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CHICAGO--([ BUSINESS WIRE ])--Following the U.S. Department of Treasury's sale of approximately $18 billion of American International Group, Inc. (AIG) common stock, that reduces government ownership of AIG from 53% to approximately 21.5%, Fitch Ratings has taken several rating actions designed to remove the impact of government ownership from AIG's ratings, and reflect significant progress in deleveraging the organization. A complete list of ratings is provided at the end of this release.

Fitch has upgraded the Issuer Default Rating (IDR) of AIG to 'BBB+' while AIG's unsecured senior debt is affirmed at 'BBB', creating standard notching between those two ratings. The notching was compressed during the period of government majority ownership.

Consistent with the upgrade of the IDR, the ratings on AIG's existing subordinated debt and junior subordinated debentures are upgraded to 'BBB-' and 'BB+' respectively. All other AIG ratings, including the 'A' Insurer Financial Strength (IFS) ratings on AIG's core property/casualty and life insurance subsidiaries, are affirmed. The Rating Outlook is Stable.

The upgrade in the IDR considers AIG's success in restructuring and deleveraging efforts over the last three years that have strongly improved the organization's stand alone rating profile. Further, AIG has created an adequate liquidity position and has demonstrated access to capital markets through execution of several recent financing transactions.

These deleveraging efforts have led to the repayment of all government related borrowings by AIG. The company's financial leverage as measured by the ratio of financial debt and preferred securities to total capital (excluding the impact of FAS 115) declined from 77% at year-end 2010 to approximately 21% currently. Fitch's Total Financial Commitment (TFC) ratio, while still high compared to most insurance peers, has improved from 2.5x at year-end 2010 to a current level of 1.3x.

Fitch's ratings on AIG and its subsidiaries continue to reflect the benefits of the AIG organization's strong competitive positions in life and non-life insurance partially offset by the comparatively poor recent operating results of the company's core insurance operations.

AIG reported a significant improvement in first half 2012 profitability as net income increased by 76% relative to the prior year to $5.5 billion. This earnings improvement was largely attributable to investment income growth, as well as better underwriting performance within Chartis property/casualty insurance operations. Chartis combined ratio improved to 102.3% in the first half of 2012 from 111.1% in first half 2011 largely due to sharply lower catastrophe losses. Core operating subsidiary interest coverage on financial debt was 5.5x in the first half of 2012.

Key triggers that could lead to future rating upgrades include:

--Demonstration of higher and more consistent earnings at insurance subsidiaries' Chartis and SunAmerica that translate into average earnings-based interest coverage above 7.0x;

--Further improvement in AIG's capital structure and leverage metrics that reduce the company's TFC ratio to below 0.7x.

Key triggers that could lead to a future rating downgrade include:

--Increases in financial leverage as measured by financial debt to total capital to a sustained level above 30%, or a material increase in the TFC ratio from current levels.

--Large underwriting losses and/or heightened reserve volatility of the company's non-life insurance subsidiaries that Fitch views as inconsistent with that of comparably-rated peers and industry trends;

--Deterioration in the company's domestic life subsidiaries' sales or profitability trends;

--Material declines in RBC ratios at either the domestic life insurance or the non-life insurance subsidiaries, and/or failure to achieve the above noted capital structure improvements.

Fitch has upgraded the following ratings:

American International Group, Inc.

--Long-term IDR to 'BBB+' from 'BBB'; Outlook Stable;

--$250 million of 2.375% subordinated notes due 2015 to 'BBB-' from 'BB+';

--EUR750 million of 8.00% series A-7 junior subordinated debentures due May 22, 2038 to 'BB+' from 'BB';

--USD1.960 billion 5.67% series B-1 junior subordinated debentures due Feb. 15, 2041 to 'BB+' from 'BB';

--USD1.960 billion of 5.82% series B-2 junior subordinated debentures due May 1, 2041 to 'BB+' from 'BB';

