Moody's confirms AIG's senior debt at A3; outlook negative
Downgrades AIG's subordinated debt to Ba2 from Baa1; takes various rating actions on subsidiaries
New York, March 02, 2009 -- Moody's Investors Service has confirmed the A3 senior unsecured debt and
Prime-1 short-term debt ratings of American International
Group, Inc. (NYSE: AIG). AIG's subordinated
debt rating has been downgraded to Ba2 from Baa1. The rating outlook
for AIG is negative. This rating action follows AIG's announcement
of net losses of $62 billion for the fourth quarter and $99
billion for the full year of 2008, along with a revised restructuring
plan supported by the US Treasury and the Federal Reserve. This
concludes a review for possible downgrade that was initiated on September
15, 2008.
In addition, Moody's has confirmed the insurance financial
strength (IFS) ratings of AIG's core property & casualty (P&C)
operations, including AIG Commercial Insurance (AIGCI --
Aa3, negative), AIG UK Limited (AIG UK -- A1, negative)
and AIG General Insurance (Taiwan) Co., Ltd. (AIGGI
Taiwan -- A3, negative). Also confirmed were the IFS
ratings of American International Assurance Company (Bermuda) Limited
(AIAB -- Aa3, negative), Transatlantic Reinsurance Company
(Transatlantic -- Aa3, developing), and United Guaranty
Residential Insurance Company (UGRIC -- A3, negative).
The rating agency downgraded the IFS ratings of AIG's Domestic Life
Insurance & Retirement Services (DLIRS) companies, American
Life Insurance Company (ALICO) and AIG Edison Life Insurance Company (AIG
Edison) to A1 (developing) from Aa3.
"The rating confirmation for AIG and its core P&C operations
reflects the benefits to policyholders and senior creditors from the restructuring
steps announced today," said Bruce Ballentine, Moody's
lead analyst for AIG, "as well as our expectation that the
government will provide incremental support as needed to ensure that AIG
can meet its obligations through this period of severe economic recession
and market turmoil." The expectation of systemic support
is based on the substantial size and global scope of AIG's insurance
and financial operations, and is consistent with actions taken to
date by the US government and related statements made by the US Treasury
and Federal Reserve. The IFS ratings of the core P&C subsidiaries
and the senior debt rating of AIG incorporate Moody's view that
AIG will emerge from the government intervention as a leading global P&C
insurer with a sound credit profile.
"The negative rating outlook on AIG and its core P&C operations
signals the potential loss of customers, distributors and employees
during the period of government intervention," added Mr.
Ballentine, "along with the uncertainty regarding the ownership
and capital structure following the intervention." Other
areas of risk and uncertainty include: (i) potential erosion of
values in operations to be divested; (ii) potential further declines
in investment portfolio values, particularly in life insurance subsidiaries,
which may require further capital infusions; (iii) the timing of
divestitures and resulting proceeds, given the limited funding available
to potential buyers; and (iv) the timing and costs associated with
unwinding AIG Financial Products Corp. (AIGFP).
AIG's fourth-quarter loss was driven mainly by realized capital
losses on investments (including other-than-temporary impairments),
write-downs of intangible assets, unrealized market valuation
losses on derivatives, and other charges related to the ongoing
restructuring efforts. Major aspects of the revised restructuring
plan include: (i) conversion of the existing $40 billion
preferred stock provided by the US Treasury to a non-cumulative
issue; (ii) commitment from the US Treasury for an additional $30
billion of preferred equity capital; (iii) debt-for-equity
swaps whereby the Federal Reserve Bank of New York (the NY Fed) will exchange
a portion of the senior secured loan under its $60 billion facility
for preferred interests in certain operating units; and (iv) exchanges
by the NY Fed of a portion of the senior secured loan for embedded value
securitization notes from certain DLIRS companies. These actions
were prompted by AIG's fourth-quarter loss and the deteriorating
market conditions, and will give the company greater flexibility
to pursue its restructuring and divestiture plans.
SUBORDINATED DEBT RATINGS
Moody's lowered AIG's subordinated debt ratings to Ba2 from Baa1.
The rating agency noted that the cumulative nature of the interest on
such instruments reduces the incentive to defer interest payments,
especially in light of the enhancements to AIG's capital position
announced today. Nevertheless, in the event of further liquidity
strains and/or a need for additional government support, the risk
of deferred payment on these instruments, as well as the risk of
a potential restructuring, warrants additional notching on these
ratings down from AIG's senior unsecured debt rating.
