S&P Revises Outlook on AIG (AIG) to Stable from Negative

Standard & Poor's Ratings Services said that it revised its outlook on American International Group Inc. (NYSE: AIG) to stable from negative and affirmed its 'A-' long-term counterparty credit rating on AIG. We also affirmed our ratings on various operating insurance company subsidiaries and raised our counterparty credit and financial strength ratings on AIG Korea Inc. to 'A+' from 'A'.

"The outlook revision on AIG reflects improved fixed-charge coverage driven by stronger operating earnings and declining financial leverage, which has reduced interest expense," said Standard & Poor's credit analyst John Iten. The ratings affirmation reflects the company's very strong business risk profile (BRP) and strong financial risk profile built on its broad geographic footprint, diverse revenue source, and extremely strong capital. However, this is partially offset by its moderate risk position. Under our criteria, these factors lead to a possible anchor of 'aa-' or 'a+'. We assigned the latter because we believe the group's very strong BRP somewhat overstates its contribution to overall creditworthiness in light of its weaker underwriting performance relative to peers' and the substantial run-off of assets and liabilities primarily associated with the former financial products businesses.

The change in the group status of AIG Korea Inc. reflects its improved underwriting performance, which is now consistent with the performance of the overall group.

The stable outlook reflects our view that the holding company will maintain fixed-charge coverage of between 6x and 8x during the next two years and will improve in subsequent years. We also expect the group to maintain operating performance consistent with our base case, a very strong BRP, and extremely strong capital.

We might lower our ratings on the group if, contrary to our expectations, capital adequacy deteriorates below the extremely strong rating level for a prolonged period or earnings weaken to substantially less than our base-case assumptions, preventing the group from sustaining capital consistent with the rating during the next two years. We could lower our ratings on AIG if fixed-charge coverage consistently falls below our expectations.

We could consider a positive rating action on the operating companies if AIG's property/casualty underwriting performance shows sustained improvement to a level commensurate with its peers (leading to stronger consolidated operating performance) and its ERM assessment improves to adequate with strong risk controls.

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