S&P Affirms AIG’s ‘AAA’ Ratings

March 31, 2004

To no one’s surprise Standard & Poor’s Ratings Services announced that it has affirmed its ‘AAA’ counterparty credit rating on American International Group Inc. and similar high ratings on various AIG operating companies. It also said that the outlook on all these companies is stable.

“The ratings on AIG and its wholly owned subsidiaries are based on AIG’s well-diversified business position, track record of excellent operating performance (notwithstanding the unprecedented World Trade Center losses and restructuring charges in 2001 as well as the nonlife loss reserve development in 2002 and 2003), and strong growth in capital,” stated S&P credit analyst Grace Osborne.

S&P noted that “AIG’s mix of business is well balanced between life and property/casualty, and its business in the property/casualty sector is expected to remain robust, especially in light of improved market conditions.”

It also expects that the group’s capital, “both in absolute and risk-adjusted terms,” will grow “through strong earnings (an ROR of 16%-18%), and share-repurchase activity is expected to remain modest. Funding-agreement obligations, about $40 billion at year-end 2003, are expected to remain within reasonable levels over the next three years. Financial leverage is expected to remain less than 15 percent, and operational leverage attributable to AIG Financial Products Corp. (AIGFP), International Lease Finance Corp. (ILFC), and AIG’s consumer finance operations is not expected to grow proportionately higher than the current mix.”

S&P also noted AIG’s strong global position through its many operating companies, which it said, enable the group to “position itself competitively to take advantage of changes in market conditions. The strong commercial insurance franchise–fortified by steady rate improvement since Sept. 11, 2001–and the personal lines business generated $35 billion in written nonlife premiums in 2003.”

“Life operations continue to be an area of growth and expansion and generated $23 billion in GAAP life premiums,” said the announcement. ”

It also took into account AIG’s aircraft leasing business ILFC, noting that “beyond the current downturn in general aviation, ILFC is expected to benefit from the long-term trend of rising global air traffic and increasing use of operating leases by airlines worldwide.”

S&P also discussed AIG’s financial products, AIGFP, indicating that they cover “interest rate, currency, equity and credit products, municipal reinvestment contracts, guaranteed investment agreements, and structured financial transactions. AIGFP has consistently posted very good profits since its inception in 1987, even when market variables–such as interest rates–were extremely volatile.

“AIG’s senior management, under the leadership of Maurice R. Greenberg, has developed a clear corporate strategy to write global risks profitably and has played an important role in world markets to expand AIG companies’ products broadly across jurisdictions. The level of senior management attention to underwriting, financial, and corporate initiatives is unparalleled. Management’s proven ability to execute a profitable strategy through turbulent economic, regulatory, and financial times is an important rating factor.”

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