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Related Issuers
AGFC Capital Trust I
AIA International Limited
AIG Capital Corporation
AIG Capital Trust I
AIG Capital Trust II
AIG Edison Life Insurance Company
AIG Europe Limited
AIG Financial Products Corp.
AIG Funding, Inc.
AIG Life and Retirement
AIG Life Holdings, Inc.
AIG Liquidity Corp.
AIG Management France S.A.
AIG Matched Funding Corp.
AIG Program Funding, Inc.
AIG Property Casualty Company
AIG Property Casualty Inc.
AIG Specialty Insurance Company
AIG Taiwan Insurance Co Ltd
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding (Ireland) P.L.C.
AIG-FP Matched Funding Corp.
AIU Insurance Company
American General Capital II
American General Institutional Capital A
American General Institutional Capital B
American General Life & Accident Insurance Co
American General Life Ins. Co of Delaware
American General Life Insurance Company
American Home Assurance Company
American International Group, Inc.
American Intl. Life Assurance Co. of N.Y.
American Life Insurance Company
Commerce and Industry Insurance Company
CommoLoCo, Inc.
First SunAmerica Life Insurance Company
ILFC E-Capital Trust I
ILFC E-Capital Trust II
Insurance Co. of the State of Pennsylvania
International Lease Finance Corporation
Minneapolis (City of) MN
National Union Fire Ins Co of Pittsburgh, Pa.
New Hampshire Insurance Company
SAFG Retirement Services, Inc.
Springleaf Finance Corporation
Springleaf Finance, Inc.
SunAmerica Annuity and Life Assurance Company
SunAmerica Life Insurance Company
Transatlantic Holdings, Inc.
Transatlantic Reinsurance Company
United Guaranty Commercial Ins. Co. of NC
United Guaranty Mortgage Indemnity Company
United Guaranty Residential Ins. Co of NC
United Guaranty Residential Insurance Co.
United States Life Ins. Co. in The City of NY
Variable Annuity Life Insurance Company
Western National Life Insurance Company
Rating Action:

Moody's downgrades AIG (senior to A3); ratings remain under review

03 Oct 2008
Moody's downgrades AIG (senior to A3); ratings remain under review

New York, October 03, 2008 -- Moody's Investors Service has downgraded the senior unsecured debt rating of American International Group, Inc. (NYSE: AIG) to A3 from A2. This rating action reflects Moody's view that if AIG successfully completes the divestiture and restructuring plan announced today, its business diversification will be significantly reduced. AIG's long-term ratings and its Prime-1 short-term rating remain on review for possible downgrade, reflecting the substantial execution risk in the restructuring plan, particularly given the current turbulent credit market.

In the past year, AIG has reported substantial losses and write-downs associated with mortgage-backed securities, largely through its credit default swap and securities lending portfolios. Significant cash collateral calls and maturities related to these activities in recent weeks have caused the company to borrow heavily under the $85 billion revolving credit facility recently provided by the Federal Reserve Bank of New York (as authorized by the Federal Reserve Board (the Fed)). Total borrowings under the two-year secured facility amounted to $61 billion as of September 30, 2008, and more borrowings are expected in the months ahead.

Moody's believes that the asset sales plan announced today, if successful, will enable the company to repay borrowings under the Fed facility and emerge as a more focused, albeit less diversified, insurance firm. The continuing review for possible downgrade incorporates the risk that the situation may deteriorate, either because of shortfalls in executing the restructuring plan or because of declines in the business or financial profiles of the operations to be retained. Moody's believes that the risk of such deterioration is materially mitigated by the involvement of the Fed and the enhanced market liquidity that will likely result from the US Government's pending $700 billion financial rescue plan.

Following the restructuring, AIG's core businesses are expected to include the US-based Commercial Insurance Group (CIG), Foreign General Insurance (Foreign General) and a majority stake in American International Assurance (AIA). The parent company's A3 senior debt rating is now three notches below the Aa3 insurance financial strength ratings of the CIG companies, the largest core operating unit. A three-notch differential is common among US insurance groups, but this represents an expansion of the notching for AIG, based on Moody's view that AIG will be materially less diversified following the restructuring. AIG's Prime-1 short-term rating reflects the significant protection to short-term creditors afforded by the Fed credit facility in the near term.

Moody's also announced rating actions on several AIG subsidiaries whose ratings depend on explicit or implicit parental support (see list below). Ratings on most AIG units remain on review for possible downgrade. Moody's expects to revisit the stand-alone ratings, and perhaps the public ratings, for the major life insurance operations over the next few weeks. Certain operating units have been placed on review with direction uncertain, signaling potential sales to buyers whose credit profiles could be stronger, weaker or similar to that of AIG.

The success of the restructuring plan, in Moody's view, hinges largely on AIG's ability to contain and reduce risk in its mortgage exposed investment and derivative portfolios. A majority of the borrowings under the Fed credit facility have been used to address liquidity and capital needs stemming from these exposures. Moody's noted that further deterioration in market values within these portfolios could further strain the company's resources through such mechanisms as increased collateral calls or reductions/terminations of funding arrangements. Such strains could weaken the company's credit profile, which may lead to additional rating downgrades. In such an event, contingent additional capital and liquidity needs could be triggered. The rating agency expects that AIG -- with the support and interest of the Fed -- will pursue various means to limit the risks associated with market value volatility in its investment and derivative portfolios.

