New York, September 11, 2012 -- Moody's Investors Service has affirmed the ratings of American International Group, Inc. (NYSE: AIG -- senior unsecured debt at Baa1) following the announcement that AIG has agreed to repurchase approximately $5 billion of its common stock from the US Treasury in connection with the Treasury's offering of $18 billion of AIG common stock ($20.7 billion including underwriters' over-allotment option). The rating outlook for AIG is stable.

RATINGS RATIONALE

The proposed transaction is the Treasury's fourth offering of AIG shares in 2012. In each prior case, AIG repurchased a significant block of shares, and public investors purchased the remaining shares. Assuming completion of the proposed offering and a $5 billion repurchase by AIG, the Treasury's ownership stake in AIG would be reduced to about 22% (about 16% if the over-allotment option is exercised in full) from about 77% at the start of the year. AIG has repurchased a total of $8 billion of shares through the Treasury's prior offerings. The proposed transaction would raise this total to $13 billion.

AIG's funding sources for the proposed buyback include $2 billion of proceeds from its sale of shares in AIA Group Limited (AIA), announced last week; excess funds from the monetization of its subordinated interest in Maiden Lane III, completed over the past few months; and other cash on hand.

"The proposed share buyback will reduce AIG's liquidity buffer in the near term," said Bruce Ballentine, Moody's lead analyst for AIG. AIG maintains actual and contingent liquidity at the parent company to address the potential needs of its operating units under stress scenarios. The reduced liquidity is partly mitigated by the group's ability to generate cash from further sales of noncore assets, most importantly its remaining AIA shares, and from continuing operations.

"AIG's financial metrics remain weak for its rating category," said Ballentine, "particularly the pretax interest coverage of about 3x for the 12 months through June 2012." Moody's ratings on the company incorporate the view that AIG will increase its pretax interest coverage to more than 4x over the next 12-18 months, while maintaining or improving its financial leverage ratios.

AIG's ratings reflect the leading market positions of its core insurance operations, its broad diversification across products and geographic areas, its divestiture/unwinding of noncore businesses over the past few years and the strong liquidity of the parent company. The company's credit profile is constrained by the weak profitability of core operations (on a combined basis), the continuing exposure to certain noncore activities with weaker credit profiles and the complexity of risk management across numerous business lines and regions.

Moody's cited the following factors that could lead to a rating upgrade for AIG: (i) improvement in the intrinsic credit profiles of Chartis (insurance financial strength A1 stable) and/or SunAmerica Financial Group (SunAmerica, insurance financial strength A2 stable), (ii) further de-risking/divesting of noncore businesses, and (iii) improvement in financial flexibility metrics (e.g., total leverage below 30%, pretax interest coverage in high single digits).

The following factors could lead to a rating downgrade for AIG: (i) deterioration in the intrinsic credit profiles of Chartis and/or SunAmerica, (ii) losses from noncore businesses exceeding half a year's normalized income from core operations, (iii) insufficient liquidity within the core operations or at the parent per the company's stress testing framework, or (iv) deterioration in financial flexibility metrics (e.g., total leverage of 40% or higher, normalized pretax interest coverage remaining below 4x).

The following ratings have been affirmed with a stable outlook:

American International Group, Inc. -- long-term issuer rating Baa1, senior unsecured debt Baa1, subordinated debt Baa2, junior subordinated debt Baa2 (hyb), short-term issuer rating Prime-2, senior unsecured shelf (P)Baa1, subordinated shelf (P)Baa2, junior subordinated shelf (P)Baa2.

AIG, based in New York City, is a leading international insurance organization serving customers in more than 130 countries. AIG reported total revenues of $35.6 billion and after-tax operating income of $5.0 billion for the first half of 2012. AIG shareholders' equity was $105 billion as of June 30, 2012.

The principal methodologies used in this rating were Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010 and Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for copies of these methodologies.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay senior policyholder claims and obligations.

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Bruce Ballentine VP - Senior Credit Officer Financial Institutions Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Robert Riegel MD - Insurance Financial Institutions Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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