A couple of rating agencies have downgraded their ratings on troubled insurance giant American International Group, Inc.
A.M. Best Co. has downgraded the financial strength rating and issuer credit ratings on AIG.
The firm said its rating actions “are based on the rapid deterioration of the already existing fragile condition of AIG’s financial strength and flexibility. Specifically, AIG’s lack of liquidity at the holding company level and management’s need to secure funding options are not representative of financial stability and not reflective of AIG’s current ratings.”
Also, Fitch Ratings has downgraded its issuer default rating and outstanding debt ratings on AIG. “The rating actions reflect Fitch’s view that AIG’s financial flexibility and ability to raise holding company cash is extremely limited due to recent declines in the company’s stock price, widening credit spreads, and difficult capital market conditions,” it said.
Fitch added that its rating actions also reflect benefits derived from a plan announced by New York’s governor that grants certain AIG operating company subsidiaries the authority to exchange up to US$20 billion of assets with AIG in order to promote the company’s liquidity. Fitch believes that AIG’s ability to fund collateral requirements and replace capital lost due to the company’s on-going exposure to the U.S. residential mortgage market is now largely dependent on accessing assets provided under the plan outlined by New York’s governor and by asset sales.
AIG’s collateral requirements and liquidity needs rise from several sources, Fitch said, including the company’s portfolio of credit default swaps written on collateralized debt obligations backed by structured finance CDOs. Given current market conditions Fitch believes that AIG is likely to face additional material collateral calls on this portfolio. Also, as of July 31, AIG estimated that it could be required to post US$10.5 billion of additional collateral if the company’s ratings are downgraded one notch from current levels by the other major rating agencies and US$13.3 billion of collateral if downgraded by both of the other agencies.
Fitch said it believes that AIG is likely to pursue other steps to raise cash and capital and that the company may seek the sale of various operating units. Fitch believes that these measures will take time to develop and are unlikely to provide benefits in the short-term. Nevertheless, Fitch believes the accommodations being provided by AIG’s insurance regulators has eased the potential liquidity strain being experienced at the holding company level.
AIG ratings cut by Fitch, A.M. Best
- By: James Langton
- September 16, 2008 September 16, 2008
- 07:30