New York, September 09, 2014 -- Moody's Investors Service has affirmed the ratings of American International
Group, Inc. (NYSE: AIG -- senior unsecured debt
Baa1, short-term issuer rating Prime-2). The
rating agency also affirmed the A1 insurance financial strength (IFS)
ratings of US-based members of AIG Property Casualty (AIG PC),
the A2 IFS ratings of AIG Life and Retirement (AIG L&R), the
Baa1 IFS ratings of Mortgage Guaranty, and other ratings supported
by these entities (see list below). The outlook for these ratings
is stable.
RATINGS RATIONALE
"AIG is gradually strengthening its credit profile across its core
insurance businesses and at the parent," said Bruce Ballentine,
Moody's lead analyst for AIG. Positive developments include
a focus on risk-adjusted profitability at AIG PC, expanded
and more balanced product offerings at AIG L&R, declining credit
losses at Mortgage Guaranty, and declining financial leverage at
the parent. AIG also continues the orderly runoff of its Direct
Investment book (DIB) and Global Capital Markets (GCM) portfolios.
The parent company holds significant cash and liquid securities,
which can be used to make capital contributions to subsidiaries as needed.
"Still, the credit profile is constrained by weak profitability
and legacy liabilities at AIG PC, and low market interest rates
potentially weighing on AIG L&R," said Ballentine.
AIG PARENT
AIG's Baa1 senior debt rating reflects the leading market positions of
its insurance operations, its diversification across products and
geographic regions, its successful divestment/unwinding of most
noncore businesses, and the healthy liquidity of the parent company,
said the rating agency. These strengths are tempered by the group's
above-average exposure to structured and alternative investments,
by financial leverage and interest coverage metrics that are still somewhat
weak for its rating category, and by the complexity of risk management
across its numerous markets and business lines.
Moody's cited the following factors that could lead to a rating
upgrade for AIG: (i) improvement in the stand-alone credit
profiles of AIG PC, AIG L&R and/or Mortgage Guaranty,
(ii) further runoff of the DIB and GCM, and (iii) improvement in
financial flexibility (e.g., total leverage remaining
below 30%, pretax interest coverage in high single digits).
The following factors could lead to a rating downgrade: (i) deterioration
in the stand-alone credit profiles of AIG PC, AIG L&R
and/or Mortgage Guaranty, (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).
AIG PROPERTY CASUALTY
AIG PC ranks among the world's largest property casualty insurers,
writing a broad range of commercial and consumer coverages. The
A1 IFS ratings of the US pool members are based on their market leadership
in commercial and specialty lines, diversified product offerings,
and expertise in writing large and complex risks, said Moody's.
The US pool also benefits from AIG PC's global footprint,
which helps the group serve multinational accounts and deploy resources
to markets and business lines that offer favorable returns.
AIG PC's challenges include a history of weak profitability and
adverse loss development along with exposure to natural and man-made
catastrophes. A majority of the US reserves are in long-tail
casualty lines, heightening the risk and uncertainty regarding ultimate
losses. The US operations also have lower regulatory risk-based
capital ratios than similarly rated peers, and carry greater exposure
to high-risk structured and alternative investments.
Moody's cited the following factors that could lead to a rating
upgrade for AIG PC's US pool members: (i) improvement in underwriting
results and profitability (e.g., combined ratio below
100%, return on capital consistently exceeding 8%),
(ii) consistent favorable development of loss reserves, and (iii)
improvement in AIG's financial flexibility (e.g.,
total leverage remaining below 30%, pretax interest coverage
in high single digits).
The following factors could lead to a rating downgrade: (i) deterioration
in underwriting results (e.g., combined ratio above
105%, return on capital below 5%), (ii) significant
adverse reserve development, or (iii) a decline in statutory surplus
by more than 10% in a given year.
AIG LIFE AND RETIREMENT
AIG L&R ranks among the leading US life insurance and retirement services
providers, offering a full suite of products through a multi-channel
distribution network. Moody's said the A2 IFS ratings reflect
the group's strong market presence, including top-10
positions in various individual annuity, life insurance and retirement
product lines, and its healthy revenue and earnings momentum,
excluding one-time items.
