Standard & Poor’s Ratings Services has lowered its long-term counterparty credit and senior debt ratings on American International Group Inc. (AIG) to AA from AA-Plus. Standard & Poor’s also removed the New York-based insurance company from its credit watch list for these categories.
The decision was in response to AIG’s announcement earlier this week that it was restating earnings for five years and raising reserves.
On Tuesday, AIG – which is under investigation by state and federal regulators over accounting issues – filed its long-awaited 2004 annual report with the Securities and Exchange Commission, restating financial results for the past five years.
The same day, Moody’s Investors Service confirmed its long-term senior debt ratings on AIG at Aa2 based on the report and revised its outlook to “stable.” Fitch Ratings termed AIG’s filing “a modest positive development” but kept the company’s debt on negative ratings watch because of “significant short-term and longer term uncertainties.”
Standard & Poor’s said it took the action because of “the size and scope of the accounting adjustments in its recently released 10-K filing.” The agency also expressed concern about the possibility that AIG, after a company-initiated study, could raise its reserves. Standard & Poor’s estimated the increase could be up to $2 billion. An increase in reserves typically reduces profits.
It also noted: “Several investigations by states’ attorneys general, the SEC, and insurance regulators are underway, and the company is the subject of shareholder suits. The ratings incorporate Standard & Poor’s assumptions about potential legal or regulatory settlements, disgorgement of profits, and litigation costs that slightly exceed $1 billion.”
Standard & Poor’s said it would continue to monitor AIG’s performance.
Standard & Poor’s also lowered its rating on AIG preferred stock to A-Plus from AA-Minus and it lowered its financial strength ratings on the three insurance subsidiaries that are ultimately guaranteed by AIG – AIG Life Insurance Co. of Canada, AIG Life Insurance Co. of PR and American International Assurance Co. Ltd. to AA.
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