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Fitch Upgrades AIG Life and Retirement's IFS Ratings; Affirms Other AIG Ratings; Outlook Stable



  Fitch Upgrades AIG Life and Retirement's IFS Ratings; Affirms Other AIG
  Ratings; Outlook Stable

Business Wire

CHICAGO -- February 14, 2013

Fitch Ratings has upgraded the Insurer Financial Strength (IFS) ratings of
American International Group, Inc.'s (AIG) U.S. life insurance subsidiaries
led by AGC Life Insurance Company to 'A+' from 'A'. Fitch has also affirmed
the 'A' IFS ratings of AIG's rated property/casualty insurance subsidiaries,
as well as AIG's Issuer Default Rating (IDR) of 'BBB+' and senior debt rating
of 'BBB'. The Rating Outlook is Stable. A complete list of ratings is provided
at the end of this release.

KEY RATING DRIVERS

The upgrade of the life insurance subsidiaries is driven by continued
improvement in AIG's Life & Retirement subsidiaries statutory capital
position, recovery of investment values over time and return to stronger
operating profits and earnings stability. Fitch believes the company has
largely recovered from the effects of the financial crisis and is capable of
consistently generating approximately $4 billion of annual run-rate operating
earnings. Surrender activity has stabilized and is currently at or below
historical levels and is now reflective of the low interest rate environment
rather than AIG-specific issues. Net investment spreads have improved as a
result of an increase in base yields due to the reinvestment of cash and
short-term investments in 2011 combined with lower interest credited. These
positive factors are offset somewhat by concerns as to the effect of continued
very low interest rates on product performance and future profitability.

All ratings reflect AIG's success in restructuring and deleveraging efforts
over the last four years. AIG has been restored as an independent publicly
held corporation. All previous government borrowings and other support have
been repaid and the remaining 15.9% U.S. Department of the Treasury ownership
in AIG's common stock was sold in December 2012. The organization more closely
represents a traditional insurance holding company with an operating focus on
global property/casualty insurance and domestic life insurance and retirement
products. These efforts will further advance with the pending sale of 90% of
AIG's ownership of aircraft leasing firm International Lease Finance
Corporation (ILFC) which is expected to close by midyear 2013.

The company's financial leverage as measured by the ratio of financial debt
and preferred securities to total capital (excluding operating and ILFC debt
and the impact of FAS 115) declined from 31% at year-end 2010 to approximately
22% currently. Fitch's Total Financial Commitment (TFC) ratio, while still
high compared to most insurance peers, has improved from 2.5x at year-end 2010
to a current level of 1.3x. Elimination of ILFC debt and airline purchase
commitments will further reduce financial leverage and TFC. AIG has also
created an adequate liquidity position and has demonstrated access to capital
markets through execution of several recent financing transactions.

AIG property/casualty subsidiary ratings consider the company's unique market
position in the global insurance market given its absolute size, product
capabilities and geographic scope. Operating and underwriting performance has
lagged peer and industry norms over the last five years. AIG has taken
significant measures recently to reposition the business mix and invest in
underwriting and claims technology. These activities, coupled with favorable
pricing trends in the last 18 months have started to generate some loss ratio
improvement. However, year-end 2012 underwriting results will be marred
significantly by losses from Hurricane Sandy that AIG previously estimated at
$2 billion pre-tax ($1.3 billion post-tax).

AIG reported significantly improved profitability in the first nine months of
2012, with net income of $7.6 billion relative to a modest net loss in the
prior year period. This earnings improvement was largely attributable to
investment income growth, as well as better underwriting performance within
AIG's property/casualty insurance operations. The property/casualty combined
ratio improved to 103.2% in the first nine months of 2012 from 109.3% in 2011
largely due to sharply lower catastrophe losses. Life & Retirement pre-tax
income improved by 22% in the same period versus the prior year. Core
operating subsidiary interest coverage on financial debt was 4.9x in the first
three quarters of 2012.

RATING SENSITIVITIES

Key triggers that could lead to future rating upgrades include:

--Demonstration of higher and more consistent earnings within
Property/Casualty or Life & Retirement operating segments that translate into
average earnings-based interest coverage above 7.0x; This would correspond
with operating earnings of approximately $11 billion;

--Further improvement in AIG's capital structure and leverage metrics that
reduce the company's TFC ratio to below 0.7x;

-- A shift toward consistent underwriting profits would promote positive
movement in the property/casualty subsidiary financial strength ratings.

Key triggers that could lead to a future rating downgrade include:

--Increases in financial leverage as measured by financial debt to total
capital to a sustained level above 30%, or a material increase in the TFC
ratio from current levels;

--Large underwriting losses and/or heightened reserve volatility of the
company's non-life insurance subsidiaries that Fitch views as inconsistent
with that of comparably-rated peers and industry trends;

--Deterioration in the company's domestic life subsidiaries' profitability
trends;

--Material declines in RBC ratios at either the domestic life insurance or the
non-life insurance subsidiaries, and/or failure to achieve the above noted
capital structure improvements.

