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Moody's Cuts AIG Ratings

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American International Group Inc., New York, has lost AAA ratings from another rating agency.[@@]

The New York office of Moody’s Investors Service says it has lowered its long-term senior debt ratings on AIG, AIG’s life insurance and mortgage insurance subsidiaries, and AIG’s domestic brokerage insurance subsidiaries 1 notch, to Aa1, from Aaa.

Moody’s says it has put the Aa1 ratings on review for further possible downgrade.

But Moody’s has affirmed the short-term Prime-1 debt ratings that it has assigned AIG’s main commercial and consumer finance units.

AIG lost its AAA senior debt and long-term counterparty credit ratings from Standard & Poor’s Rating Services, New York, Wednesday.

AIG is still a strong company with enormous financial strength and excellent market positions and franchise strength in each of its major business segments, Moody’s says in a comment on its rating changes.

AIG board has acted quickly to review concerns about possible accounting and reporting weaknesses and make management changes, Moody’s says.

But AIG’s recent suggestions that it may have put several transactions in place primarily to improve its financial reports and the possibility that accounting adjustments may cut shareholders’ equity by as much as $1.7 billion, or about 2%, “are suggestive of a culture of financial aggressiveness and of control inadequacies that are inconsistent with disciplines of internal control, risk management, corporate governance, and a commitment to financial conservatism that is typical at the Aaa rating level,” Moody’s says.

Favorable resolution of current uncertainties could lead to confirmation of the new Aa1 ratings, and further significant negative revelations could lead to another downgrade, Moody’s says.

The rating cuts could affect both AIG’s life and AIG’s property-casualty businesses, but, overall, revenue from AIG’s businesses should remain strong, say Moody’s analysts Alan Murray and Joel Levine.

Some of AIG’s businesses, including its directors’ and officers’ insurance, which is sold to many Fortune 500 companies, and its errors and omissions coverage, are more credit-sensitive, according to Murray. But AIG is still more highly rated than its competitors and exists in “a pretty rarefied environment,” Murray says. Now, AIG “may have a little less leverage than its slightly less-rated competitors.”

On the life side of the company, AIG has spent a fair amount of time branding its name on its businesses, and the recent news could affect those who have been fixated on the AIG name, Levine says.

But Levine says any impact would probably not be material and notes that AIG “is still a highly rated organization.”

The company’s diversification has been a strong suit and is one of the reasons that the holding company has been so highly rated, Murray says.