|Copyright:||Copyright Business Wire 2010|
|Source:||Business Wire, Inc.|
–assigned an expected rating of ‘BBB’ to the senior unsecured debt securities included in the company’s most recent shelf registration;
–upgraded the ratings on the company’s various issues of hybrid securities to ‘BB-‘ from ‘B’;
–affirmed and concurrently withdrawn both AIG’s short-term Issuer Default Rating (IDR) and commercial paper program ratings at ‘F1’, reflecting that AIG’s commercial paper program is inactive.
In addition, Fitch has affirmed AIG’s long-term IDR and existing senior debt ratings at ‘BBB’. The Rating Outlook is Stable.
Fitch’s expected rating on the shelf securities is the same as that on AIG’s existing senior debt, which continues to reflect uplift related to majority ownership of AIG by the U.S. government. Fitch believes that AIG’s ability to issue new senior debt under its shelf registration would have only a slight impact on AIG’s overall financial leverage and interest coverage. However, access to public capital at reasonable terms would be an important indicator of renewed financial flexibility, and a further step in the company’s plan to exit U.S. government involvement.
Fitch notes that it credit opinion on AIG’s financial profile, when viewed on a theoretical ‘stand-alone’ basis, excluding the benefit of government involvement, has improved. Under this theoretical assumption, Fitch would rate AIG’s stand-alone IDR ‘BB+’ and both new and existing senior unsecured securities ‘BB’. These levels are one notch higher, respectively, than their prior levels last commented on by Fitch on
The upgrade of the ratings on AIG’s subordinated hybrid securities reflects Fitch’s reduced concerns about the potential for AIG to elect contractually available interest deferral options attached to these securities. The agency believes that AIG’s financial profile has improved meaningfully since these securities were downgraded to their previous ratings levels in
Fitch notes that as AIG moves toward exiting government involvement, the greatest area of sensitivity that could impact AIG’s ratings is the confluence of the speed and magnitude by which government involvement diminishes, relative to the speed and magnitude by which AIG’s ‘stand-alone’ profile improves. Decreases in assumed government support will reduce the uplift Fitch factors into its ratings relative to AIG’s ‘stand-alone’ ratings. Offsetting this is Fitch’s view that AIG’s re-structuring efforts will lead to upward migration in the company’s stand-alone ratings over the same time period.
Factors that continue to be reflected in AIG’s theoretical ‘BB+’ stand-alone IDR include:
–reduced, but still higher than typical, insurance-holding company financial leverage; Fitch calculates AIG’s
–consolidated operating earnings-based interest coverage from continuing operations through the first nine months of 2010, excluding the non-cash FRBNY Facility related interest amortization component of interest expense, of approximately 3.0x which is consistent with below investment grade coverage levels. Looking forward, Fitch anticipates operating earnings based interest coverage ratios from core operations in the 5-8x range. Fitch views such coverage ratios as supportive of an investment-grade IDR. However in the near term, the agency remains concerned about the effect of potential re-structuring charges, similar to those that have hampered AIG’s 2010 net earnings;
–strong competitive positions in non-life insurance, both domestically and internationally, that are expected to generate large absolute amounts of earnings but lagging underwriting margins;
–reasonably strong competitive positions in the domestic life insurance and retirement services market which are still recovering from reputational damage suffered during the financial crisis.
Key rating drivers that could produce revisions in Rating Outlooks to Positive or lead to upgrades in AIG’s stand-alone IDR or its subsidiaries’ IFS ratings include:
–further declines in outstanding notional values of AIGFP’s CDS portfolio without significant liquidity or capital drains. Such a decline would most directly affect Fitch’s view of AIG’s stand-alone IDR;
–further clarity around AIG’s plans for its
–the transition of AIG’s capital structure and leverage to that of a more traditional insurance holding company resulting in a narrowing of the notching between insurance company ratings and holding company ratings. Under such a scenario as government support declines, per Fitch’s notching criteria, the IDR of the holding company would migrate to one notch higher than the senior unsecured debt rating, as is currently the case with the stand-alone ratings;
–further stabilization of sales trends and profitability of the company’s domestic life insurance subsidiaries;
–enhanced underwriting profitability and reserve stability of the company’s non-life insurance subsidiaries.
Key rating drivers that could produce a revision in the Rating Outlook to Negative or lead to downgrades in AIG’s stand-alone IDR or its subsidiaries’ IFS rating include:
–evidence that AIGFP’s CDS portfolio run-off is not proceeding as currently envisioned;
–a decline in Fitch’s view of the implied rating support provided by the U.S. Treasury’s interests in AIG that is not fully offset from a rating perspective by improvements in AIG’s stand-alone financial profile. The agency believes that the most plausible situation under which this could occur would be a significant unwinding of the Treasury’s ownership position prior to further run-off of AIGFP’s CDS portfolio.
–AIG’s inability to transition its capital structure and leverage to those of a more traditional insurance holding company could result in a widening of the notching between the insurance subsidiary ratings and the holding company ratings. Under such a scenario as government support declines, per Fitch’s notching criteria AIG’s senior unsecured debt ratings would migrate to one notch lower than the holding company IDR rating as is currently the case with the stand-alone ratings;
–an inability to secure adequate sources of liquidity given the significant reductions in
–material declines in risk-based capital ratios at either the domestic life insurance or the non-life insurance subsidiaries;
–deterioration in the company’s domestic life subsidiaries’ sales or profitability trends;
–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.
Fitch notes that AIG’s commercial paper program is inactive and thus is no longer considered by the agency to be relevant to its coverage. Thus Fitch has affirmed and withdrawn its short-term IDR on AIG and withdrawn its commercial paper ratings on AIG and its subsidiaries.
Fitch has taken the following rating actions:
–Senior unsecured debt securities included in the company’s most recent shelf registration assigned expected ‘BBB’;
–Long-term IDR affirmed at ‘BBB’; Outlook Stable;
–Senior debt affirmed at ‘BBB’;
–6.25% series A-1 junior subordinated debentures due
–5.75% series A-2 junior subordinated debentures due
–4.875% series A-3 junior subordinated debentures due
–6.45% series A-4 junior subordinated debentures due
–7.7% series A-5 junior subordinated debentures due
–8.175% series A-6 junior subordinated debentures due
–8% series A-7 junior subordinated debentures due
–8.625% series A-8 junior subordinated debentures due
–5.67% series B-1 debentures due
–5.82% series B-2 debentures due
–5.89% series B-3 debentures due
–Short-term IDR affirmed at ‘F1’ and withdrawn.
–Commercial paper ‘F1’ withdrawn.
–Long-term IDR affirmed ‘BBB’; Outlook Stable;
–Senior debt affirmed at ‘BBB’;
–5.6% senior unsecured notes due
–Long-term IDR affirmed at ‘BBB’;
–7.5% senior unsecured notes due
–6.625% senior unsecured notes due
American General Capital II
–8.5% preferred securities due
American General Institutional Capital A
–7.57% capital securities due
American General Institutional Capital B
–8.125% capital securities due
Additional information is available at ‘www.fitchratings.com‘.
–‘Insurance Rating Methodology’, dated
–‘Life Insurance Rating Methodology’, dated
–‘Non-Life Insurance Rating Methodology’ dated
–‘Insurance Industry: Global Notching Methodology and Recovery Analysis’ dated
Non-Life Insurance Rating Methodology
Insurance Industry: Global Notching Methodology and Recovery Analysis
Insurance Rating Methodology
Life Insurance Rating Methodology
Group Managing Director
Source: Fitch Ratings