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Amended: Fitch Places AIG's Sr Debt on RW-Neg; Affirms ST Rtg and Financial Strength Rtgs.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 5, 2003

(This is an amended version of the Feb. 3 press release which includes the correct rating for HSBC Capital Trust I and the rating for American General Life Insurance Company of New York)

Fitch Ratings-Chicago-February 03, 2003: Fitch Ratings has placed the 'AAA' senior debt rating and other long term fixed income security ratings of American International Group, Inc. (AIG) on Rating Watch Negative, following AIG's announcement of after-tax reserve charges of $1.8 billion in its U.S. commercial property/casualty operations. The company's short-term and commercial paper ratings are affirmed at 'F1+'. The insurer financial strength (IFS) ratings of AIG's insurance company subsidiaries are affirmed at their current rating levels. The Outlook for the IFS ratings is Stable.

Fitch expects to resolve its Rating Watch within the next eight weeks, following further detailed analyses and discussions with management. At the conclusion of the review, the senior debt rating will either be affirmed at 'AAA' or lowered to 'AA+'.

Fitch believes that the $1.8 billion charge is easily absorbed from a corporate-wide perspective. The charge represents just 3% of AIG's consolidated GAAP shareholders' equity as of September 30, 2002 and an estimated 16% of 2002 consolidated operating earnings (nine month results annualized). GAAP shareholders' equity is expected to increase at year-end 2002.

The charge represents 13% of AIG's domestic property-casualty statutory policyholders' surplus at September 30, 2002 and an estimated 85% of Domestic Brokerage Group's 2002 earnings (nine month results annualized), although Fitch acknowledges that the reserve increase emanates from five distinct accident years. Given current hard market conditions, AIG expects to earn back any lost statutory capital in the near-term.

The Rating Watch review is not driven by the charge, per se, but rather Fitch's concern that over the past several years AIG's risk profile may have increased to levels inconsistent with a 'AAA' senior debt holding company-level rating, which warrants that a "fresh look" be taken at AIG's credit fundamentals and ratings. Fitch believes that the risk profile of the U.S. commercial lines property/casualty industry has deteriorated over the past several years and this has been reflected in wide-spread rating downgrades of most of AIG's competitors.

Other indications of a possible increase in AIG's risk profile include acquisitions over the past several years of large life insurance organizations that previously did not carry 'AAA' ratings (American General and SunAmerica) and exposure to financial services businesses, including AIG Financial Products, International Lease Finance and consumer finance. Although these operations provide diversification and growth opportunities for AIG, Fitch believes they are of a lower credit quality than AIG's other businesses, and thus potentially dilute consolidated credit quality.

Fitch will also focus on AIG's capitalization. Fitch notes that several of AIG's largest US life insurance company subsidiaries maintain NAIC risk-based capital ratios that currently fall below Fitch's published 'AAA' standards. In addition, the holding company provides guarantees for some subsidiary debt and contract obligations.

Fitch's review will also consider numerous overwhelming strengths exhibited by AIG. These include the company's pre-eminent global insurance organization, with excellent worldwide brands and franchises, strong balance sheet fundamentals and excellent operating results. In addition, the organization has exhibited strong underwriting skills and adept reinsurance management.

Fitch also views very favorably the diversified nature of the organization's products, distribution systems and geographic reach. This diversification, which is unequaled in the insurance industry and among the strongest in the broader financial services industry, has contributed to AIG's ability to generate stable and predictable operating results, as well as develop a broad and deep management team.

Fitch notes that it is unusual to maintain a rating on the senior debt of a holding company at the same level as the IFS ratings of the operating subsidiaries. This is because the senior debt is effectively a deeply subordinated obligation given regulatory protections of policyholder interests. Fitch has historically viewed AIG's strong and diverse sources of holding company cash flow (including less regulated non-US sources), as well as lack of any historical earnings surprises, as mitigating factors.

Rating Actions:

American International Group, Inc.

--Long-term rating of 'AAA' placed on Rating Watch - Negative;

--Senior debt rating of 'AAA' placed on Rating Watch - Negative;

--Short-term rating of 'F1+' affirmed;

--Commercial paper rating of 'F1+' affirmed.

American General Corporation

--Senior debt rating of 'AAA' placed on Rating Watch - Negative.

