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Financial Planning > Tax Planning > Tax Loss Harvesting

&Rating Agency: No AIG Liquidity Issues Seen

By Steve Tuckey

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Standard & Poor’s analysts have expressed confidence that American International Group Inc. does not face serious liquidity issues as a result of its recent downgrade. [@@]

They made the assessment during a conference call set up by the New York-based ratings agency to elaborate on its announcement that it cut AIG’s senior debt rating. S&P lowered the rating to AA from AA+ following AIG’s release of its long-delayed and much-anticipated Form 10-K annual report.

“We are very confident in looking at the resources that are available within AIG and the AIG Group that there is plenty of liquidity to meet these types of needs,” S&P analyst Grace Osborne said in a conference call.

In its 10-K, AIG said it might have to provide $2.3 billion in additional collateral for municipal guaranteed investment contracts and financial derivatives transactions if S&P lowered its rating to AA-. But S&P analysts discounted any serious ramifications if the rating was lowered to AA, as it was.

“If it would move to anything dramatically lower, then we would have to take a look at that position, but that is not the case today,” Osborne said.

Osborne also commented on S&P’s assertion that AIG might have to add up to $2 billion in further loss reserves.

Osborne said the analysis on loss reserves taken before the 10-K was issued was based on published 2003 Schedule P data.

“We would not have had the benefit of any of the adjustments that would have been reflected by AIG with respect to Union Excess [Reinsurance Company] or Richmond [Insurance Company] or any of the businesses that had previously been determined to be offshore,” Osborne said.

AIG has now recognized those reinsurance businesses to be part of the losses that it will be responsible for.

AIG has already said it will add $3 billion to loss reserves. But in response to a question, Osborne said it did not necessarily follow that AIG’s estimate would have made S&P’s total reserve addition estimate in the $4 billion to $5 billion range.

“That would not have been the number we would have been using,” she said.

S&P analyst Mark Puccia said AIG will do a reserve study some time this year that could find reserve deficiencies greater than $1 billion up to $2 billion.

“To the extent that the reserve deficiency is greater than that, it [would be] something to cause us to review the rating again,” Puccia said.

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