Fitch Announces Rating Actions on AIG’s Latin American Subsidiaries

Fitch Ratings has taken rating actions on its national scale insurer financial strength (IFS) ratings on American International Group’s Latin American subsidiaries. The rating actions, which are summarized below, follow Fitch’s decision to affirm AIG’s “Issuer Default Rating (IDR) of ‘A’ with a Stable Rating Outlook and subsequent discussions with AIG regarding the strategic importance of various subsidiaries,” said the announcement. (For more information, see the separate press release dated Nov. 10, 2008, available at www.fitchratings.com).

Fitch listed the companies affected, as follows:
— La Interamericana Compania de Seguros Generales S.A. (LIG): National Scale IFS is affirmed at ‘AA+(chl)’ and removed from Rating Watch Evolving. The Rating Outlook is Stable.
— AIG Union Y Desarrollo, S.A. y Filial (AIG Union): National Scale IFS affirmed at ‘AA(slv)’ and removed from Rating Watch Evolving. The Rating Outlook is Stable.
— AIG S.A. Seguros de Personas (AIG Personas): National Scale IFS affirmed at ‘AA-(slv)’ and removed from Rating Watch Evolving. The Rating Outlook is Stable.
— La Interamericana Compania de Seguros de Vida S.A. (LIV): National Scale IFS remains ‘AA+'(chl); Rating Watch Evolving.

Fitch said that the “rating actions reflect the provision of three net worth maintenance agreements (NWMA) between American Underwriters Overseas, Ltd. (AIUO; Long-term IFS Rating of ‘AA-‘; Stable Outlook) and LIG in Chile, AIG Union and AIG Personas in El Salvador. Per Fitch’s rating methodology, these agreements represent formal strong support that results in a significant enhancement to the standalone rating of the beneficiary.

“The aforementioned NWMA states that AIUO shall maintain available capital resources in an amount equal to not less than 100 percent of the minimum solvency margin requirement under regulations in effect in Chile for LIG and in El Salvador for AIG Union and AIG Personas, during the term of the agreement. In addition, if the subsidiaries require funds to make timely payment of their obligations under the policies or otherwise, AIUO shall provide, at the request of LIG, AIG Union and/or AIG Personas, such funds in cash, either as equity or as a loan at AIUO’s option, on a timely basis.

“LIV’s rating remains on Rating Watch Evolving as the company may be sold as part of AIG’s restructuring plan and also reflects a commitment by the company’s immediate parent company to inject capital of CHP25,000 million (equivalent to approximately $37 million) in order to enhance its capital base. This capital injection is expected to be completed by year-end 2008 and will result in a significant reduction of the company’s current leverage ratio. This is expected to preserve the financial profile of the company in times of stress while under AIG’s ownership.”

Fitch pointed out that it has “historically viewed AIG as providing implied support for the international subsidiaries that carry national scale ratings. Under Fitch’s rating methodology, in instances where there is an implied degree of ultimate parent-company support underlying national scale IFS ratings, there is typically linkage between the national scale IFS and the ultimate parent company’s IDR. Changes in national scale IFS ratings typically follow changes in support providers’ IDRs. Fitch downgraded AIG’s IDR to ‘A’ from ‘AA-‘ on Sept. 15 but did not downgrade AIG’s Latin American subsidiaries’ national scale IFS ratings at that time, due to overall uncertainty regarding the direction of AIG and its Latin American subsidiaries’ ratings.

“Despite the aforementioned rating actions, Fitch believes that the enhancement of support between AIG and its subsidiaries is enough to preserve the current ratings. In the case of LIV, the recently announced capital injection results in an enhancement of the standalone rating of the company, and therefore of its claims payment capacity.

Source: Fitch Ratings