American General Capital I, II, III

--Preferred securities rating of 'AA+' placed on Rating Watch - Negative.

American General Institutional Capital A, B

--Capital securities rating of AA+' placed on Rating Watch - Negative.

AIG International Inc.

--Long-term rating of 'AAA' placed on Rating Watch - Negative;

--Senior debt rating of 'AAA' placed on Rating Watch - Negative;

--Short-term rating of 'F1+' affirmed;

--Commercial paper rating of 'F1+' affirmed.

HSB Capital Trust I

--Preferred securities rating of 'AAA' placed on Rating Watch - Negative.

Western National Corporation

--Senior debt rating of AAA' placed on Rating Watch - Negative.

The following insurer financial strength ratings have been affirmed with a Stable Outlook:

AIG Hawaii Insurance Company Inc.

--Insurer financial strength rating affirmed 'AAA'.

AIG Annuity Insurance Company

--Insurer financial strength rating affirmed 'AA+'.

AIG Life Insurance Company

--Insurer financial strength rating affirmed 'AAA'.

AIG SunAmerica National Life Assurance Co.

--Insurer financial strength rating affirmed 'AAA'.

AIU Insurance Co.

--Insurer financial strength rating affirmed 'AAA'.

All American Life Insurance Company

--Insurer financial strength rating affirmed 'AA+';

American General Life and Accident Insurance Co.

--Insurer financial strength rating affirmed 'AA+';

American General Life Insurance Company

--Insurer financial strength rating affirmed 'AA+';

American General Life Insurance Company of New York

--Insurer financial strength rating affirmed 'AA+';

American Home Assurance Co.

--Insurer financial strength rating affirmed 'AAA';

American International Assurance Co. (Berm) Ltd.

--Insurer financial strength rating affirmed 'AAA';

American International Insurance Co.

--Insurer financial strength rating affirmed 'AAA';

American International Insurance Co. of California

--Insurer financial strength rating affirmed 'AAA';

American International Insurance Co. of New Jersey

--Insurer financial strength rating affirmed 'AAA';

American International Life Assurance Co. of NY

--Insurer financial strength rating affirmed 'AAA';

American International Specialty Lines Ins. Co.

--Insurer financial strength rating affirmed 'AAA;

American International Underwriters Overseas Ltd.

--Insurer financial strength rating affirmed 'AAA';

American Life Insurance Company

--Insurer financial strength rating affirmed 'AAA';

Birmingham Fire Insurance Company of PA

--Insurer financial strength rating affirmed 'AAA';

Commerce & Industry Insurance Co.

--Insurer financial strength rating affirmed 'AAA';

Ezer Mortgage Insurance Co. Ltd

--Insurer financial strength rating affirmed 'AAA';

Hartford Steam Boiler Inspection & Insurance Co.

--Insurer financial strength rating affirmed 'AAA';

Insurance Company of the State of PA

--Insurer financial strength rating affirmed 'AAA';

Landmark Insurance Co. Ltd

--Insurer financial strength rating affirmed 'AAA';

Lexington Insurance Company

--Insurer financial strength rating affirmed 'AAA';

Minnesota Insurance Company

--Insurer financial strength rating affirmed 'AAA';

National Union Fire Insurance Co. of Pittsburgh

--Insurer financial strength rating affirmed 'AAA';

New Hampshire Indemnity Company

--Insurer financial strength rating affirmed 'AAA';

New Hampshire Insurance Co.

--Insurer financial strength rating affirmed 'AAA';

SunAmerica Life Insurance Co.

--Insurer financial strength rating affirmed 'AAA';

The American Franklin Life Insurance Company

--Insurer financial strength rating affirmed 'AA+';

The Franklin Life Insurance Company

--Insurer financial strength rating affirmed 'AA+';

The Old Line Life Insurance Company of America

--Insurer financial strength rating affirmed 'AA+';

The United States Life Ins. Co in the City of NY

--Insurer financial strength rating affirmed 'AA+';

The Variable Annuity Life Insurance Company

--Insurer financial strength rating affirmed 'AA+';

United Guaranty Residential Insurance Co.

--Insurer financial strength rating affirmed 'AAA';
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Publication:Business Wire
Geographic Code:1USA
Date:Feb 5, 2003
Words:1243
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