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Rating Action:

Moody’s reviews AIG’s debt ratings for downgrade, affirms A2 financial strength ratings of insurance subsidiaries

28 October 2020


Rating action follows AIG's announcement that it will pursue separation of Life and Retirement business

New York , October 28, 2020 – Moody's Investors Service has affirmed the A2 insurance financial strength (IFS) ratings of the main General Insurance and Life and Retirement subsidiaries of American International Group, Inc. (NYSE: AIG, senior debt Baa1), and has placed the parent debt ratings on review for downgrade. These actions follow AIG's announcement that it will pursue a separation of its Life and Retirement business to maximize shareholder value and transform AIG into two independent companies. The affirmation of the IFS ratings reflects the strong market presence and product breadth of the operating units. The rating outlook for these subsidiaries is stable. The review of the parent ratings will focus on AIG's likely reduced diversification following the separation of Life and Retirement. (Please see below for a list of affected ratings.)

Please click on this link https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1000003663 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

AIG's IFS ratings reflect its leading positions in global General Insurance and US-focused Life and Retirement, its diversification across products and geographies, and its record of good earnings in Life and Retirement, although this segment faces margin pressure from ultralow market interest rates. AIG has a weaker earnings record in General Insurance, although this segment has re-underwritten its insured portfolio in recent years, leading to gradual improvement in its core performance. Other challenges for AIG include financial leverage and fixed charge coverage metrics that are weak for its rating category along with the complexity of risk management across its many product lines and countries/regions.

AIG parent has benefited from the diversified earnings and cash flows of its two core segments. The parent in turn has maintained a large liquidity pool to support its subsidiaries as needed. Such diversification and pooling of resources has supported a parent company senior debt rating two notches below the subsidiary IFS ratings rather than the typical three-notch spread for US-based insurers. In its review, Moody's will consider widening the notching given AIG's plan to separate its main segments. Moody's will also consider the operating performance, balance sheet strength, liquidity and ownership structures of these businesses segments as they move toward separation.

For AIG and other insurers, the coronavirus-related economic downturn is constraining premium and deposit flows, raising claim and benefit costs in certain business lines, and adding volatility to investment performance and capital levels. AIG's adjusted pretax income from core operations fell to $1.1 billion in the first half of 2020 from $3.3 billion in the first half of 2019 mainly because of coronavirus-related catastrophe claims in General Insurance, spread compression and elevated mortality in Life and Retirement, and alternative investment losses in both segments. Partly offsetting these challenges were continued rate increases in General Insurance and various yield enhancements in Life and Retirement.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of the AIG parent ratings is unlikely in the near term given the review for downgrade.

As AIG pursues its separation plan, Moody's will likely downgrade the group's debt ratings to reflect its reduced business and earnings diversification. Other factors that could weigh on the debt ratings include: (i) deterioration in credit profiles of major operating units, (ii) material decline in parent liquidity pool available to support subsidiaries, or (iii) continued high financial leverage.

GENERAL INSURANCE

The IFS ratings of AIG's General Insurance segment reflect its worldwide network of property & casualty insurers offering a range of commercial and personal coverages through brokers, agents, affinity groups and other commercial partners. With its commercial lines expertise and global footprint, AIG is one of a small group of insurers that can write large and complex risks for multinational accounts. AIG's personal insurance network includes global accident & health and private client operations and a significant business in Japan that writes mostly personal lines.

Challenges for the group include its record of volatile earnings, with sizable reserve charges and catastrophe losses, and the relatively low regulatory risk-based capitalization of its flagship US operations (AIG PC US). AIG is gradually improving its property & casualty underwriting performance by tightening policy limits, raising attachment points, raising prices and purchasing more reinsurance while controlling/reducing its general operating expenses.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to a rating upgrade for AIG PC US include: (i) improvement in underwriting results and profitability (e.g., combined ratio below 95%, return on capital consistently above 8%), (ii) favorable/benign development of loss reserves, and (iii) improvement in AIG's financial flexibility (e.g., total leverage below 25%, pretax interest coverage in the high single digits).

