S&P may cut AIG credit rating as shares dive

NEW YORK, Sept 12 (Reuters) - Standard & Poor's on Friday said it may cut its ratings on American International Group Inc (AIG.N), saying the world's largest insurer will be more challenged to raise capital due to its plunging share price and rising debt costs.

"This action follows a significant decline in AIG's share price and an increase in credit spreads on the company's debt," S&P said in a statement. S&P currently rates AIG "AA-minus," the fourth-highest investment grade.

A steep drop in AIG's shares on Friday was increasing pressure on CEO Robert Willumstad to publicly reassure investors he has a foolproof plan to turn the insurer around. For details, see [ID:nN12342646]

The cost to insure AIG's debt with credit default swaps also surged to a record and began trading on an upfront basis, indicating sellers of protection want to be paid more at the outset of the contract due to higher perceived risk of the firm defaulting on its debt.

Standard & Poor's added that it believes AIG has sufficient capital and liquidity to meet its policy obligations and possible collateral requirements, though it said additional losses in the market value of its mortgages will strain its resources.

"Given the movement in the share price and credit spreads, we now believe AIG's potential access to the capital market may be more restricted in the short term," S&P said. (Reporting by Karen Brettell; Editing by Dan Grebler)