Fitch: Government Support for 4Q'08 Loss Overrides most AIG

 

Saturday, Mar 14,2009, 3:47:37 PM   Click:

Copyright: Business Wire
Source: Business Wire
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Business Editors

CHICAGO - (BUSINESS WIRE) - March 11 2009 - (This amends the origin of a press release issued on March 2. Corrigée opinion HSB Capital Trust I think that is placed on Rating Watch trends (not downgraded) with AIU Insurance Company and American International Specialty Lines Insurance Company, which are confirmed and removed from Rating Watch evolution rather than remain on Watch.)

The support of the U.S. government remains firmly in place for American International Group Inc (AIG), despite 61.7 billion fourth quarter 2008 (4Q'08) net loss that the measures taken in cooperation with the Treasury U.S. Federal Reserve aims to promote the return of the AIG financial stability, according to Fitch Ratings.

However, the possibility of a future political or other incentives to defer payments on hybrid instruments in order to preserve cash to support a return of capital financed by the taxpayer is a concern for AIG securities losses hybrids.

That Fitch Ratings affirmed with a stable outlook include AIG:

- Long-term IDR of 'A';

- Senior non-securities' A ';

- Insurer Financial Strength (IFS) rating of the AIG insurance subsidiary that intends to keep under its previously announced restructuring of "AA-".

That Fitch Ratings has downgraded AIG include:

- Junior subordinated notes to 'BB' from 'A-';

- Trust Preferred securities to 'BB' from 'A-'.

Ratings remain on Rating Watch Evolving include:

- IFS rating to 'AA-' by the subsidiary of the AIG insurance companies did not intend to keep as part of its restructuring plan announced earlier

- International Lease Finance, Inc. s (ILFC) and American General Finance Corp.. (AGF), various notes.

A complete list of the ratings can be found at the end of this release.

Today, AIG has announced the following measures to be taken in cooperation with the U.S. Treasury and Federal Reserve Board. Fitch considers that these measures positively, because they improve the company's liquidity and reduce the company's annual preferred dividend and financial leverage. Welcome this new level of support underlines the commitment by the U.S. government to ensure that AIG remains financially sound and meet its future obligations. Negatively, additional support was necessary because of AIG is very low performance, and the inability of AIG to date to move forward with the sale of assets on terms consistent with its plan to restructuring.

- The U.S. Treasury to buy $ 30 billion in new 10% non-cumulative perpetual preferred shares in AIG. The capital commitment will remain in place for five years and will be made available to AIG to borrow from the company option as long as the U.S. Treasury's participation in AIG remains above 50% and AIG did not come bankrupt.

- The dividend on existing AIG $ 40 billion of outstanding cumulative Series D preferred shares will be revised to a non-cumulative from a cumulative dividend.

- AIG will enter into two separate transactions in which one part of society's economic interests in two of its major life insurance companies, American Life Insurance Company (ALICO) and American International Assurance (AIA) in the end, be exchanged with the Federal Reserve Bank of New York. Consideration by AIG received in this exchange will be the satisfaction of some debt due to the FRBNY in the $ 60 billion credit facility senior secured between AIG and the FRBNY. Fitch expects that the value of this exchange will be $ 20-25 billion.

- AIG and the FRBNY will enter into certain transactions in which AIG domestic life insurance companies will be referred to in note securitization FRBNY supported by the expected future profits on blocks of life insurance policies. Consideration by AIG received in this exchange will be the satisfaction of some debt due to the FRBNY $ under the credit facility of 60 billion dollars between AIG and the FRBNY. Fitch's expectation that the value of this exchange about $ 6 billion.

Fitch continues to believe that the U.S. government has significant incentives to ensure that AIG is a success in the implementation of its restructuring plan to manage systemic risks arising mainly from AIG acts as a counterparty as part of its Financial Products CDS. AIG ratings are based on a supposed "support government speech." Absent this assumption being supported by the Government, the AIG and the senior debt rating IDR is not investment grade.

The downgrading of AIG hybrid securities Fitch ratings reflect the broader concerns that financial institutions receive significant government support that May be increased political future or other incentives to defer payment of these instruments in order to preserve cash support a return of capital financed by the taxpayer. These decreases are consistent with actions recently taken Fitch losses on securities issued by several other major financial institutions worldwide that have received significant financial support from various governments. Fitch notes, however, AIG said that he does not see.

The stable outlook on the IDR and kept AIG insurance company subsidiaries of the rating reflects Fitch's expectations for the next 12 to 18 months. Beyond that time, AIG is exposed to view migration above average risk due to uncertainty over AIG's financial profile after it is clear from the government to be supported. Due to the high volatility of AIG has experienced in recent years, Fitch can not reasonably foresee at this time what the symbol AIG May be post-government support.

