OREANDA-NEWS. Fitch Ratings has affirmed American International Group, Inc.'s (AIG) ratings including the long-term Issuer Default Rating (IDR) at 'A-' and senior debt obligations at 'BBB+'. Additionally, Fitch has affirmed the Insurer Financial Strength (IFS) ratings of AIG's rated property/casualty insurance subsidiaries at 'A' and U.S. life insurance subsidiaries at 'A+'. The Rating Outlook is Stable. A complete list of ratings is provided at the end of this release.

AIG's ratings reflect the company's previous success in restructuring and deleveraging efforts. Property/casualty subsidiary ratings consider the company's unique market position in the global insurance market given its absolute size, underwriting capabilities, and consolidated capital adequacy that is comparable to higher rated peers. The ratings of AIG's U.S. life insurance subsidiaries are driven by these entities' strong statutory capital position; leading market share in key lines of business; diversification of revenues from insurance premiums, spread business and fees; and solid operating profits and earnings stability.

KEY RATING DRIVERS

The Stable Outlook reflects Fitch's belief that despite a significant decline in operating profitability in 2015, the company's capitalization, financial leverage and run-rate earnings expectations continue to support the current rating level. AIG plans to further tighten operational focus, which include a planned public offering of a partial interest in AIG's mortgage insurance subsidiary, and the sale of its independent broker-dealer network. Profit improvement plans emphasize a 14% reduction in operating expenses and target to improve the property/casualty loss ratio by six points over the next two years in part through further shifts in business mix to curtail unprofitable segments, including U.S. casualty.

AIG's property casualty underwriting performance remains volatile. A shift to steady, moderate underwriting profits would have significant implications for AIG's overall profitability and debt servicing capability.

While current accident year loss ratios have improved in the last few years due to underwriting and pricing actions, and changes in the business mix, unfavorable prior-period reserve movement has promoted underwriting losses in recent years. The Property Casualty combined ratio (consolidated to include commercial, personal lines and run-off) deteriorated sharply in 2015 to 112.4% from 102.2% in 2014 due largely to a 13 point increase in the calendar year loss ratio from adverse reserve development. For full year 2015, adverse development totalled $4.2 billion, or 6.8% of prior year-end net reserves. A demonstration of future reserve stability is a key rating trigger that would need to be evidenced for future positive rating actions.

The property casualty expense ratio remains elevated at 34.9% in 2015. Expense reduction initiatives and changes in the future business mix away from international consumer business, which has reported express ratios over 40% will promote moderate reductions in the expense ratio going forward.

Overall, operating performance for AIG's life insurance subsidiaries has generally been stronger and more stable than its property casualty subsidiaries, however, 2015 results for the life and retirement businesses were impacted by lower investment returns, adjustments related to the update of actuarial assumptions and less favorable mortality experience. The company is executing on a plan to improve returns by narrowing its distribution and product focus as well as reducing its exposure to alternative assets, particularly hedge funds.

Fitch believes capitalization is strong at both the property casualty and life subsidiaries. The U.S. property casualty companies' consolidated NAIC RBC ratio at year-end 2015 was 208% of the company action level (CAL). Capital levels were maintained following the fourth quarter charge for loss reserve development through an approximately $2.9 billion capital contribution.

AIG's life subsidiaries' capitalization metrics are characterized by NAIC RBC ratios and operating leverage ratios that are generally on par or better than industry averages. The year-end 2015 RBC ratio of 502%, while down from 534% at the prior year-end, remains above AIG's long-term target range of between 425%-470%, as well as Fitch's median guideline for the current rating category.

Financial leverage as measured by the ratio of financial debt and preferred securities to total capital (excluding operating debt and the impact of FAS 115) was 18.4% at year-end 2015, up from 16.5% at year-end 2014. Pro forma financial leverage adjusting for the 2016 issuance of $1.5 billion of senior notes and the tender of $1 billion of currently outstanding debt will increase modestly to approximately 19%, which remains below management's target leverage ratio of 20%-25%.

AIG's capital plan includes a commitment to return at least $25 billion of capital to shareholders over the next two years, funded by distributions from insurance subsidiaries, asset divestitures, capital freed up from asset sales and reinsurance transactions and debt financing. This is one of the largest returns of capital relative to existing shareholders equity that Fitch has observed in many years in the insurance industry, and from a credit perspective is viewed by Fitch as aggressive.

As a result of weak earnings in 2015, AIG's GAAP operating earnings-based interest coverage declined to 4.7x, after showing considerable improvement over the prior five years. Fitch expects coverage to improve modestly in 2016 as increased operating earnings are partially offset by higher interest expense due to planned capital management activity.

Holding company liquidity currently includes $9.2 billion of unencumbered cash and investments at year-end 2015, and $4.5 billion of available capacity from credit and contingent liquidity facilities. The company has targeted maintaining $6 billion-$8 billion of liquidity assets at the parent going forward, which still represents a significant multiple of annual debt servicing obligations.

