Insurer announced £7.8bn loss in Q1
Moody's placed AIG's ratings on review for possible downgrade following the company's announcement of a $7.8 billion net loss for the first quarter of 2008. The loss included significant unrealized market valuation losses on super-senior credit default swaps (CDS) with subprime mortgage content, as well as realized capital losses and unrealized depreciation on investments, mostly subprime and residential mortgage-backed securities (RMBS).
Moody's said that AIG's ultimate economic losses on RMBS and super-senior CDS may be materially smaller than the estimated market values would suggest.
AIG's newly issued capital will strengthen its balance sheet and liquidity, but it will also increase the firm's fixed charge burden. As part of the rating review, Moody's will consider the composition of AIG's capital issuance as well as the potential allocation of proceeds to operating units. The rating agency will also reconsider the benefit to holding company creditors of AIG's business diversification, which affects the notching of ratings between the operating units and the parent company.
With regard to the parent, the review process could lead to a rating downgrade of one or two notches, said Moody's. The rating agency expects to conclude the review relatively quickly.