RATING ACTIONS ON CORE OPERATIONS
The confirmations of the IFS ratings of AIGCI, AIG UK and AIGGI
Taiwan were based on Moody's expectation of a sound business and
financial profile for the global P&C operations following the government
intervention. "AIG holds one of the world's largest
and most diversified P&C operations, with a leading market presence
in global accounts along with solid positions in several local markets,"
commented Mr. Ballentine. These operations have suffered
some loss of business, especially in the most credit sensitive lines,
as a result of parent company turmoil and the weak economy, according
to the rating agency. The negative outlook reflects the potential
for further business erosion during the period of government intervention,
whether through loss of customers, distributors and employees or
through aggressive pricing which could hurt underwriting results over
time.
RATING ACTIONS ON OPERATIONS TO BE DIVESTED
The downgrades of the IFS ratings of the DLIRS companies and of ALICO
and AIG Edison reflect business disruptions related to turmoil at AIG
as well as general deterioration in economic conditions and investment
portfolio values. Moody's noted that business disruptions
were most pronounced during the fall of 2008, when several business
units experienced spikes in customer surrenders and steep declines in
new business. Since that time, the business flows have recovered
to varying degrees, with recent growth in some markets and a slower
pace of decline in others. AIG has contributed large amounts of
capital to its life insurance subsidiaries, particularly the DLIRS
companies, to offset the effects of investment losses and equity
market declines over the past year. "The current ratings
incorporate Moody's expectation that the government will support
these operations and maintain their capital levels throughout the divestiture
process," said Laura Bazer, lead analyst for the DLIRS
companies and ALICO. "The developing outlook reflects the
possibility of business sales over time to buyers of higher, equal
or lower credit quality, and the potential for further business
erosion, in the event that divestitures are delayed."
The confirmation of the IFS rating of AIAB reflects its strong market
presence and that of the broader American International Assurance (AIA)
across Asia and Australia, along with an expectation that the group
will eventually attract one or more buyers who will maintain capitalization
at a level consistent with the current rating. AIA has suffered
some of the same disruptions as AIG's other life operations,
but the rating agency still sees the business and financial profile as
consistent with a rating in the Aa range. The negative outlook
reflects uncertainty about the future ownership structure as well as the
challenging market conditions.
The confirmation of the IFS rating of Transatlantic reflects Moody's
view that this unit maintains a strong presence in the broker reinsurance
market and an appropriate capital structure to support the rating.
Transatlantic, which is publicly traded with an approximate 59%
stake held by AIG, generates about 13% of its business through
AIG affiliates and the remainder through globally diversified sources.
The developing outlook signals uncertainty regarding Transatlantic's
future ownership structure.
UNWINDING AIGFP
Moody's said that AIGFP has developed a comprehensive plan to unwind
its business, attempting to strike a balance between reducing exposures
rapidly and limiting cash outflows. AIGFP has already eliminated
some of its more challenging exposures, including substantially
all of its credit default swaps (CDS) covering multi-sector credit
default obligations. "Still, the ultimate costs and
duration of the unwinding process are difficult to estimate and could
be substantial," said Mr. Ballentine. For instance,
remaining exposures include CDS written for regulatory capital or corporate
arbitrage purposes, where further market deterioration and/or changes
in valuation methods could lead to sizable losses and collateral requirements.
OTHER OPERATIONS
In confirming UGRIC's IFS rating with a negative outlook,
Moody's noted that the rating is based mainly on the benefits of
a net worth maintenance agreement provided by AIG and a fixed-dollar-limit
reinsurance agreement provided by an AIGCI member.
The long-term ratings of International Lease Finance Corporation (ILFC) and American General Finance Corporation (AGFC) remain on review (ILFC on review with direction uncertain, AGFC on review for possible downgrade) and will be addressed in separate rating announcements over the next week or two.
Moody's will host a teleconference to discuss these actions on Tuesday,
March 3, at 11:00 AM EST. Please visit www.moodys.com/events
for further information.
AIG, based in New York City, is an international insurance
and financial services organization, with operations in more than
130 countries and jurisdictions. The company is engaged through
subsidiaries in General Insurance, Life Insurance & Retirement
Services, Financial Services and Asset Management. AIG reported
a net loss of $61.7 billion for the fourth quarter of 2008.