RATING SENSITIVITIES

Key triggers that could lead to an upgrade include:
--Successful completion of pending strategic actions and greater certainty that the corporate and operating structure is in place for the longer term, and further meaningful restructuring actions are unlikely;
--A shift to sustainable property/casualty segment underwriting profitability, with demonstration of greater loss reserve stability or reserve redundancies;
--Improvement in GAAP earnings to a level consistent with interest coverage at 10x or above;
--While achieving the above, maintenance of financial leverage and risk-based capital at the company's insurance subsidiaries remaining within newly revised targeted levels.

Key triggers that could lead to a downgrade include:
--Increase in financial leverage to above 25%, or an increase in the TFC ratio to above 0.7x from 0.5 currently;
--Significant reductions in debt servicing capacity from holding company assets and available dividends from subsidiaries to a level below 4.5x annual interest on financial debt;
--Large underwriting losses and/or further material reserve volatility of the company's non-life insurance subsidiaries;
--Sharp deterioration in the company's domestic life subsidiaries' profitability trends;
--Material declines in risk-based capital ratios at either the domestic life insurance or the non-life insurance subsidiaries.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following AIG entities with a Stable Rating Outlook:

American International Group, Inc.
--Long-term IDR at 'A-';
--Various senior unsecured note issues at 'BBB+';
--EUR42.24 million of 6.797% senior unsecured notes due Nov. 15, 2017 at 'BBB+';
--GBP100.2 million of 6.765% senior unsecured notes due Nov. 15, 2017 at 'BBB+';
--USD1 billion of 2.3% senior unsecured notes due July 16, 2019 at 'BBB+';
--USD638.4 million of 3.375% senior unsecured notes due Aug. 15, 2020 at 'BBB+';
--USD708 million of 6.4% senior unsecured notes due Dec. 15, 2020 at 'BBB+';
--USD1.5 billion of 3.3% senior unsecured notes due Mar. 1, 2021 at 'BBB+';
--USD1.5 billion of 4.875% senior unsecured notes due June 1, 2022 at 'BBB+';
--USD1 billion of 4.125% senior unsecured notes due Feb. 15, 2024 at 'BBB+';
--USD1.25 billion of 3.75% senior unsecured notes due July 10, 2025 at 'BBB+';
--USD1.2 billion of 3.875% senior unsecured notes due Jan. 15, 2035 at 'BBB+';
--USD500 million of 4.7% senior unsecured notes due July 10, 2035 at 'BBB+';
--USD1 billion of 6.25% senior unsecured notes due May 1, 2036 at 'BBB+';
--USD243.43 million of 6.820% senior unsecured notes due Nov. 15, 2037 at 'BBB+';
--USD 2.25 billion of 4.5% senior unsecured notes due July 16, 2044 at 'BBB+';
--USD350 million of 4.35% senior unsecured notes due March 20, 2045 at 'BBB+';
--USD750 million of 4.8% senior unsecured notes due July 10, 2045 at 'BBB+';
--USD290 million of 4.9% senior unsecured notes due July 17, 2045 at 'BBB+';
--USD800 million of 4.375% senior unsecured notes due Jan. 15, 2055 at 'BBB+';
--USD20.3 million of 5.60% senior unsecured notes due July 31, 2097 at 'BBB+';
--EUR12.85 million of 8.00% series A-7 junior subordinated debentures due May 22, 2038 at 'BBB-';
--USD607.17 million of 8.175% series A-6 junior subordinated debentures due May 15, 2058 at 'BBB-';
--GBP88.2 million of 5.75% series A-2 junior subordinated debentures due March 15, 2067 at 'BBB-';
--EUR162.6 million of 4.875% series A-3 junior subordinated debentures due March 15, 2067 at 'BBB-';
--GBP5.6 million of 8.625% series A-8 junior subordinated debentures due May 22, 2068 at 'BBB-';
--USD403.18 million of 6.25% series A-1 junior subordinated debentures due March 15, 2087 at 'BBB-'.

AIG International, Inc.
--Long-term IDR at 'A-'.

AIG Life Holdings, Inc.
--Long-term IDR at 'A-';
--USD135.5 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+';
--USD116.4 million of 8.50% junior subordinated debentures due July 1, 2030 at 'BBB-';
--USD78.9 million of 7.57% junior subordinated debentures due Dec. 1, 2045 at 'BBB-';
--USD227.3 million of 8.125% junior subordinated debentures due March 15, 2046 at 'BBB-'.

AGC Life Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
United States Life Insurance Company in the City of New York
--IFS rating at 'A+'.

AIU Insurance Company
American Home Assurance Company
AIG Assurance Company
AIG Europe Limited
American International Overseas Limited
AIG Property Casualty Company
AIG 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
--IFS rating at 'A'.

ASIF Global Financing
--USD750 million of 6.9% senior secured notes due March 15, 2032 at 'A+'.

ASIF II
--GBP200 million of 6.375% senior secured notes due Oct. 5, 2020 at 'A+';
--USD82 million of 0% senior secured notes due Jan. 2, 2032 at 'A+'.

ASIF III Program
--GBP350 million of 5.375% senior secured notes due Oct. 14, 2016 at 'A+';
--GBP250 million of 5% senior secured notes due Dec. 18, 2018 at 'A+';
--EUR200 million of 1.66% senior secured notes due Dec. 20, 2024 at 'A+'.