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Global Credit Research - 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
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
AIG Funding, Inc. -- backed short-term debt at
AIG Liquidity Corp. -- backed short-term debt at Prime-1;
AIG Matched Funding Corp. -- backed short-term debt
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
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
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.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
MD - Insurance
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms AIG's long-term ratings and maintains negative outlook
250 Greenwich Street
New York, NY 10007
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