Fitch Ratings has assigned a rating of 'BB+' to American International Group, Inc.'s (AIG) $250 million issuance of 2.375 percent subordinated notes due 2015.
In a release on August 21, Fitch has also affirmed all other AIG ratings, including AIG's 'BBB' Issuer Default Rating (IDR) with a Positive Rating Outlook.
Proceeds from the issue will be used for general corporate purposes. The new issuance, coupled with recent share repurchase activity will modestly increase AIG's pro forma financial leverage ratio (excluding financial related debt) modestly to approximately 19.4 percent.
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, de-leverages the balance sheet, and reduces government interaction with the company.
Federal government equity ownership interest in AIG continues to diminish as $5.75 billion of common equity was sold to the public in August 2012, reducing the government's ownership stake in AIG common stock to 53 percent from 61 percent. AIG purchased $3 billion of shares as part of this transaction.
AIG reported a significant improvement in first half 2012 profitability as net income increased by 76 percent relative to the prior year to $5.5 billion. This earnings improvement was largely attributable to investment income growth, as well as better underwriting performance within Chartis property/casualty insurance operations. Chartis combined ratio improved to 102.3 percent in the first half of 2012 from 111.1 percent in first half 2011 largely due to sharply lower catastrophe losses. Interest coverage was 4.2x in the first half of 2012.
As a technical matter, Fitch maintains non-standard notching between AIG's IDR and unsecured senior debt ratings, which Fitch expects will ultimately be resolved with either an upgrade in the IDR by one notch or downgrade in the unsecured senior debt rating by one notch. If the IDR is upgraded, AIG's subordinated debt due 2015 that is being rated today at 'BB+' would also be upgraded by one notch, as would the various hybrid instruments currently rated 'BB'. Non-traditional notching was applied when AIG came under majority ownership by the Federal government.
The Positive Outlook reflects Fitch's belief that an upgrade for AIG is a likely outcome. Key triggers that could lead to rating upgrades in the IDR and subordinated debt and hybrids ratings include:
--Further 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).
Key triggers that could lead to rating downgrade in the unsecured senior debt ratings 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, and/or failure to achieve the above noted capital structure improvements.
Fitch has assigned the following rating:
American International Group, Inc.
--$250 million of 2.375 percent subordinated notes due 2015 'BB+'.
Fitch has affirmed the following ratings:
--Long-term IDR at 'BBB'; Outlook Positive;
--$250 million of 2.375 percent subordinated notes due 2015 assigned at 'BB+';
--Various senior unsecured note issues at 'BBB';
--$750 million of 4.875 percent senior unsecured notes due June 2022 at 'BBB'.
--$750 million of 4.875 percent senior unsecured notes due May 2022 at 'BBB';
--USD1.2 billion of 4.250 percent senior unsecured notes due September 15, 2014 at 'BBB';
--USD800 million of 4.875 percent senior unsecured notes due September 15, 2016 at 'BBB';
--Eur420.975 million of 6.797 percent senior unsecured notes due November 15, 2017 at 'BBB';
--GBP323.465 million of 6.765 percent senior unsecured notes due November 15, 2017 at 'BBB';
--GBP338.757 million of 6.765 percent senior unsecured notes due November 15, 2017 at 'BBB';
--USD256.161 million of 6.820 percent senior unsecured notes due November 15, 2037 at 'BBB';
--Eur750 million of 8.00 percent series A-7 junior subordinated debentures due May 22, 2038 at 'BB';
--USD1.960 billion 5.67 percent series B-1 debentures due February 15, 2041 at 'BB';
--USD1.960 billion of 5.82 percent series B-2 debentures due May 1, 2041 at 'BB' ;
--USD1.960 billion of 5.89 percent series B-3 debentures due August 1, 2041 at 'BB';
--USD 4 billion of 8.175 percent series A-6 junior subordinated debentures due May 15, 2058 at 'BB';
--USD 1.1 billion of 7.700 percent series A-5 junior subordinated debentures due December 18, 2062 at 'BB';
--GBP309.850 million of 5.75 percent 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 percent series A-8 junior subordinated debentures due May 22, 2068 at 'BB';
--USD750 million of 6.45 percent series A-4 junior subordinated debentures due June 15, 2077 at 'BB';
--USD687.581 million of 6.25 percent series A-1 junior subordinated debentures due March 15, 2087 at 'BB'.
AIG International, Inc.
--$175 million of 5.60 percent senior unsecured notes due July 31, 2097 at 'BBB'.
SunAmerica Financial Group, Inc.
--$150 million of 7.50 percent senior unsecured notes due July 15, 2025 at 'BBB';
--$150 million of 6.625 percent senior unsecured notes due February 15, 2029 at 'BBB'.
American General Capital II
--$300 million of 8.50 percent preferred securities due July 1, 2030 at 'BB'.
American General Institutional Capital A
--$500 million of 7.57 percent capital securities due December 1, 2045 at 'BB'.
American General Institutional Capital B
--$500 million of 8.125 percent capital securities due March 15, 2046 at 'BB'.
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
--Insurer Financial Strength (IFS) ratings at 'A'; Stable Outlook.
ASIF II Program
ASIF III Program
ASIF Global Financing
--Program ratings at 'A'.
Additional information is available at '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', September 22, 2011.
Insurance Rating Methodology
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