Fitch Ratings has assigned a rating of 'BBB' to American International Group, Inc.'s (AIG) $750 million issuance of 4.875% senior notes due 2022. All other AIG ratings are affirmed, including AIG's Issuer Default Rating (IDR) of 'BBB' with a Positive Rating Outlook.
Proceeds from the issue will be used for general corporate purposes, including refinancing of debt maturing in 2013. The new issuance, coupled with recent share repurchase activity will increase AIG's pro forma financial leverage ratio (excluding financial related debt) modestly to approximately 19.5%.
Fitch's ratings on AIG and its subsidiaries primarily reflect the benefits of the AIG organization's strong competitive positions in life and non-life insurance partially offset by the comparatively poor recent operating results of the company's core insurance operations. The Positive Outlook on AIG's IDR continues to reflect improvements in the company's liquidity and financial profile over the last 12-18 months as it sheds operations and de-leverages the balance sheet.
AIG reported a significant improvement in first quarter 2012 profitability as net income increased to $3.4 billion from $1.5 billion in the prior year first quarter. Interest coverage was 6.1x in the first quarter of 2012. This earnings improvement was largely attributable to investment income growth, as well as better underwriting performance within Chartis property/casualty insurance operations tied to sharply lower catastrophe losses.
Federal government interest in AIG continues to diminish as $5.75 billion of common equity was sold to the public in May 2012, reducing the government's ownership stake in AIG common stock to 61%. Also, in April 2012 the Federal Reserve bank of New York sold at auction $7.5 billion of collateralized debt obligations (CDOs) assets held in Maiden Lane III.
Key triggers that could lead to rating upgrades include:
--Earnings improvements at insurance subsidiaries' Chartis and SunAmerica that translate into higher earnings-based interest coverage;
--Further transition of AIG's capital structure and leverage metrics to those of a more traditional insurance holding company that generates a meaningful reduction in the company's Total Financing Commitments ratio (TFC).
--Enhanced underwriting profitability and demonstrated reserve stability of the company's non-life insurance subsidiaries;
--Further stabilization of sales trends and profitability of the company's domestic life insurance subsidiaries;
--Material increases in Chartis' NAIC risk-based capital ratios.
Key triggers that could lead to rating downgrades include:
--Declines in underwriting profitability and 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' sales or profitability trends;
--Material declines in RBC ratios at either the domestic life insurance or the non-life insurance subsidiaries.
Fitch has taken the following rating actions on AIG:
American International Group, Inc.
--Long-term IDR affirmed at 'BBB'; Outlook Positive;
--$750 million of 4.875% senior unsecured notes due 2022 assigned a rating of 'BBB';
--Various senior unsecured note issues affirmed at 'BBB';
--USD1.2 billion of 4.250% senior unsecured notes due Sept. 15, 2014 affirmed at 'BBB';
--USD800 million of 4.875% senior unsecured notes due Sept. 15, 2016 affirmed at 'BBB';
--Eur420.975 million of 6.797% senior unsecured notes due Nov. 15, 2017 affirmed at 'BBB';
--GBP323.465 million of 6.765% senior unsecured notes due Nov. 15, 2017 affirmed at 'BBB';
--GBP338.757 million of 6.765% senior unsecured notes due Nov. 15, 2017 affirmed at 'BBB';
--USD256.161 million of 6.820% senior unsecured notes due Nov. 15, 2037 affirmed at 'BBB';
--Eur750 million of 8.00% series A-7 junior subordinated debentures due May 22, 2038 affirmed at 'BB';
--USD1.960 billion 5.67% series B-1 debentures due Feb. 15, 2041 affirmed at 'BB';
--USD1.960 billion of 5.82% series B-2 debentures due May 1, 2041 affirmed at 'BB' ;
--USD1.960 billion of 5.89% series B-3 debentures due Aug. 1, 2041 affirmed at 'BB';
--USD 4 billion of 8.175% series A-6 junior subordinated debentures due May 15, 2058 affirmed at 'BB';
--USD 1.1 billion of 7.700% series A-5 junior subordinated debentures due Dec. 18, 2062 affirmed at 'BB';
--GBP309.850 million of 5.75% series A-2 junior subordinated debentures due March 15, 2067 affirmed at 'BB';
--Eur409.050 million of series A-3 junior subordinated debentures due March 15, 2067 affirmed at 'BB';
--GBP900 million of 8.625% series A-8 junior subordinated debentures due May 22, 2068 affirmed at 'BB';
--USD750 million of 6.45% series A-4 junior subordinated debentures due June 15, 2077 affirmed at 'BB';
--USD687.581 million of 6.25% series A-1 junior subordinated debentures due March 15, 2087 affirmed at 'BB'.
AIG International, Inc.
--Long-term IDR affirmed at 'BBB'; Outlook Positive;
--$175 million of 5.60% senior unsecured notes due July 31, 2097 affirmed at 'BBB'.
SunAmerica Financial Group, Inc.
--Long-term IDR affirmed at 'BBB'; Outlook Positive;
--$150 million of 7.50% senior unsecured notes due July 15, 2025 affirmed at 'BBB';
--$150 million of 6.625% senior unsecured notes due Feb. 15, 2029 affirmed at 'BBB'.
American General Capital II
--$300 million of 8.50% preferred securities due July 1, 2030 affirmed at 'BB'.
American General Institutional Capital A
--$500 million of 7.57% capital securities due Dec. 1, 2045 affirmed at 'BB'.
American General Institutional Capital B
--$500 million of 8.125% capital securities due March 15, 2046 affirmed at 'BB'.
Fitch has affirmed Insurer Financial Strength ratings for the following companies at 'A' with a Stable Outlook:
AGC Life Insurance Company
AIU Insurance Company
American General Life Insurance Company
American General Life Insurance Company of Delaware
American General Life & Accident Insurance Company
American Home Assurance Company
Chartis Casualty Company
Chartis Europe Limited
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
SunAmerica Annuity and Life Assurance Company
SunAmerica Life Insurance Company
United States Life Insurance Company in the City of New York
Variable Annuity Life Insurance Company
Western National Life Insurance Company
Fitch has affirmed the program ratings for the following companies at 'A':
ASIF II Program
ASIF III Program
ASIF Global Financing
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', Sept. 22, 2011.
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018
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