A.M. Best Upgrades Ratings of AIG's Life Subsidiaries; Affirms Ratings of Property/Casualty Subsidiaries and Removes All Ratings From Under Review.

OLDWICK, N.J. -- A.M. Best Co. has upgraded the financial strength rating (FSR) to A++ (Superior) from A+ (Superior) and the issuer credit ratings (ICR) to "aa+" from "aa-" for the domestic life and retirement services subsidiaries of American International Group Inc. (AIG) (NYSE: AIG) New York, NY) A.M. Best has also affirmed the FSR of A+ (Superior) and the ICRs of "aa-" of most of AIG's domestic property/casualty subsidiaries. In addition, A.M. Best assigns an ICR of "aa" to American International Group, Inc.

A.M. Best has also affirmed the FSRs of A+ (Superior) and the ICRs of "aa-" of the Transatlantic Holdings, Inc. Group (New York) and the 21st Century Insurance Group (California). These insurance groups are owned 60% and 62%, respectively, by subsidiaries of AIG. The FSRs and ICRs of both of these groups incorporate implicit support from the group.

Concurrently, A.M. Best has affirmed the FSR of A++ (Superior) and the ICRs of "aa+" of the Hartford Steam Boiler Group (Connecticut). This group has met the criteria for A.M. Best's highest rating category on a stand-alone basis. All the above ratings have been removed from under review and assigned a stable outlook. (See link below for a detailed list of the ratings.)

The ratings for AIG's life and property/casualty subsidiaries were initially placed under review on March 15, 2005. Subsequently, the FSRs were downgraded to A+ (Superior) from A++ (Superior) and the ICRs to "aa-" from "aa+" on May 4, 2005 and have remained under review to provide A.M. Best the opportunity to review the re-filed 2004 and 2005 statutory statements for the property/casualty companies.

The upgrading of the ratings for AIG's life and retirement savings subsidiaries reflects its consistently strong earnings performance, conservative financial management, solid risk-adjusted capitalization and a sound liquidity position. Furthermore, AIG's life and annuity subsidiaries hold market leading sales positions attributable to the diverse portfolio of its life and wealth accumulation products, as well as the strength of the AIG brand in the domestic and international marketplace.

The ratings of AIG's property/casualty subsidiaries reflect their recognized global leadership position, considerable earnings generating capability, product innovation and proliferation, geographic diversification, comprehensive distribution platform and specialized underwriting capability within its select and highly specialized market segments. As a market leader in most commercial coverages, AIG maintains a distinct and sustainable competitive advantage, which is supported by its innovative product offerings, ability and willingness to provide high coverage limits, broad global capacity, extensive data and claims capability, as well as maintaining one of the lowest expense ratios in the industry. The ratings also reflect the considerable intellectual capital supporting AIG's property/casualty operations.

Detracting from these numerous qualitative rating factors is the negative 2005 financial results and low stand-alone capitalization within the domestic property/casualty subsidiaries for the rating levels. Therefore, A.M. Best incorporates parental support into the ratings. The consolidated AIG enterprise has the willingness and ability to provide capital, which was evident in 2005 with $4.5 billion of cash infusions and letters of credit. The tangible support was necessary as a result of the $3.5 billion decline in surplus resulting from the 2004 statutory accounting restatements, catastrophe losses in 2004 and 2005 and significant prior year reserve development recognized each year from 2002 through 2005. A.M. Best recognizes that AIG is diligently working on a capital allocation review through its Enterprise Risk Management initiative through the remainder of this year. The 2005 statutory loss for the domestic brokerage group of approximately $2.4 billion was mainly attributable to the approximately $2 billion of catastrophe losses, coupled with a $1.8 billion pre-tax charge for adverse prior year reserve development.

The ratings additionally recognize the excessive adverse prior year reserve development taken each year from at least 2002 through 2005. A.M. Best acknowledges that the adverse development is considerably offset by reserve redundancies in 2004 and 2005 given that accident year loss ratios were more conservatively established. A.M. Best has incorporated additional moderate core and asbestos and environmental reserve deficiency in its capital models for potential adverse development of older accident years. Management's booking of best estimates for current accident years may provide additional reserve redundancies for the near term, which may be needed to offset continued negative development of older accident years (as was the case in first quarter 2006).

Finally, AIG is a recognized national property insurer and maintains considerable, albeit reduced from 2004 levels, net exposure to both natural and man-made catastrophe losses through premium volume and policy limits. With a decline in the market capacity for major catastrophe reinsurance programs, AIG is leaning more heavily on quota share reinsurance protection from high-quality reinsurers.

A.M. Best believes AIG's long-term growth and profitability prospects for its property/casualty operations are quite favorable given its quality management teams, franchise value, much improved reserving methodologies, leadership position and re-focus on accounting integrity. These attributes are supported by the enviable consolidated earnings, balance sheet, equity and financial flexibility of AIG. While A.M. Best believes that the enterprise may continue to be somewhat exposed to fallout from shareholder lawsuits, continued public and legal disputes with the C.V. Starr entities, management changes and departures and additional potential accounting adjustments, the overall strength of the enterprise and its ability to provide qualitative and quantitative support to its subsidiaries remains unqualified and is incorporated into the ratings.

For a complete list of American International Group, Inc.'s FSRs, ICRs and debt ratings please visit www.ambest.com/press/061302aig.pdf.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.