Factors that could lead to a rating downgrade for AIG PC US include: (i) deterioration in underwriting results (e.g., combined ratio above 100%, return on capital below 5%), (ii) significant further adverse loss development, (iii) decline in statutory surplus by more than 10% in a given year.

LIFE AND RETIREMENT

Moody's said the affirmation of the AIG Life and Retirement (AIG L&R) ratings was based on the group's leading position in a number of US individual annuity and retirement product markets along with its broad distribution network, good capital adequacy and solid profitability.

Offsetting these strengths are the group's concentrated exposure to interest rate risk and spread compression from its core fixed annuity and growing fixed indexed annuity businesses, and a significant exposure to equity market and hedging risks from its individual variable annuity liabilities and fixed indexed annuities. Death claims in the firm's life segment will likely be higher in 2020 due to the coronavirus, and individual annuity sales and net flows are likely to remain under pressure, as older blocks of annuity business run off and are not fully replaced.

Commenting on AIG's separation announcement, Moody's said that AIG is exploring all strategic options, with a focus on maximizing shareholder value. The rating agency will monitor the pathway that AIG L&R takes to independence over the coming quarters. Weak capitalization, the sale of core businesses or material ownership by alternative investors which leads to higher investment risk could place downward pressure on the ratings or outlook.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The following factors could lead to an upgrade of AIG L&R's ratings: (i) appropriate capitalization and financial leverage for the business (e.g., RBC not less than 400% (company action level) on a consolidated basis (including AGC Life)), (ii) greater diversification away from annuity products, (iii) profitability above 8% on a consistent basis, and (iv) renewal of pre-pandemic annuity product sales growth.

The following factors could lead to a downgrade of the group's ratings: (i) deterioration of AIG L&R's franchise and profitability due to ownership uncertainties and/or persistent ultralow interest rates, (ii) a decline in consolidated RBC below 350% including AGC Life, and/or financial leverage inconsistent with current ratings, or (iii) an increase in higher risk assets from current levels.

RATING ACTIONS

American International Group, Inc.:

Long-term issuer rating on review for downgrade from Baa1;
Senior unsecured debt rating on review for downgrade from Baa1;
Junior subordinated debt rating on review for downgrade from Baa2 (hyb);
Non-cumulative preferred stock rating on review for downgrade from Baa3 (hyb);
Senior unsecured shelf rating on review for downgrade from (P)Baa1;
Senior unsecured MTN program rating on review for downgrade from (P)Baa1;
Subordinated shelf rating on review for downgrade from (P)Baa2;
Junior subordinated shelf rating on review for downgrade from (P)Baa2;
Preferred shelf rating on review for downgrade from (P)Baa3;
Non-cumulative preferred shelf rating on review for downgrade from (P)Baa3.

AIG Financial Products Corp. backed long-term issuer rating on review for downgrade from Baa1.

AIG Life Holdings, Inc.:

Backed senior unsecured debt rating on review for downgrade from Baa1;
Backed junior subordinated debt rating on review for downgrade from Baa2 (hyb).

SAFG Retirement Services, Inc. backed senior unsecured debt rating on review for downgrade from Baa1.

Validus Holdings, Ltd. backed senior unsecured debt rating on review for downgrade from Baa1.

The rating outlook for these entities is ratings under review from stable.

Moody's has affirmed the following short-term ratings:

American International Group, Inc. short-term issuer rating at Prime-2;
AIG Financial Products Corp. backed short-term issuer rating at Prime-2.