Fitch believes that the following factors as a product the greater uncertainty surrounding the future of AIG rating levels:

- Potential erosion of competitive position and franchise of the commercial value of the insurance subsidiaries of AIG and General Insurance from AIG and advertising to financial difficulties. Fitch sees the emergence, over the next six to twelve months, as evidence that the erosion:

- Market share and lower the volume of gross premiums which are incompatible with business and historical trends in contradiction with the experiment undertaken by peers;

- The decline in customer retention levels that are incompatible with the historical societies and in contradiction with the experiment undertaken by peers;

- During the defections of key staff;

- Underwriting profitability on an accident year and calendar year which is incompatible with the historical societies or peer company performance;

- Overall profitability and capital formation rates that are inconsistent with the historical societies or peers, the results of the company.

AIG commercial and foreign general insurance units 4Q'08 results generally lagged those of their peers as net premiums declined significantly and combined ratios were significantly higher than those of their peers. Fitch believes that some of these subsystems can be explained by elements that are related to the restructuring of the organization such as the large negative goodwill write-off of units combined ratios. However, Fitch believes that other parties, as larger than the peers' fall in net premiums written are related to concerns about AIG's market, where financial stability of the insured with the insurance 'exposure to AIG have diversified their insurance coverage.

AIG Financial Products Corp. 's (AIGFP) portfolio of credit default swaps and various derivatives contracts could generate cash and equipment and capital needs under various scenarios. At 30 September 2008, the notional value of the portfolio, excluding multi-sector CDO portfolio, was $ 306 billion. Fitch believes that liquidity and capital strain associated with the multi-sector CDO portfolio, which were the most difficult of the entire portfolio, have been mitigated by measures of AIG and the FRBNY announced in November 2008. Although plans AIGFP wind-down AIGFP portfolio appear to be well designed and the implementation seems to be progressing according to plan, Fitch believes that the size of the portfolio, as representative of a material source of risk.

AIGFP had $ 43 billion of debt at 30 September 2008. Fitch continues to see the majority of this debt debt matched "in the sense that there are assets with durations of support debt obligations. However, given the potential volatility of financial markets that could affect AIGFP, Fitch believes that the ability of the company are the assets to fully fund these obligations under increased stress.

AIG American General Finance Corp. subsidiary will also count on the support of AIG to meet any debt obligations to the extent that there is a shortage of cash. Above all, AIG is required to maintain the value of AGF in the context of society to take full bank facility, offering more comfort than the incented AGF AIG is to maintain short-term.

There is a strong potential for further losses in various exhibitions. AIG $ 61 billion net loss for the fourth quarter of 2008 was important outside expectations. The results include $ 51 billion after-tax non-cash charges including $ 21 billion for articles relating to tax, $ 13 billion cost to the mark on the market losses on investments that are classified as other than temporarily reduced $ 5 billion to the mark - to charge market AIGFP portfolio of CDS contracts, and $ 4 billion impairment charge for goodwill.

Fitch has taken the following rating actions:

American International Group, Inc.

- Long-term IDR, affirmed at 'A';

- Affirmed senior debt to 'A';

- 6.25% Series A-1 junior subordinated debentures due March 15 to decline in 2087 'BB' from 'A-';

- 5.75% Series A-2 junior subordinated debentures due March 15 2067 to the fall 'BB' from 'A-';

- 4875% Series A-3 Junior Subordinated Debentures due March 15 2067 to the fall 'BB' from 'A-';

- 6.45% Series A-4 junior subordinated debentures due June 15 2077 to the fall 'BB' from 'A-';

- 7.7% Series A-5 Junior Subordinated debentures due December 18 2062 to the fall 'BB' from 'A-';

- 8175% Series A-6 junior subordinated debentures due May 15 in 2058 to the fall 'BB' from 'A-';

- 8% series A-7 junior subordinated debentures due May 22 in 2038 to the fall 'BB' from 'A-';

- 8625% Series A-8 junior subordinated debentures due May 22 in 2068 to the fall 'BB' from 'A-'

- 5670% Series B-1 bonds due February 15 2041 in the fall 'BB' from 'A-';

- 5820% Series B-2 debentures due May 1 2041 to the fall 'BB' from 'A-';

- 5.89% series B-3 bonds due August 1, 2041 to the fall 'BB' from 'A-';

- Short-term IDR affirmed at 'F1'.

AIG Funding, Inc.

- Commercial paper affirmed at 'F1'.

AIG International, Inc.

- Long-term IDR, affirmed at 'A';

- Affirmed senior debt to 'A';

AIG Life Holdings (U.S.), Inc. (formerly American General Corp.)

- Long-term IDR, affirmed at 'A';

- Senior debt affirmed at 'A''.

21st Century Insurance Group

- Long-term IDR, affirmed at 'A';

- Affirmed senior debt to 'A'

ASIF Program

ASIF II Program

ASIF III Program

ASIF Global Financial Program

- Program rating affirmed at 'AA-'.

