Fitch Affirms AIG, Subs ‘AA’ Ratings

January 16, 2008

Fitch Ratings has affirmed American International Group’s Issuer Default Rating (IDR) at ‘AA’ and affirmed its ratings on all of AIG’s insurance subsidiaries at the same level. The rating outlook is stable. See below for a complete list of the individual companies and debt ratings.

Fitch said its affirmation of AIG’s ratings and outlook reflects its “pre-eminent global insurance organization, with excellent worldwide brands and franchises and strong operating results. Fitch also views very favorably the diversified nature of the organization’s products, distribution systems and geographic reach. This diversification has contributed to AIG’s ability to generate stable and predictable historical operating results.

However Fitch also noted that AIG’s “relatively large exposure to the current U.S. residential mortgage crisis,” is an adverse factor. Fitch indicated that although AIG has potential loss exposures in this regard. It “believes these losses should be absorbed by the existing capital base and future earnings stream. If the residential mortgage market were to decline beyond current expectations and/or if weakness were to spread to other asset classes, then Fitch would revisit the current ratings and outlook.

AIG’s greatest exposure, according to Fitch is in its “credit derivative portfolio within AIG Financial Products Corp. (AIG FP), with its large net notional exposure to credit derivatives of $505 billion at Sep. 30, 2007. Included in this total is $62.4 billion of collateralized debt obligations backed by structured finance (SF CDOs) collateral, mainly subprime U.S. residential mortgage-backed securities (RMBS). While Fitch notes that this asset class has been under considerable credit deterioration in the past few months, Fitch is currently comforted by the fact that AIG FP’s SF CDO portfolio was almost entirely underwritten before 2006. While under considerable stress, collateral from pre-2006 U.S. RMBS vintages is generally expected to perform better than 2006-2007 vintages.”

Fitch said that AIG’s other areas – domestic life, retirement services and general insurance subsidiaries – “are strongly capitalized on an aggregated basis as measured by Prism, Fitch’s new economic capital model. As of year-end 2006, the company’s aggregated domestic insurance capital score was ‘AA’ as available capital exceeded ‘AA’ required capital by 6 percent. AIG’s aggregated score was driven by very strong capitalization at the domestic life and retirement services companies (‘AAA’ Prism Score), adequate capitalization at the domestic general insurance companies (‘A-‘ Prism Score) and diversification benefits of a multi-line company.”

The analysis also explained that Fitch “maintains unusually narrow notching between AIG’s insurer financial strength (IFS) ratings and holding company ratings, reflecting the organization’s very strong financial flexibility, modest financial leverage and significant cash flow from diverse regulated and non-regulated subsidiaries.

“Fitch expects AIG’s holding company financial leverage to stay below 15 percent on an equity-credit adjusted basis. This percentage is an important benchmark in maintaining Fitch’s narrow notching. At Sep. 30, 2007, AIG’s adjusted leverage (adjusted for equity credit related to hybrid securities and excluding debt issued to support finance operations) was 12 percent.”

In concluding its analysis, Fitch pointed out that “AIG is the holding company for one of the world’s largest insurance and financial services groups. At Sep. 30, 2007, AIG had total assets of approximately $1,072 billion, stated shareholders’ equity of $104 billion and market capitalization of $173 billion. In 2006, the company had total revenues of approximately $113.2 billion and net income of $14.0 billion. First nine months 2007 operating results were strong with net income of $11.5 billion and annualized return on stated shareholders equity of 14.9 percent.”

The following is Fitch’s list of AIG’s subsidiaries and debt ratings:
–IDR ‘AA’;
–Senior debt ‘AA’;
–Junior Subordinated debentures ‘AA-‘;
–Short Term IDR ‘F1+’.
AIG Funding, Inc.
–Commercial paper ‘F1+’.
AIG International, Inc.
–IDR ‘AA’;
–Senior debt ‘AA’;
AIG Life Holdings (US), Inc. (formerly American General Corp.)
–IDR ‘AA’;
–Senior debt ‘AA’.
American General Capital II
–Preferred securities ‘AA-‘.
American General Institutional Capital A and B
–Capital securities ‘AA-‘.
HSB Capital Trust I
–Preferred securities ‘AA’.
21st Century Insurance Group
–IDR ‘AA’;
–Senior debt ‘AA’.
United Guaranty Corporation
–Long Term Rating ‘AA’.
ASIF Program
ASIF II Program
ASIF III Program
ASIF Global Financial Program
–Program rating ‘AA+’.
Fitch affirms the following IFS ratings at ‘AA+’ with a Stable Rating Outlook:
Life Companies
–AGC Life Insurance Company
–AIG Annuity Insurance Company
–AIG Life Insurance Company
–AIG SunAmerica Life Assurance 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
–First SunAmerica Life Insurance Company
–SunAmerica Life Insurance Company
–The United States Life Insurance Company in the City of New York
–The Variable Annuity Life Insurance Company
National Union Inter-company Pool Members:
–AIG Casualty Company (formerly Birmingham Fire Ins. Co. of PA)
–AIU Insurance Company
–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
AIG Personal Lines Inter-company Pool Members:
–AIG Advantage Insurance Company (formerly Minnesota Ins. Co.)
–AIG Auto Insurance Company of New Jersey
–AIG Centennial Insurance Company
–AIG Hawaii Insurance Company
–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.
Non Pool Companies
–21st Century Casualty Company
–21st Century Insurance Company
–21st Century Insurance Company of the Southwest
–American International Specialty Lines Insurance Company
–Hartford Steam Boiler Inspection & Insurance Company
–United Guaranty Residential Insurance Company
Foreign Domiciled General Ins. Companies
–AIG MEMSA Insurance Company Ltd. (UAE)
–AIG (UK) Ltd. (formerly The Landmark Insurance Co. Ltd. (UK)
–American International Underwriters Overseas, Ltd. (Bermuda)
–Ezer Mortgage Insurance Company (ISR)

Source: Fitch Ratings –

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