operations and an exit from or de-risking of noncore businesses.

The Prime-1 short-term ratings of AIG and of certain guaranteed subsidiaries (see list below) have been placed on review for possible downgrade in light of the proposed elimination of government funding commitments, namely the repayment and termination of the senior secured credit facility provided by the Federal Reserve Bank of New York (FRBNY) and the drawdown of most or all of the Series F preferred stock commitment provided by the U.S. Treasury. Upon the elimination of these commitments, the short-term ratings would likely be downgraded to Prime-2, which is the typical short-term rating for corporate issuers that carry A3 long-term ratings.

The main elements of AIG's plan are: (i) repayment of the entire FRBNY credit facility through initial proceeds from divestitures and other resources, most importantly the proposed initial public offering of AIA Group Limited (AIA) and the pending sale of American Life Insurance Company (ALICO), (ii) allocation of most of the available amount of the Treasury's Series F preferred stock commitment to the purchase of AIA and ALICO preferred interests now held by the FRBNY, such that these interests would be held by Treasury and redeemed over time, mainly through follow-on proceeds from AIA and ALICO, and (iii) converting the Treasury's Series C, E and outstanding F preferred interests to AIG common stock to be sold on the open market over time. The overall plan provides a clear path to repay the FRBNY and to return AIG ownership to the public equity markets.

"The proposed repayment plan signals AIG's progress in stabilizing its core insurance operations and exiting noncore businesses," said Bruce Ballentine, Moody's lead analyst for AIG. "It also points the way toward a sustainable capital structure." On the other hand, the plan hastens the end of explicit government support for AIG, which has been an important consideration in the company's ratings. While the announced plan would involve the government retaining significant ownership of AIG, at least in the near term, Moody's believes that the ownership stake and implicit support will decline over the next couple of years. Therefore, the ratings of AIG and its subsidiaries will increasingly depend on their stand-alone credit profiles, raising the risk of downgrades if the credit metrics do not improve as expected. "The current ratings also reflect our expectation that AIG will maintain sufficient capital and liquidity to withstand severe stresses in the insurance and financial markets following the removal of government funding facilities," said Mr. Ballentine.

Moody's noted that the IFS ratings of Chartis U.S. and SFG incorporate one notch of rating uplift versus their respective intrinsic credit profiles, based on government support and an expectation that the intrinsic profiles will continue to improve over the next 6-12 months. Any shortfall in this regard could result in rating downgrades. A downgrade of the parent company and its guaranteed subsidiaries could be prompted by weakness in the core operations or by the removal of government support before the noncore businesses are divested or reduced to the point that they no longer pose material risk to the group.

Moody's cited the following factors that could lead to a stable rating outlook for AIG: (i) improvement in the intrinsic credit profiles of Chartis and SFG, (ii) exiting or substantially de-risking noncore businesses, (iii) maintenance of robust liquidity within the major operations and at the parent company, and (iv) a stand-alone capital structure that is consistent with the current ratings (e.g., adjusted financial leverage in the range of 20%-30% with pretax interest coverage in mid-to-high single digits).

The rating agency cited the following factors that could lead to rating downgrades: (i) failure to improve certain credit metrics of the core insurance operations, such as profitability, reserve adequacy at Chartis and investment performance at SFG, (ii) retention of noncore business risks that could strain the capital and/or liquidity of the group, or (iii) a stand-alone capital structure that is indicative of lower ratings.

AIG, based in New York City, is a leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG shareholders' equity was $75 billion as of June 30, 2010.

The following ratings have been affirmed with a negative outlook:

American International Group, Inc. -- long-term issuer rating at A3, senior unsecured debt at A3, subordinated debt at Ba2;

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;

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 (short-term ratings) -- First SunAmerica Life Insurance Company, SunAmerica Annuity and Life Assurance Company, SunAmerica Life Insurance Company -- short-term insurance financial strength at Prime-1;

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.

The following ratings have been placed on review for possible downgrade:

American International Group, Inc. -- short-term issuer rating at Prime-1;

AIG Financial Products Corp. -- backed short-term debt at Prime-1;

AIG Funding, Inc. -- backed short-term debt at Prime-1;

AIG Liquidity Corp. -- backed short-term debt at Prime-1;

AIG Matched Funding Corp. -- backed short-term debt at Prime-1.

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.

The principal methodologies used in rating AIG and its subsidiaries were Moody's Global Rating Methodology for Property and Casualty Insurers and Moody's Global Rating Methodology for Life Insurers, both published in May 2010. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found on Moody's website.

Please see ratings tab on the AIG page on Moodys.com for the last rating action and the rating history.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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
MD - Insurance
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's affirms AIG's long-term ratings and maintains negative outlook
No Related Data.
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