TEXT-Fitch upgrades AIG life and retirement IFS ratings

Thu Feb 14, 2013 10:38am EST

Feb 14 - Fitch Ratings has upgraded the Insurer Financial Strength (IFS)
ratings of American International Group, Inc.'s (AIG) U.S. life
insurance subsidiaries led by AGC Life Insurance Company to 'A+' from 'A'. Fitch
has also affirmed the 'A' IFS ratings of AIG's rated property/casualty insurance
subsidiaries, as well as AIG's Issuer Default Rating (IDR) of 'BBB+' and senior
debt rating of 'BBB'. The Rating Outlook is Stable. A complete list of ratings
is provided at the end of this release.

KEY RATING DRIVERS
The upgrade of the life insurance subsidiaries is driven by continued
improvement in AIG's Life & Retirement subsidiaries statutory capital position,
recovery of investment values over time and return to stronger operating profits
and earnings stability. Fitch believes the company has largely recovered from
the effects of the financial crisis and is capable of consistently generating
approximately $4 billion of annual run-rate operating earnings. Surrender
activity has stabilized and is currently at or below historical levels and is
now reflective of the low interest rate environment rather than AIG-specific
issues. Net investment spreads have improved as a result of an increase in base
yields due to the reinvestment of cash and short-term investments in 2011
combined with lower interest credited. These positive factors are offset
somewhat by concerns as to the effect of continued very low interest rates on
product performance and future profitability.

All ratings reflect AIG's success in restructuring and deleveraging efforts over
the last four years. AIG has been restored as an independent publicly held
corporation. All previous government borrowings and other support have been
repaid and the remaining 15.9% U.S. Department of the Treasury ownership in
AIG's common stock was sold in December 2012. The organization more closely
represents a traditional insurance holding company with an operating focus on
global property/casualty insurance and domestic life insurance and retirement
products. These efforts will further advance with the pending sale of 90% of
AIG's ownership of aircraft leasing firm International Lease Finance Corporation
(ILFC) which is expected to close by midyear 2013.

The company's financial leverage as measured by the ratio of financial debt and
preferred securities to total capital (excluding operating and ILFC debt and the
impact of FAS 115) declined from 31% at year-end 2010 to approximately 22%
currently. Fitch's Total Financial Commitment (TFC) ratio, while still high
compared to most insurance peers, has improved from 2.5x at year-end 2010 to a
current level of 1.3x. Elimination of ILFC debt and airline purchase commitments
will further reduce financial leverage and TFC. AIG has also created an adequate
liquidity position and has demonstrated access to capital markets through
execution of several recent financing transactions.

AIG property/casualty subsidiary ratings consider the company's unique market
position in the global insurance market given its absolute size, product
capabilities and geographic scope. Operating and underwriting performance has
lagged peer and industry norms over the last five years. AIG has taken
significant measures recently to reposition the business mix and invest in
underwriting and claims technology. These activities, coupled with favorable
pricing trends in the last 18 months have started to generate some loss ratio
improvement. However, year-end 2012 underwriting results will be marred
significantly by losses from Hurricane Sandy that AIG previously estimated at $2
billion pre-tax ($1.3 billion post-tax).

AIG reported significantly improved profitability in the first nine months of
2012, with net income of $7.6 billion relative to a modest net loss in the prior
year period. This earnings improvement was largely attributable to investment
income growth, as well as better underwriting performance within AIG's
property/casualty insurance operations. The property/casualty combined ratio
improved to 103.2% in the first nine months of 2012 from 109.3% in 2011 largely
due to sharply lower catastrophe losses. Life & Retirement pre-tax income
improved by 22% in the same period versus the prior year. Core operating
subsidiary interest coverage on financial debt was 4.9x in the first three
quarters of 2012.

RATING SENSITIVITIES

Key triggers that could lead to future rating upgrades include:

--Demonstration of higher and more consistent earnings within Property/Casualty
or Life & Retirement operating segments that translate into average
earnings-based interest coverage above 7.0x; This would correspond with
operating earnings of approximately $11 billion;
--Further improvement in AIG's capital structure and leverage metrics that
reduce the company's TFC ratio to below 0.7x;
-- A shift toward consistent underwriting profits would promote positive
movement in the property/casualty subsidiary financial strength ratings.

Key triggers that could lead to a future rating downgrade include:

--Increases in financial leverage as measured by financial debt to total capital
to a sustained level above 30%, or a material increase in the TFC ratio from
current levels;
--Large underwriting losses and/or 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' 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 withdrawn the following ratings, since the companies were merged into
American General Life Insurance Co. effective Dec. 31, 2012 and no longer exist:

American General Life Insurance Company of Delaware
American General Life and Accident Insurance Company
Western National Life Insurance Company
SunAmerica Annuity and Life Assurance Company
SunAmerica Life Insurance Company

Fitch has upgraded the following ratings:

AGC Life Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
United States Life Insurance Company in the City of New York
--IFS ratings upgraded to 'A+' from 'A'; Stable Outlook.

Fitch has affirmed the following ratings:

AIU Insurance Company
American Home Assurance Company
Chartis Casualty Company
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
--IFS ratings at 'A'; Stable Outlook.

American International Group, Inc.
--Long-term IDR at 'BBB+' Outlook Stable;

AIG International, Inc.
--Long-term IDR at 'BBB+', Outlook Stable.

SunAmerica Financial Group, Inc.
--Long-term IDR at 'BBB+'; Outlook Stable.

American General Capital II
--USD300 million of 8.50% preferred securities due July 1, 2030 at 'BB+'.

American General Institutional Capital A
--USD500 million of 7.57% capital securities due Dec. 1, 2045 at 'BB+'.

American General Institutional Capital B
--USD500 million of 8.125% capital securities due March 15, 2046 at 'BB+'.

American International Group, Inc.
--Various senior unsecured note issues at 'BBB';
--USD$1.5 billion of 4.875% senior unsecured notes due June 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'.
--USD250 million of 2.375% subordinated notes due 2015 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 junior subordinated debentures due Feb. 15,
2041 at 'BB+';
--USD1.960 billion of 5.82% series B-2 junior subordinated debentures due May 1,
2041 at 'BB+';
--USD1.960 billion of 5.89% series B-3 junior subordinated 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.
--USD175 million of 5.60% senior unsecured notes due July 31, 2097 at 'BBB'.

Sun America Financial Group, Inc.
--USD150 million of 7.50% senior unsecured notes due July 15, 2025 at 'BBB';
--USD150 million of 6.625% senior unsecured notes due Feb. 15, 2029 at 'BBB'.

ASIF II Program
ASIF III Program
ASIF Global Financing
--Program ratings at 'A'.

Additional information is available at 'www.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', Jan. 11, 2013.

Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended
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