S&P lowers AIA's rating

American International Assurance has lost its prized Standard & Poor's AAA rating and is now rated AA+.

The rating house has lowered its long-term counterparty credit and senior debt ratings on AIA’s US-based parent American International Group to AA+, and its counterparty credit and financial strength ratings on most of AIG's wholly owned subsidiaries to the same level.

These rating actions follow AIG's announcement that the filing of its 10-K will be further delayed.

In addition, the newly appointed chief executive, Martin Sullivan, and chief financial officer, Steven Bensinger, have "uncovered a number of questionable transactions that span more than five years and result in an aggregate decrease to AIG's GAAP shareholders' equity of about U.S.$1.7 billion (about 2% of shareholders' equity)."

"The number and scope of inappropriate financial transactions--some characteristic of aggressive financial management--have diminished Standard & Poor's assessment of management and its internal controls, corporate governance, and aggressive culture," S&P says.

"In addition, the potential breadth of management involvement in these transactions raises broader enterprise risk-management concerns. Moreover, AIG's business position and practices could be weakened as regulators respond to continuing findings from ongoing internal and external probes."

Similarly, with the sharp drop in market capitalisation, Standard & Poor's is concerned that management's attention will be diverted from rebuilding its financial services franchise to dealing with legal and regulatory issues.

Despite the preliminary findings, Standard & Poor's believes AIG's global, well-diversified financial services group will generate very strong earnings and profits.

AIA in New Zealand is still highly rated relative to other life insurers (see table).