AIG's core insurance operations are fundamentally solid, said Moody's. CIG is the largest US commercial insurer, with a sound capital base, well diversified product offerings and expertise in writing large and complex risks. Foreign General is the top provider of accident & health insurance globally, operating in some 80 countries and adapting to local laws and customs as needed. The AIA companies make up one of the largest and most diversified life insurance groups spanning Asia and Australia.

The insurance and other operations identified for sale include market leaders in many business lines and geographic areas. Major units expected to be sold include Domestic Life Insurance and Retirement Services, one of the largest and most diversified life insurance groups in the US; American Life Insurance Company, one of the largest international life insurers, with operations in more than 50 countries; International Lease Finance Corporation, a global leader in leasing and remarketing advanced technology commercial aircraft; and a minority stake in AIA. AIG's sales plans encompass well over a dozen substantial businesses.

Moody's noted that all of AIG's operations are subject to significant reputational risk in connection with the recent liquidity strains that gave rise to the Fed credit facility. Challenges facing AIG managers include retaining clients, distributors and employees; demonstrating that the operating companies have ample resources to meet their obligations; generating new business; and facilitating divestitures. It will take time to determine the extent to which recent events may have weakened the companies' standing in their respective markets.

Moody's continuing review of the ratings on AIG and its subsidiaries will focus on (i) the firm's evolving liquidity profile, including the level of borrowing under the Fed credit facility; (ii) steps taken to contain and reduce risk in the investment and derivative portfolios, including any associated losses or costs as well as any potential benefit from the US Government's pending $700 billion financial rescue plan; (iii) the timing and amounts of cash proceeds generated from asset sales; (iv) the performance of major operating units, whether they are core operations or targeted for sale; and (v) the resulting financial flexibility profile (e.g., financial leverage and fixed charge coverage) of AIG following the asset sales. For those operations being sold, Moody's will consider their intrinsic financial strength as well as the rating profiles of potential acquirers.

The last rating action on AIG took place on September 18, 2008, when Moody's reiterated the existing ratings and the review for possible downgrade, following the activation of the Fed credit facility.

Moody's has downgraded the following ratings and kept them on review for possible further downgrade:

American International Group, Inc. -- long-term issuer rating to A3 from A2, senior unsecured debt to A3 from A2, subordinated debt to Baa1 from A3;

AGFC Capital Trust I -- backed preferred stock to Baa3 from Baa2;

AIG General Insurance (Taiwan) Co., Ltd. -- insurance financial strength to A3 from A1;

AIG Life Holdings (US), Inc. -- backed senior unsecured debt to A3 from A2;

AIG Retirement Services, Inc. -- backed senior unsecured debt to A3 from A2, backed preferred stock to Baa2 from Baa1;

American General Capital II -- backed trust preferred stock to Baa1 from A3;

American General Finance Corporation -- long-term issuer rating to Baa1 from A3, senior unsecured debt to Baa1 from A3;

American General Institutional Capital A & B -- backed trust preferred stock to Baa1 from A3;

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 to A3 from A2;

Mortgage Guaranty subsidiaries (second-lien and student loans) -- United Guaranty Commercial Insurance Company of North Carolina, United Guaranty Residential Insurance Company of North Carolina -- backed insurance financial strength to Baa1 from A3.

Moody's has placed the following rating on review for possible downgrade:

American General Finance, Inc. -- short-term debt at Prime-2.

The following ratings remain on review for possible downgrade:

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

AIG Edison Life Insurance Company -- insurance financial strength at Aa3;

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;

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 at Aa3;

AIG SunAmerica subsidiaries -- AIG SunAmerica Life Assurance Company, First SunAmerica Life Insurance Company, SunAmerica Life Insurance Company -- insurance financial strength at Aa3; short-term insurance financial strength at Prime-1;

AIG UK Limited -- insurance financial strength at A1;

American International Assurance Company (Bermuda) Limited -- insurance financial strength at Aa3;

American Life Insurance Company -- insurance financial strength at Aa3;

Commercial Insurance Group 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;

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 at Aa3;

Mortgage Guaranty subsidiaries (first-lien loans) -- United Guaranty Mortgage Indemnity Company, United Guaranty Residential Insurance Company -- backed insurance financial strength at Aa3.

Moody's has downgraded the following ratings and placed them on review with direction uncertain:

ILFC E-Capital Trusts I & II -- backed preferred stock to Baa3 from Baa2;

International Lease Finance Corporation -- senior unsecured debt to Baa1 from A3, preferred stock to Baa3 from Baa2, senior unsecured debt shelf to (P)Baa1 from (P)A3.

Moody's has placed the following ratings on review with direction uncertain:

International Lease Finance Corporation -- short-term debt at Prime-2;

Transatlantic Holdings, Inc. -- senior unsecured debt at A3, senior unsecured debt shelf at (P)A3, subordinated debt shelf at (P)Baa1;

Transatlantic Reinsurance Company -- insurance financial strength at Aa3.

Moody's maintains a negative outlook on the following ratings:

American General Finance Corporation -- short-term debt at Prime 2;

CommoLoco, Inc. -- backed short-term debt at Prime-2.

The following ratings have been (downgraded and) withdrawn for business reasons:

AIG Capital Corporation -- long-term issuer rating to Baa2 from Baa1; short-term issuer rating at Prime 2.

AIG, based in New York City, is a leading 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 total revenues of $19.9 billion and a net loss of $5.4 billion for the second quarter of 2008. Shareholders' equity was $78.1 billion as of June 30, 2008.

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

No Related Data.
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