Standard & Poor's Ratings Services has cut AIG's long-term counterparty credit and senior-debt ratings to "double-A" from "double-A-plus," citing AIG's accounting adjustments revealed in its 10-K annual report filing this week.

S&P has now removed AIG ratings from its "CreditWatch negative" status. These AIG ratings had been placed on CreditWatch on March 15, following AIG's announcement of management changes and a delay in the 2004 10-K filing.

"The downgrade on the holding company reflects both the size and scope of the accounting adjustments in its recently released 10-K filing," S&P credit analyst Grace Osborne said. And although AIG's overall earnings are considered strong, she added, its property-casualty earnings, as now restated, show greater volatility and less robust profitability than was previously reported.

S&P also said it is estimating that incremental property-casualty reserves additions could be as much as $1 billion-$2 billion. AIG has announced this week that it took $850 charge for asbestos-and-environmental reserves and said it will start a comprehensive review of domestic and foreign p-c reserves.

Another concern S&P expressed is the investigations by states' attorneys general, the Securities and Exchange Commission, and insurance regulators, as well as shareholder suits. S&P said it is assuming that it will cost AIG a little more than $1 billion to deal with potential legal or regulatory settlements, disgorgement of profits, and litigation costs.

Earlier this week, another major ratings agency, Moody's Investors Service, confirmed AIG's long-term senior debt ratings at "Aa2" and revised its outlook to "stable." Fitch Ratings is keeping AIG's debt on "negative ratings watch" because of "significant short-term and longer term uncertainties."

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S&P Downgrades AIG to Double-A

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