Moody's has affirmed the following General Insurance ratings:

AIG Assurance Company insurance financial strength rating at A2;
AIG Property Casualty Company insurance financial strength rating at A2;
AIG Specialty Insurance Company insurance financial strength rating at A2;
AIU Insurance Company insurance financial strength rating at A2;
American Home Assurance Company insurance financial strength rating at A2;
Commerce and Industry Insurance Company insurance financial strength rating at A2;
Granite State Insurance Company insurance financial strength rating at A2;
Illinois National Insurance Company insurance financial strength rating at A2;
Insurance Company of the State of Pennsylvania insurance financial strength rating at A2;
Lexington Insurance Company insurance financial strength rating at A2;
National Union Fire Insurance Company of Pittsburgh, PA insurance financial strength rating at A2;
New Hampshire Insurance Company insurance financial strength rating at A2;
AIG Europe S.A. insurance financial strength rating at A2;
American International Group UK Limited insurance financial strength rating at A2;
Validus Reinsurance, Ltd. insurance financial strength rating at A2.

The rating outlook for these General Insurance entities is stable.

Moody's has affirmed the following Life and Retirement ratings:

American General Life Insurance Company insurance financial strength rating at A2;
United States Life Insurance Company in the City of New York insurance financial strength rating at A2;
Variable Annuity Life Insurance Company insurance financial strength rating at A2.

AIG Global Funding:

Senior secured debt rating at A2;
Backed senior secured MTN program rating at (P)A2.

AIG SunAmerica Global Financing X backed senior secured debt rating at A2.

ASIF II:

Backed senior secured debt rating at A2;
Backed senior secured MTN program rating at (P)A2.

ASIF III (Jersey) Limited:

Backed senior secured debt rating at A2;
Backed senior secured MTN program rating at (P)A2.

The rating outlook for these Life and Retirement entities is stable.

The methodologies used in rating American International Group, Inc., AIG Financial Products Corp., AIG Life Holdings, Inc. and SAFG Retirement Services, Inc. were Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 and Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . The principal methodology used in rating 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 Company, Insurance Company of the State of Pennsylvania, Lexington Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, New Hampshire Insurance Company, AIG Europe S.A. and American International Group UK Limited was Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 . The principal methodology used in rating Validus Holdings, Ltd. and Validus Reinsurance, Ltd. was Reinsurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187551 . The principal methodology used in rating American General Life Insurance Company, United States Life Insurance Company in the City of New York, Variable Annuity Life Insurance Company, AIG Global Funding, AIG SunAmerica Global Financing X, ASIF II and ASIF III (Jersey) Limited was Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies 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 80 countries and jurisdictions. AIG generated revenues of $23.8 billion in the first half of 2020. AIG shareholders' equity was $62.2 billion as of June 30, 2020.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings.

Please click on this link https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1000003663 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Endorsement

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Lead Analyst

• Releasing Office

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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 rating analyst and the Moody's legal entity that has issued the ratings.

The person who approved the American International Group, Inc., AIG Financial Products Corp., AIG Life Holdings, Inc., SAFG Retirement Services, 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 Company, Insurance Company of the State of Pennsylvania, Lexington Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, New Hampshire Insurance Company, Validus Holdings, Ltd. and Validus Reinsurance, Ltd. credit ratings is Sarah Hibler, Associate Managing Director, Financial Institutions Group, Journalists Tel 1 212 553 0376, Client Service Tel 1 212 553 1653. The person who approved the AIG Europe S.A. and American International Group UK Limited credit ratings is Simon Ainsworth, Associate Managing Director, Financial Institutions Group, Journalists Tel 44 20 77725456, Client Service Tel 44 20 7772 5454. The person who approved the American General Life Insurance Company, United States Life Insurance Company in the City of New York, Variable Annuity Life Insurance Company, AIG Global Funding, AIG SunAmerica Global Financing X, ASIF II and ASIF III (Jersey) Limited credit ratings is Scott Robinson, Associate Managing Director, Financial Institutions Group, Journalists Tel 1 212 553 0376, Client Service Tel 1 212 553 1653.

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

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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