These strengths are tempered by the interest rate, equity market
and hedging risks of the group's sizable fixed and growing variable
annuity businesses, along with its significant holdings of structured
and alternative investments. The group is also exposed to spread
compression in the event of sustained low interest rates. AIG L&R
currently has a strong regulatory risk-based capital (RBC) ratio
(429% company action level at year-end 2013, including
AGC Life Insurance Company (AGC Life)), although Moody's expects
this ratio to decline, given AIG's practice of drawing dividends
from subsidiaries and holding a large liquidity pool at the parent.
Moody's cited the following factors that could lead to a rating
upgrade for AIG L&R: (i) statutory return on capital consistently
exceeding 8% (excluding extraordinary items), (ii) RBC ratio
remaining above 375% company action level including AGC Life,
and (iii) improvement in AIG's financial flexibility (e.g.,
total leverage remaining below 30%, pretax interest coverage
in high single digits).
The following factors could lead to a rating downgrade: (i) statutory
return on capital below 4% and/or continued earnings volatility,
(ii) a sharp drop in statutory surplus (e.g., a decline
of more than 10% in a given year or an RBC ratio below 300%
company action level including AGC Life), or (iii) pretax gross
asset losses exceeding $400 million in a given year.
MORTGAGE GUARANTY
The Baa1 IFS rating of United Guaranty Residential Insurance Company (UGRIC),
lead member of AIG's Mortgage Guaranty unit, reflects the
continuing runoff of UGRIC's legacy book, coupled with a favorable
market position and capital base relative to peers, said Moody's.
UGRIC's primary delinquency ratio has declined significantly and
is the lowest among rated private mortgage insurers with legacy risks.
The rating also incorporates one notch of uplift versus UGRIC's
stand-alone credit profile, based on explicit and implicit
support from AIG. UGRIC and its peers may soon face higher capital
standards from government-sponsored Fannie Mae and Freddie Mac,
although Moody's expects that the industry would have some time
to comply.
Given that its rating incorporates AIG support, the main factor
that could cause an upgrade for UGRIC would be an upgrade of AIG.
Factors that could prompt a downgrade include financial stress at AIG,
or substantial adverse loss development in UGRIC's mortgage insurance
portfolio.
RATINGS AFFIRMED
The following ratings have been affirmed with a stable outlook:
American International Group, Inc. -- long-term
issuer rating Baa1, senior unsecured debt Baa1, subordinated
debt Baa2, 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 Funding, Inc. -- backed short-term debt 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 SunAmerica Global Financing Trusts, ASIF II, ASIF III
(Jersey) Limited -- senior secured debt A2, senior secured
MTN program (P)A2;
AIG Life and Retirement funding agreement-backed preferred stock
-- AIG SunAmerica Global Financing Trusts, ASIF Global Financing
Trusts -- secured preferred stock A2 (hyb);
AIG Life Holdings, Inc. -- backed senior unsecured debt
Baa1, backed junior subordinated debt Baa2 (hyb);
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 A1;
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 Matched Funding
Corp., Banque AIG -- backed long-term issuer
rating or backed senior unsecured debt 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;
Stone Street Trust -- backed trust securities Baa1 (hyb);
United Guaranty Mortgage Indemnity Company -- backed insurance financial
strength Baa1;
United Guaranty Residential Insurance Company -- insurance financial
strength Baa1.
The methodologies used in these ratings were Global Property and Casualty
Insurers published in August 2014, Global Life Insurers published
in August 2014, and Moody's Global Methodology for Rating Mortgage
Insurers published in December 2012. 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 130 countries and jurisdictions.
AIG reported total revenues of $32.2 billion and net income
attributable to AIG of $4.7 billion for the first half of
2014. AIG shareholders' equity was $108 billion as
of June 30, 2014.
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 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 ratings (senior debt Baa1) with stable outlook
