A.M. Best Revises ICR Outlook to Positive for American International Group, Inc.’s Domestic Life/Health Subsidiaries

  A.M. Best Revises ICR Outlook to Positive for American International Group,
  Inc.’s Domestic Life/Health Subsidiaries

Business Wire

OLDWICK, N.J. -- January 25, 2013

A.M. Best Co. has revised the issuer credit rating (ICR) outlook to positive
from stable and affirmed the financial strength rating (FSR) of A (Excellent)
and ICR of “a” of American International Group, Inc.’s (AIG) (New York, NY)
[NYSE: AIG] four domestic life/health companies. The outlook for the FSR is
stable. AIG’s U.S. life, annuity and health operations are collectively
referred to as AIG Life and Retirement (AIGL&R) (formerly SunAmerica Financial
Group). (See below for a detailed listing of the companies and ratings.)

The revised outlook reflects AIGL&R’s improved risk adjusted capitalization,
strong statutory operating earnings and the progress that continues to be made
to restore its leading market positions. AIGL&R has been reinstated by all key
distribution networks and has further expanded marketing by establishing new
relationships. The group has maintained its long-standing top ranking in bank
fixed annuity sales and number three ranking for 403(b) retirement plan assets
under management. In addition, AIGL&R continues to make progress towards
leading positions in other key product lines, with a number six ranking in
variable annuity non-captive sales (up from a low point of number 18) and a
number six ranking in sales of term life insurance (up from number 12).
Moreover, after experiencing elevated surrender rates over the last few years,
policy surrenders have stabilized and are currently near historical norms.
However, A.M. Best notes that overall net flows are negative through three
quarters of 2012, driven by a significant decline in fixed annuity sales as
the company exercised some discipline in the low interest rate environment.

The ratings of AIGL&R recognize its strong risk-adjusted capitalization,
diverse business and earnings profile and robust multi-channel distribution
platform. The life/health companies’ solid, consistent statutory earnings over
the last few years have facilitated growth in capital, comparing favorably to
its peers. AIGL&R maintains a diverse business profile with established
franchises in individual fixed and variable annuities, life insurance, group
retirement plans and mutual funds. The group’s market positions are supported
by a large and diversified distribution system that is made up of financial
institutions; national, regional and independent broker dealers; career
financial advisors; independent marketing organizations; insurance agents; and
a direct-to-consumer platform. Additionally, AIGL&R’s liability profile is
fairly well-balanced between spread, fee and mortality-based products,
providing diversified sources of earnings.

Partially offsetting these strengths is the group’s exposure to higher risk
investments (e.g., structured securities, direct commercial mortgage loans and
various alternative strategies), the substantial dividend expectations of its
ultimate parent and the anticipated effect of the low interest rate
environment on AIGL&R’s spread-based businesses. Nevertheless, A.M. Best
believes future investment losses should be manageable in the context of
AIGL&R’s current capitalization level and earnings capacity. Based on results
through September 30, 2012, asset impairments have continued their declining
trend, which is notable given the uncertain economic environment and the
group’s sizable structured asset and alternative investment portfolios. A.M.
Best notes that AIGL&R’s investments in non-agency mortgage-backed securities,
asset-backed securities, collateralized debt obligations and commercial
mortgage-backed securities totaled approximately $34 billion at September 30,
2012 (statutory, amortized cost basis). This exposure represents roughly 200%
of statutory total adjusted capital. In addition, AIGL&R’s $8.2 billion
exposure to alternative assets (hedge funds, private equity and real estate)
represents additional risk within the investment portfolio.

As part of its current capital management strategy, AIGL&R expects dividends
to the parent to exceed earnings in 2013, which will likely result in a modest
decline in the group’s risk-adjusted and absolute capitalization levels.
However, A.M. Best notes that AIG’s executive management has indicated its
commitment to maintain healthy capitalization ratios to support the ratings of
AIGL&R’s domestic life and retirement services subsidiaries. Furthermore,
AIG’s various implicit and explicit support initiatives are in line with this
commitment.

AIGL&R's ratings could be upgraded if the positive trends in earnings and
investment performance continue, net flows improve and strong risk-adjusted
capitalization is maintained. However, downward rating pressure may occur
should AIGL&R experience unfavorable trends in earnings or net flows, a
decline in risk-adjusted capitalization in excess of A.M. Best's expectations
or significant deterioration in investment performance.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for the following
domestic life/health subsidiaries of American International Group, Inc.:

  *AGC Life Insurance Company
  *American General Life Insurance Company
  *The United States Life Insurance Company in the City of New York
  *The Variable Annuity Life Insurance Company

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Company, Inc.
Joan Sullivan, 908-439-2200, ext. 5144
Senior Financial Analyst
joan.sullivan@ambest.com
or
Thomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
thomas.rosendale@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com