--USD1.960 billion of 5.89% series B-3 junior subordinated debentures due Aug. 1, 2041 to 'BB+' from 'BB';

--USD 4 billion of 8.175% series A-6 junior subordinated debentures due May 15, 2058 to 'BB+' from 'BB';

--USD 1.1 billion of 7.700% series A-5 junior subordinated debentures due Dec. 18, 2062 to 'BB+' from 'BB';

--GBP309.850 million of 5.75% series A-2 junior subordinated debentures due March 15, 2067 to 'BB+' from 'BB';

--Eur409.050 million of series A-3 junior subordinated debentures due March 15, 2067 to 'BB+' from 'BB';

--GBP900 million of 8.625% series A-8 junior subordinated debentures due May 22, 2068 to 'BB+' from 'BB';

--USD750 million of 6.45% series A-4 junior subordinated debentures due June 15, 2077 to 'BB+' from 'BB';

--USD687.581 million of 6.25% series A-1 junior subordinated debentures due March 15, 2087 to 'BB+' from 'BB'.

AIG International, Inc.

--Long-term IDR to 'BBB+' from 'BBB', Outlook Stable.

SunAmerica Financial Group, Inc.

--Long-term IDR to 'BBB+' from 'BBB'; Outlook Stable.

American General Capital II

--USD300 million of 8.50% preferred securities due July 1, 2030 to 'BB+' from 'BB'.

American General Institutional Capital A

--USD500 million of 7.57% capital securities due Dec. 1, 2045 to 'BB+' from 'BB'.

American General Institutional Capital B

--USD500 million of 8.125% capital securities due March 15, 2046 to 'BB+' from 'BB'.

Fitch has affirmed the following ratings:

American International Group, Inc.

--Various senior unsecured note issues at 'BBB';

--USD$1.5 billion of 4.875% senior unsecured notes due June 2022 at 'BBB'.

--USD1.2 billion of 4.250% senior unsecured notes due Sept. 15, 2014 at 'BBB';

--USD800 million of 4.875% senior unsecured notes due Sept. 15, 2016 at 'BBB';

--EUR420.975 million of 6.797% senior unsecured notes due Nov. 15, 2017 at 'BBB';

--GBP323.465 million of 6.765% senior unsecured notes due Nov. 15, 2017 at 'BBB';

--GBP338.757 million of 6.765% senior unsecured notes due Nov. 15, 2017 at 'BBB';

--USD256.161 million of 6.820% senior unsecured notes due Nov. 15, 2037 at 'BBB'.

AIG International, Inc.

--USD175 million of 5.60% senior unsecured notes due July 31, 2097 at 'BBB'.

SunAmerica Financial Group, Inc.

--USD150 million of 7.50% senior unsecured notes due July 15, 2025 at 'BBB';

--USD150 million of 6.625% senior unsecured notes due Feb. 15, 2029 at 'BBB'.

AGC Life Insurance Company

AIU Insurance Company

American General Life Insurance Company

American General Life Insurance Company of Delaware

American General Life & Accident Insurance Company

American Home Assurance Company

Chartis Casualty Company

Chartis Europe Limited

Chartis MEMSA Insurance Company Limited

Chartis Overseas Limited

Chartis Property Casualty Company

Chartis Specialty Insurance Company

Commerce & Industry Insurance Company

Granite State Insurance Company

Illinois National Insurance Company

Insurance Company of the State of Pennsylvania

Lexington Insurance Company

National Union Fire Insurance Company of Pittsburgh, PA

New Hampshire Insurance Company

SunAmerica Annuity and Life Assurance Company

SunAmerica Life Insurance Company

United States Life Insurance Company in the City of New York

Variable Annuity Life Insurance Company

Western National Life Insurance Company

--Insurer Financial Strength (IFS) ratings at 'A'; Stable Outlook.

ASIF II Program

ASIF III Program

ASIF Global Financing

--Program ratings at 'A'.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', Sept. 22, 2011.

Applicable Criteria and Related Research:

Insurance Rating Methodology

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