Shareholders' equity was approximately $52.7 billion as
of December 31, 2008.
The last rating action took place on December 18, 2008, when
Moody's commented on AIG's restructuring efforts, while
continuing the review for possible downgrade.
The principal methodologies used in rating this issuer were Moody's
Global Rating Methodology for Property and Casualty Insurers and Moody's
Global Rating Methodology for Life Insurers, which can be found
at www.moodys.com in the Credit Policy & Methodologies
directory, in the Rating Methodologies subdirectory. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Credit Policy & Methodologies
directory.
Moody's has announced the following rating actions:
RATINGS CONFIRMED WITH A NEGATIVE OUTLOOK
American International Group, Inc. -- long-term
issuer rating at A3, senior unsecured debt at A3, short-term
issuer rating at Prime-1;
AIG Funding, Inc. -- backed short-term debt at
Prime-1;
AIG General Insurance (Taiwan) Co., Ltd. -- insurance
financial strength at A3;
AIG Life Holdings (US), Inc. -- backed senior unsecured
debt at A3;
AIG Liquidity Corp. -- backed short-term debt at Prime-1;
AIG Retirement Services, Inc. -- backed senior unsecured
debt at A3;
AIG UK Limited -- insurance financial strength at A1;
American International Assurance Company (Bermuda) Limited -- insurance
financial strength at Aa3;
Capital Markets subsidiaries -- AIG Financial Products Corp.,
AIG Matched Funding Corp., AIG-FP Capital Funding
Corp., AIG-FP Matched Funding Corp.,
AIG-FP Matched Funding (Ireland) P.L.C.,
Banque AIG -- backed senior unsecured debt at A3;
Capital Markets subsidiaries -- AIG Financial Products Corp.,
AIG Matched Funding Corp. -- backed short-term debt
at Prime-1;
Commercial Insurance subsidiaries -- AIG Casualty Company; AIU
Insurance Company; American Home Assurance Company; American
International Specialty Lines 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;
Mortgage Guaranty subsidiaries -- United Guaranty Mortgage Indemnity
Company, United Guaranty Residential Insurance Company -- backed
insurance financial strength at A3.
RATINGS CONFIRMED WITH A DEVELOPING OUTLOOK
AIG SunAmerica subsidiaries -- AIG SunAmerica Life Assurance Company,
First SunAmerica Life Insurance Company, SunAmerica Life Insurance
Company -- short-term insurance financial strength at Prime-1;
Transatlantic Holdings, Inc. -- senior unsecured debt
at A3;
Transatlantic Reinsurance Company -- insurance financial strength
at Aa3.
RATINGS ASSIGNED TO REPLACEMENT SHELF WITH A DEVELOPING OUTLOOK
Transatlantic Holdings, Inc. -- senior unsecured debt
shelf at (P)A3, subordinated debt shelf at (P)Baa1.
RATINGS DOWNGRADED WITH A DEVELOPING OUTLOOK
AIG Edison Life Insurance Company -- insurance financial strength
to A1 from Aa3;
AIG SunAmerica funding agreement-backed note programs -- AIG
SunAmerica Global Financing Trusts, ASIF I & II, ASIF
III (Jersey) Limited, ASIF Global Financing Trusts -- senior
secured debt to A1 from at Aa3;
AIG SunAmerica subsidiaries -- AIG SunAmerica Life Assurance Company,
First SunAmerica Life Insurance Company, SunAmerica Life Insurance
Company -- insurance financial strength to A1 from Aa3;
American Life Insurance Company -- insurance financial strength to
A1 from Aa3;
Domestic Life Insurance & Retirement Services subsidiaries --
AIG Annuity Insurance Company, AIG Life Insurance Company,
American General Life and Accident Insurance Company, American General
Life Insurance Company, American International Life Assurance Company
of New York, The United States Life Insurance Company in the City
of New York, The Variable Annuity Life Insurance Company --
insurance financial strength to A1 from Aa3.
RATINGS DOWNGRADED WITH A NEGATIVE OUTLOOK
American International Group, Inc. -- subordinated debt
at to Ba2 from Baa1;
American General Capital II -- backed trust preferred stock to Ba2
from Baa1;
American General Institutional Capital A & B -- backed trust
preferred stock to Ba2 from Baa1.
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.
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
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653