August 21, 2012 / 2:42 PM / 5 years ago

TEXT-Fitch rates AIG's new subordinated notes 'BB+'

Aug 21 - Fitch Ratings has assigned a rating of 'BB+' to American
International Group, Inc.'s (AIG) $250 million issuance of 2.375% 
subordinated notes due 2015. 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%. 

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% from 61%. 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% 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% in the first 
half of 2012 from 111.1% 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% subordinated notes due 2015 'BB+'.

Fitch has affirmed the following ratings: 

American International Group, Inc.
--Long-term IDR at 'BBB'; Outlook Positive;
--$250 million of 2.375% subordinated notes due 2015 assigned at 'BB+';
--Various senior unsecured note issues at 'BBB'; 
--$750 million of 4.875% senior unsecured notes due June 2022 at 'BBB'.
--$750 million of 4.875% senior unsecured notes due  May 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';
--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 debentures due Feb. 15, 2041 at 'BB';
--USD1.960 billion of 5.82% series B-2 debentures due May 1, 2041 at 'BB' ;
--USD1.960 billion of 5.89% series B-3 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.
--Long-term IDR at 'BBB'; Outlook Positive; 
--$175 million of 5.60% senior unsecured notes due July 31, 2097 at 'BBB'. 

SunAmerica Financial Group, Inc. 
--Long-term IDR at 'BBB'; Outlook Positive;
--$150 million of 7.50% senior unsecured notes due July 15, 2025 at 'BBB';
--$150 million of 6.625% senior unsecured notes due Feb. 15, 2029 at 'BBB'. 

American General Capital II
--$300 million of 8.50% preferred securities due July 1, 2030 at 'BB'.

American General Institutional Capital A
--$500 million of 7.57% capital securities due Dec. 1, 2045 at 'BB'.

American General Institutional Capital B
--$500 million of 8.125% 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'.

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