Insurance giant American International Group Inc. has been put on CreditWatch negative by Standard & Poor’s Ratings Services following CEO Maurice (Ace) Greenberg’s decision to step down from the firm.

S&P placed the firm’s ‘AAA’ credit and financial strength ratings on CreditWatch negative on the announcement that AIG’s long-standing CEO, Ace Greenberg, has stepped down, and that the CFO, Howard Smith, has taken leave.

“The untimely management changes are demonstrative of the concern that Standard & Poor’s raised in late October 2004 when it revised the outlook on AIG and many of its dependent subsidiaries to negative. The concern raised then was over the increased scrutiny that AIG faced, which has not abated,” the rating company says.

“Recent investigations by the New York State Attorney General, the SEC, and many state insurance departments into insurance business and accounting practices have increased AIG’s exposure to reputational damage, financial settlements, and litigation cost given the group’s large, well-diversified global financial services position,” S&P explains.

The CreditWatch status of the ratings will be resolved following the filing of AIG’s annual report, which has been delayed, S&P says.“Given the expectation of continuing strong cash flows, it is unlikely that the ratings on either the holding company or its operating insurance companies would fall below the ‘AA’ range,” the rating agency says.

Standard & Poor’s says it is not aware of any transaction or group of transactions that would result in a material financial impact on AIG at this time. “However, uncertainty exists as to whether the financial
information – both public and private – upon which the ratings have been based will be modified.”

Meanwhile, Fitch Ratings has also downgraded its ratings on AIG to ‘AA+’ from ‘AAA’.

“Today’s rating action reflects Fitch’s view that the ‘AAA’ rating, which had been on negative outlook since May 2003, has been further pressured by the negative circumstances surrounding recent government investigations into select business practices of AIG and members of its management,” Fitch explains.

Fitch says the management changes “… follow months of legal and regulatory investigations, financial settlements related to the Brightpoint and PNC transactions, with significant management time and resources dedicated to these matters. Fitch believes that the uncertainties and disruptions created by these events are inconsistent with the highly conservative and stable profile required of a company assigned an ‘AAA’ unsecured senior debt rating.”

“The rating action in no way reflects any adverse opinion held by Fitch as to the qualifications of the newly appointed CEO, Martin Sullivan, and is exclusively related to the cumulative events over the past couple of years,” it adds. “In fact, Fitch is optimistic that Mr. Sullivan and AIG’s executive management team will be effective in their positions.”

Fitch says that the new rating “reflects AIG’s pre-eminent global insurance organization, with excellent worldwide brands and franchises, and strong operating results. In addition, the organization has exhibited strong underwriting skills and adept ceded reinsurance management. Fitch also views very favorably the diversified nature of the organization’s products, distribution systems, and geographic reach. This diversification has contributed to AIG’s ability to generate stable and predictable historical operating results.”