S&P Sees AIU Holdings Vehicle as Boost to Insurer’s Financial Flexibility

Standard & Poor’s Ratings Services said that its ratings on American International Group Inc. (AIG; A-/Negative/A-1) and its insurance subsidiaries (A+/Negative/–) are not affected by AIG’s announcement that it will transfer AIU Holdings Inc. to a special purpose vehicle and that it will purchase AIU’s equity interests in certain AIG affiliates.

These affiliates include International Lease Finance Corp. (ILFC; BBB+/Watch Neg/A-2), Transatlantic Holdings Inc. (BBB+/Stable/–), and United Guaranty Corp. (UGC; insurance subsidiaries are rated BBB+/Negative/–).

Standard & Poor’s said it views these transactions as a “positive development resulting in materially bolstered capital adequacy and enhanced quality of capital” commensurate with the ratings on AIU’s core commercial insurance group and foreign general property/casualty subsidiaries. This does not affect the ratings on AIG, but, Standard & Poor’s said it believes it does give a slight boost to the company’s financial flexibility by improving its ability to facilitate noncore asset sales and accelerate its plans to offer to the public equity in the newly restructured AIU Holdings Inc.

While the transactions have positive benefits, Standard & Poor’s said its current ratings and outlook on AIG continue to reflect an intermediate-term concerns about AIG’s ability to retain key staff and underwrite profitable insurance business, specifically within its commercial and life insurance segments, in the face of a recession, volatile capital markets, and soft pricing for commercial insurance expected over the next 12 months.