S&P Affirms AIG’s ‘AA’ Ratings; Asia Unit Upgraded to ‘AA+’; Outlook Stable

December 13, 2007

Standard & Poor’s Ratings Services gave the American International Group a vote of confidence as it affirmed AIG’s ‘AA’ long-term counterparty rating and its ‘AA+’ counterparty credit and financial strength ratings on AIG’s core operating subsidiaries. S&P also raised its financial strength rating on American International Assurance Co. Ltd. (AIA) to ‘AA+’ from ‘AA’. The outlook on all the companies is stable.

“The upgrade was based on our revised view of AIA as a core operating subsidiary of AIG,” explained S&P credit analyst Rodney Clark. “AIA is AIG’s flagship life and health insurer in Southeast Asia, with market-leading positions in Singapore, Thailand, Malaysia, and among foreign companies operating in the People’s Republic of China.”

Clark added that the “ratings on AIG and its units are based on the group’s superior global business franchise, very strong and consistent operating track record, strong and deep management team, and improving governance and financial controls.”

However he also noted that “somewhat offsetting these strengths is the group’s substantial exposure to the U.S. residential mortgage market through various insurance and financial services subsidiaries.”

S&P stated that AIG’s risk-based capital is expected to remain very strong, with a capital adequacy ratio of at least 150 percent under S&P measurements. The rating agency added that AIG’s “financial leverage is expected to remain at 20 percent or less, and operational leverage attributable to financial services subsidiaries is not expected to grow proportionately higher than the current mix.

“The strong property/casualty rate environment and continued life insurance expansion should lead to solid mid-single-digit growth in premiums. Operating earnings may be affected in 2008 due to losses related to the mortgage market, but the company is still expected to maintain an ROR in the mid to high teens.”

Concerning the Group’s exposure to the subprime credit crisis, S&P explained that it has “reviewed AIG’s residential mortgage exposures in various operations, including insurance company investment portfolios, credit protection on super-senior CDO tranches, mortgage insurance, and direct mortgage lending. These exposures will produce some losses in 2008, but they are expected to be modest.

“However, if the market downturn is more severe than currently expected and there is a material adverse impact to AIG’s capital base, the outlook could be revised to negative.”

Source: Standard & Poor’s – www.standardandpoors.com.

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