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Rating Action:

Moody's assigns definitive A2 ratings to AIG's new European P&C insurers, stable outlook

29 Nov 2018

Action follows UK authorities' approval for transfer of business into UK and Luxembourg entities

New York, November 29, 2018 -- Moody's Investors Service has assigned definitive A2 insurance financial strength (IFS) ratings to UK-based American International Group UK Limited (AIG UK) and Luxembourg-based AIG Europe S.A. (AESA). These two recently formed indirect subsidiaries of American International Group, Inc. (NYSE: AIG, senior unsecured debt rating Baa1 stable) will carry on AIG's property & casualty (P&C) business in the UK and other European countries, respectively, in place of UK-based AIG Europe Limited (AIGEL, IFS rating A2 stable). The rating outlook for AIG UK and AESA is stable.

This rating action follows the October 2018 approval by the High Court of England & Wales of AIGEL's plan to transfer its business into AIG UK and AESA in preparation for Brexit. Effective December 1, 2018, AIGEL will transfer its existing UK business to AIG UK and its existing other European business to AESA, whereupon AIG UK and AESA will commence writing AIG's P&C business in their respective regions.

The definitive IFS ratings on AIG UK and AESA replace their provisional ratings of (P)A2 which Moody's assigned in May 2018. As part of the restructuring, AIGEL will be merged into AESA, and Moody's will withdraw the existing IFS rating of AIGEL.

RATINGS RATIONALE

The AIG UK and AESA ratings reflect their strong market position in UK commercial lines, diversified product offerings across Europe, conservative investment strategy, and support provided by affiliates. As part of AIG's global P&C network, these entities can offer a range of products and services to multinational accounts. Tempering these strengths are the group's weak operating results in recent years, mainly because of adverse loss development and catastrophe losses, and its moderate capitalization on a statutory basis.

Responding to profit challenges in its European and global P&C operations, AIG has appointed several new P&C business leaders, and it is shifting resources toward more profitable segments such as multinational accounts, financial lines, credit lines and accident & health. The company is also tightening policy limits, purchasing more reinsurance to limit volatility, and reducing expenses. Moody's expects it will take another year or more for AIG to stabilize its P&C results globally and in Europe.

Following the business transfer, AIG UK will predominantly write commercial lines such as property, liability, special risks and financial lines for multinational, national and middle market clients, along with a relatively small proportion of consumer lines. AESA will have a majority of its business in commercial lines, and will also write a significant proportion of consumer lines such as personal accident, extended warranty and private client coverages. Both companies will sell through global and regional brokers, and to a lesser extent through smaller agents and other channels.

The ratings on AIG UK and AESA incorporate explicit and implicit support from affiliates, including reinsurance ceded to AIG's flagship P&C operations in the US (AIG PC US, IFS ratings A2 stable) and capital available from AIG parent as needed. The European operations are a vital part of AIG's global P&C business, generating about one fifth of AIG's gross written P&C premiums and serving many of the group's multinational clients.

RATIONALE FOR STABLE OUTLOOK

The stable rating outlook incorporates Moody's view that AIG will improve its P&C performance globally and in Europe, reducing volatility from reserves and catastrophes and driving its combined ratio below 100%.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Moody's cited the following factors that could lead to a rating upgrade for AIG UK and AESA: (i) improvement in underwriting results and profitability (e.g., combined ratio below 95%, return on capital above 8%), (ii) favorable/benign development of loss reserves, (iii) gross underwriting leverage below 3.5x, and (iv) an upgrade of the AIG PC US ratings.

The following factors could lead to a rating downgrade for AIG UK and AESA: (i) continued weak underwriting results (e.g., combined ratio remaining above 100%, return on capital below 5%), (ii) further adverse loss development, (iii) losses causing capital to decline by more than 10% in a given year, or (iv) a downgrade of the AIG PC US ratings.

Assignments:

..Issuer: American International Group UK Limited

....Insurance Financial Strength Rating, Assigned A2 from (P)A2

..Issuer: AIG Europe S.A.

....Insurance Financial Strength Rating, Assigned A2 from (P)A2

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay senior policyholder claims and obligations.

AIGEL, a pan-European P&C insurer, reported insurance premium revenue of GBP5.3 billion in fiscal 2017, and total assets of GBP16.0 billion and total equity of GBP3.2 billion at December 31, 2017. AIG UK and AESA are recently formed P&C affiliates that will take on AIGEL's UK and rest-of-Europe business, respectively, as part of AIGEL's Brexit restructuring.

The principal methodology used in these ratings was Property and Casualty Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

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 - Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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