Standard & Poor's Ratings Services said yesterday that it revised the CreditWatch status of its ratings on a number of American International Group Inc.'s property-casualty subsidiaries from developing to negative.
Ratings on AIG remain on CreditWatch negative, and the ratings on most of AIG's life insurance operations remain on CreditWatch developing, the firm said.
It added that it does not expect AIG to sell its core property-casualty operations under its restructuring plan.
"The ratings on these companies are on CreditWatch negative to reflect our view of the likelihood of increased pressure on the performance of that business," explained Rodney A. Clark, S&P credit analyst.
S&P on Aug. 13 revised its outlook on the entire U.S. commercial lines property-casualty sector to negative citing weakening pricing and adverse investment markets.
Mr. Clark said, "We believe AIG is particularly susceptible to these broader market trends, given its somewhat weakened position. Although at this point we have not seen clear evidence of long-term damage to AIG's franchise, there have been wide reports that competitors are actively pursuing AIG's accounts and key underwriting personnel, which could pressure operating performance over time given the current market conditions the industry is facing."
AIG's CreditWatch status for its property-casualty insurance companies could be resolved in 2009, S&P said, when the rating firm should get a better picture of the company's experience in pricing and retention.
S&P said it expects AIG to experience some loss of business and personnel. "If those losses are significant and threaten future business prospects, we could lower the ratings by one or two notches. However, if any declines are modest, we could affirm the ratings," S&P explained.
The rating firm said it expects that AIG will sell its life insurance operations under its planned restructuring.
Most of the likely buyers, said S&P, are rated "double-A-minus" or better, which, according to their analysis, could have a positive impact on the ratings on these AIG subsidiaries.
The rating firm said it could raise these ratings once sales to higher-rated entities are completed. But if the sale process is slow, the sale is to a lower-rated entity, or there is significant deterioration in the businesses, it could lower the ratings.
All of the AIG ratings, S&P said, are based on stand-alone fundamentals as well as the significant liquidity support in the form of the government's $85 billion credit facility and a $37.8 billion securities lending back-stop facility provided by the Federal Reserve Bank of New York as well as the Federal Reserve's Commercial Paper Funding Facility.
S&P said its ratings anticipate the continued use of the government programs to provide interim funding while AIG restructures its operations.
The support measures the Federal Reserve has provided, which are meant to meet the enterprise's liquidity and subsidiary capital needs, underpin AIG's creditworthiness. Without them, it is likely the holding company would be rated in the speculative-grade category, said S&P.
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