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Rating Action:

Moody's rates AIG China IFS A2

 The document has been translated in other languages

23 May 2014

NOTE: On May 28, 2014, the press release was corrected: In the ABOUT THE COMPANY section of the PR, the total assets figure was corrected to RMB2.7 billion and the shareholders’ equity figure was corrected to RMB766.2 million. Revised released follows.

Hong Kong, May 23, 2014 -- Moody's Investors Service has assigned A2 local and foreign currency insurance financial strength (IFS) ratings to AIG Insurance Company China Ltd (AIG China). The rating outlook is stable.

AIG Insurance Company China Ltd (AIG China) is currently a direct wholly owned subsidiary of AIU Insurance Company (IFS A1 stable), which is a member of AIG Property Casualty (AIG PC), the global property casualty insurance business of American International Group, Inc. (AIG, senior unsecured debt Baa1 stable). AIG China is also managed as part of AIG PC's Asia Pacific (APAC) operations, of which the regional hub is AIG Asia Pacific Insurance Pte Ltd (AIG API, IFS A2 stable).

RATINGS RATIONALE

"The A2 IFS rating of AIG China is based on the company's market position as one of the leading foreign insurers in China, a fast growing insurance market," says Sally Yim, a Moody's Vice President/Senior Credit Officer.

"The rating also recognizes AIG China's diverse business mix, including a wide range of products in commercial and personal lines. Given its good brand recognition, and the support of a global network, underwriting expertise and reinsurance capacity of its parent AIG, AIG China is in a good position to take advantage of the trends in urbanization, globalization and increase in consumption in the country, especially for Chinese companies venturing overseas and foreign multinationals," says Yim.

In terms of its financial profile, AIG China has solid capitalization and a conservative investment portfolio," says Yim.

These strengths are offset by the company's modest overall market position in China, due to regulatory constraints on foreign insurers with regards to the pace of expansion. Because of the small scale of the operation as well as the need to expand and build infrastructure, AIG China has a consistently high expense ratio which adversely impacts its underwriting profitability.

The company endeavors to expand its consumer business, especially motor insurance, as foreign insurers are now allowed to sell mandatory third-party motor insurance in China. We note that the motor insurance market in China is highly competitive, and AIG China would have to maintain underwriting discipline in order to ensure profitability.

AIG China has a strategic relationship with PICC Property & Casualty Co Ltd (PICC P&C, IFS A1 stable), the largest property casualty insurer in China and its holding company People's Insurance Co (Group) of China (PICC Group, not rated). Through this relationship, AIG China gained business referrals as well as local technical underwriting knowledge, which has proven to be beneficial to the business.

AIG China's A2 IFS rating incorporates a two-notch uplift versus its standalone credit profile, reflecting ownership and implied support from AIG PC, as well as the benefits of being part of the APAC operations of AIG PC. This also reflects AIG China's position as a cornerstone to AIG PC's growth strategy in Asia, and its strategic relationship with PICC P&C and PICC Group.

We also carry A2 IFS ratings for five other APAC subsidiaries of AIG, namely AIG API, AIG Australia Ltd, AIG Insurance Hong Kong Ltd, AIG Korea, Inc. and AIG Taiwan Insurance Co Ltd.

The alignment of these ratings reflects the increasing integration within the APAC operations and within AIG PC globally. The APAC operations share key attributes with the wider AIG organization, including risk management, underwriting strategy and management resources.

Further, we believe AIG will ensure a solid level of capital at each of its APAC subsidiaries, while maintaining flexibility in the allocation of capital across the group. We expect AIG to contribute capital to and receive dividends from its insurance subsidiaries so as to keep subsidiary capitalization at target levels.

The ratings of the APAC subsidiaries of AIG PC are one notch below those of its leading US and European companies (IFS ratings A1 stable), reflecting APAC's modest share of the global business as well as AIG API's limited track record as the APAC hub. We expect APAC's share of AIG's global business to expand over the next several years.

RATING DRIVERS

Given the close linkage of AIG China to its parent and the APAC operations of AIC PC, an upgrade of AIG China would likely require an upgrade of AIG PC, and/or upgrades of other APAC companies of AIG PC.

On the other hand, the rating could be downgraded in the event of 1) a significant increase in gross underwriting leverage to above 5x; 2) failure to improve underwriting results, with the combined ratio consistently above 102%; and/or 3) downgrades of other major AIG PC companies.

RATING METHODOLOGIES

The principal methodology used in this rating was Global Property and Casualty Insurers published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

ABOUT THE COMPANY

Headquartered in Shanghai, AIG Insurance Company China Ltd is a property casualty insurer offering accident & health, marine and energy, casualty, property insurance, among other lines. At December 31, 2013, the company had total assets of RMB2.7 billion (USD449.1 million) and shareholders' equity of RMB766.2 million (USD126.6 million).

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.

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The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Sally Yim
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's rates AIG China IFS A2
No Related Data.
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