Fitch has withdrawn the following ratings, since the companies were merged
into American General Life Insurance Co. effective Dec. 31, 2012 and no longer
exist:

American General Life Insurance Company of Delaware

American General Life and Accident Insurance Company

Western National Life Insurance Company

SunAmerica Annuity and Life Assurance Company

SunAmerica Life Insurance Company

Fitch has upgraded the following ratings:

AGC Life Insurance Company

American General Life Insurance Company

The Variable Annuity Life Insurance Company

United States Life Insurance Company in the City of New York

--IFS ratings upgraded to 'A+' from 'A'; Stable Outlook.

Fitch has affirmed the following ratings:

AIU Insurance Company

American Home Assurance Company

Chartis Casualty Company

Chartis MEMSA Insurance Company Limited

Chartis Overseas Limited

Chartis Property Casualty Company

Chartis Specialty Insurance Company

Commerce & 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

--IFS ratings at 'A'; Stable Outlook.

American International Group, Inc.

--Long-term IDR at 'BBB+' Outlook Stable;

AIG International, Inc.

--Long-term IDR at 'BBB+', Outlook Stable.

SunAmerica Financial Group, Inc.

--Long-term IDR at 'BBB+'; Outlook Stable.

American General Capital II

--USD300 million of 8.50% preferred securities due July 1, 2030 at 'BB+'.

American General Institutional Capital A

--USD500 million of 7.57% capital securities due Dec. 1, 2045 at 'BB+'.

American General Institutional Capital B

--USD500 million of 8.125% capital securities due March 15, 2046 at 'BB+'.

American International Group, Inc.

--Various senior unsecured note issues at 'BBB';

--USD$1.5 billion of 4.875% senior unsecured notes due June 2022 at 'BBB'.

--USD1.2 billion of 4.250% senior unsecured notes due Sept. 15, 2014 at 'BBB';

--USD800 million of 4.875% senior unsecured notes due Sept. 15, 2016 at 'BBB';

--EUR420.975 million of 6.797% senior unsecured notes due Nov. 15, 2017 at
'BBB';

--GBP323.465 million of 6.765% senior unsecured notes due Nov. 15, 2017 at
'BBB';

--GBP338.757 million of 6.765% senior unsecured notes due Nov. 15, 2017 at
'BBB';

--USD256.161 million of 6.820% senior unsecured notes due Nov. 15, 2037 at
'BBB'.

--USD250 million of 2.375% subordinated notes due 2015 at 'BBB-';

--EUR750 million of 8.00% series A-7 junior subordinated debentures due May
22, 2038 at 'BB+';

--USD1.960 billion 5.67% series B-1 junior subordinated debentures due Feb.
15, 2041 at 'BB+';

--USD1.960 billion of 5.82% series B-2 junior subordinated debentures due May
1, 2041 at 'BB+';

--USD1.960 billion of 5.89% series B-3 junior subordinated debentures due Aug.
1, 2041 at 'BB+';

--USD 4 billion of 8.175% series A-6 junior subordinated debentures due May
15, 2058 at 'BB+';

--USD 1.1 billion of 7.700% series A-5 junior subordinated debentures due Dec.
18, 2062 at 'BB+';

--GBP309.850 million of 5.75% series A-2 junior subordinated debentures due
March 15, 2067 at 'BB+';

--EUR409.050 million of series A-3 junior subordinated debentures due March
15, 2067 at 'BB+';

--GBP900 million of 8.625% series A-8 junior subordinated debentures due May
22, 2068 at 'BB+';

--USD750 million of 6.45% series A-4 junior subordinated debentures due June
15, 2077 at 'BB+';

--USD687.581 million of 6.25% series A-1 junior subordinated debentures due
March 15, 2087 at 'BB+'.

AIG International, Inc.

--USD175 million of 5.60% senior unsecured notes due July 31, 2097 at 'BBB'.

Sun America Financial Group, Inc.

--USD150 million of 7.50% senior unsecured notes due July 15, 2025 at 'BBB';

--USD150 million of 6.625% senior unsecured notes due Feb. 15, 2029 at 'BBB'.

ASIF II Program

ASIF III Program

ASIF Global Financing

--Program ratings at 'A'.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', Jan. 11, 2013.

Applicable Criteria and Related Research:

Insurance Rating Methodology -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst
James B. Auden, CFA, +1-312-368-3146
Managing Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago IL 60602
or
Secondary Analyst
Tana M. Higman, +1-312-368-3122
Director
or
Committee Chairperson
Keith M. Buckley, +1-312-368-3211
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com
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