American General Capital II

- 8.5% preferred securities due 1 July 2030 to the fall 'BB' from 'A-';

American General Institutional Capital A

- 7.57% capital securities due on 1 December 2045 to the fall 'BB' from 'A-';

American General Institutional Capital B

- 8125% capital securities due March 15 to decline in 2046 'BB' from 'A-';

Fitch affirmed the following: 'AA-' IFS ratings with a stable outlook:

National Union Inter-company pool members:

- AIG Casualty Company (formerly Birmingham Fire Ins. Co. of PA);

- American Home Assurance Company;

- American International South Insurance Company;

- Commerce and Industry Insurance Company;

- Granite State Insurance Company;

- Illinois National Insurance Co.;

- National Union Fire Insurance Company of Pittsburgh, PA;

- New Hampshire Insurance Company;

- The Insurance Company of the State of Pennsylvania.

Lexington Inter-company Pool Members:

- AIG Excess Liability Insurance Company, Ltd. (formerly Starr Excess Liability Ins. Co., Ltd.);

- Landmark Insurance Company;

- Lexington Insurance Company.

Pool non-members:

- AIU Insurance Company;

- American International Specialty Lines Insurance Company;

Foreign-Domiciled General Insurance Companies

- MEMS AIG Insurance Company Ltd. (UAE);

- AIG (UK) Ltd (formerly The Landmark Insurance Co. Ltd. (UK);

- American International Underwriters Overseas, Ltd. (Bermuda).

Fitch has also affirmed the following IFS national rating with a Stable Rating Outlook:

- La Interamericana Compania de Seguros Generales SA (LIG): 'AA +' (CHL);

- AIG Union Desarrolo Y, SA (AIG Union): "AA" (SLV);

- AIG South Africa Limited 'AAA' (ZAF)

- AIG Life Limited of South Africa 'AAA' (ZAF)

In addition, Fitch has affirmed the following: 'AA-' IFS rating with a Negative Rating Outlook:

- United Guaranty Residential Insurance Company

Fitch has placed the following ratings on Rating Watch Evolving:

HSB Capital Trust I

- 5.06% Preferred Securities due July 15, 2027 at 'A-';

The 'AA-' Insurer Financial Strength (IFS) rating on Rating Watch Evolving rest:

- AGC Life Insurance Company;

- AIG Annuity Insurance Company;

- AIG Life Insurance Company;

- SUNAMERICA AIG Life Insurance Company;

- American General Life and Accident Insurance Company;

- American General Life Insurance Company;

- American International Assurance Company (Bermuda) Limited;

- American International Life Assurance Company of New York;

- American Life Insurance Company;

- SUNAMERICA First Life Insurance Company;

- SUNAMERICA Life Insurance Company;

- The United States Life Insurance Company in New York City;

- The Variable Annuity Life Insurance Company.

AIG Personal Lines Inter-company Pool Members:

- 21st Century Casualty Company;

- 21st Century Insurance Company;

- 21st Century Insurance Company of south-west;

- AIG Advantage Insurance Company (formerly Minnesota Ins. Co.);

- AIG Auto Insurance Company of New Jersey;

- AIG Centennial Insurance Company;

- Insurance company AIG Hawaii;

- AIG Indemnity Insurance Company;

- AIG National Insurance Company, Inc;

- AIG Preferred Insurance Company;

- AIG Premier Insurance Company;

- American International Insurance Company;

- American International Insurance Company of California;

- American International Insurance Company of New Jersey;

- American International Pacific Insurance Company;

- American Pacific Insurance Company;

- New Hampshire Indemnity Company, Inc.

The Non-Pooled

- Hartford Steam Boiler Inspection & Insurance Company;

The following national IFS rating remains Rating Watch Evolving:

- La Interamericana Compania de Seguros de Vida SA (LIV) 'AA +' (chl)

The following remain on Rating Watch Evolving:

International Lease Finance Corp.

- Long-term IDR 'A';

- The senior unsecured debt 'A';

- Preferred stock 'A-';

- Short-term IDR 'F1':

- Commercial paper 'F1'.

American General Finance, Inc.

- Long-term IDR 'BBB';

- Short-term IDR 'F1';

- Commercial paper 'F1';

American General Finance Corp.

- Long-term IDR 'BBB';

- Senior debt 'BBB';

- Short-term IDR F1 ';

- Commercial paper 'F1';

AGFC Capital Trust I

- Preferred stock 'BB';

CommoLoCo Inc

- Short-term IDR 'F1';

- Commercial paper 'F1'.

Fitch's rating definitions and conditions of use of these opinions are available on the website of the public body, www.fitchratings.com. Published opinions, criteria and methodologies are available from this site, at any time. 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 of this site.



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