S&P Announcement on AIG Ratings; Outlook Negative

November 1, 2004

Standard & Poor’s Ratings Services has republished an earlier article, issued last Friday, October 29, concerning the revision of its outlook on the American International Group from stable to negative. S&P said it had republished the article “to clarify the rating action on American General Corp.”

In the original release S&P affirmed AIG’s “AAA” counterparty credit and senior debt ratings and ‘A-1+” commercial paper rating and announced the change in outlook. It also affirmed its ratings on subsidiaries that are guaranteed by AIG, and on American General Corp., which is core to AIG, and revised the outlook on these ratings to negative from stable. At the same time, S&P affirmed all its ratings on AIG’s remaining subsidiaries. The outlook on these ratings remains stable.

“The outlook revision reflects the increased exposure to reputational damage, financial settlements, and litigation costs that this well-diversified global financial services company faces when its largest market, the U.S., is subject to intense scrutiny by federal and state agencies,” said the announcement. S&P added that it “is not aware of any specific allegation that would individually or in the aggregate result in a material financial impact.”

However, the bulletin continued, “Given the breadth of the investigations, AIG has the potential to draw greater scrutiny than other companies in the industry. AIG has recently announced that it plans to seek a prompt resolution of any outstanding issues with the SEC and the Dept. of Justice and, although the terms of any settlement are not yet known, they are not expected to be material. More uncertainty surrounds the potential breadth and scope of the New York State Attorney General’s investigations into the insurance sector and any direct implications for AIG.

AIG is a holding company that is heavily dependent on its subsidiaries for cash flows to service its financial obligations. Currently, the ratings on the insurance subsidiaries and the issuer credit rating at the holding company are the same given the diversified stream of cash flows from a large group of regulated and nonregulated companies coupled with low adjusted financial leverage and extremely strong interest coverage. The outlook revisions indicate that the ratings on the holding company might be under pressure if ongoing investigations produce meaningful findings.”

S&P will hold a telephone conference call on Monday, November 1, 2004 to discuss the situation (see related article).

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