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A.M. Best Removes from Under Review and Affirms Ratings of American International Group, Inc. and Majority of Its Subsidiaries

June 2, 2016 12:43 PM EDT

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has removed from under review with negative implications and affirmed the issuer credit rating (ICR) of American International Group, Inc. (AIG) (headquartered in New York, NY) [NYSE:AIG] and the financial strength ratings (FSR) and ICRs of the majority of its insurance subsidiaries. In addition, A.M. Best has removed from under review with negative implications and upgraded the ICR to “a+” from “a” and affirmed the FSR of A (Excellent) of AIG Asia Pacific Insurance Pte. Ltd. (AIG API) (Singapore). The outlook assigned to each rating is stable. Please see link below for a detailed listing of the companies and ratings.

In January 2016, the ratings of AIG and its insurance subsidiaries were placed under review with negative implications following the strengthening of loss reserves in AIG’s non-life business by $3.6 billion during the fourth quarter of 2015. The total amount of the deficiency reported at that time exceeded A.M. Best’s assumptions of loss reserve deficiency, excluding the reversal of statutory discounts of reserves for workers’ compensation. The under review status also considered the potential impact on AIG’s business profile and future earnings capacity from the strategic actions being taken by management to improve profitability and efficiency and maximize shareholder value.

A.M. Best has reviewed the year-end financial information of AIG and its rated subsidiaries, in particular the impact of the reserve strengthening, and also had the opportunity to discuss the planned actions in greater detail with management. From this review, it has been possible to make a satisfactory assessment that AIG’s consolidated risk-adjusted capitalization remains supportive of the ratings of AIG and its subsidiaries.

AIG continues to implement a series of strategic actions and organizational changes to improve results and narrow its focus, although there remains execution risk, as well as continuing competitive pressures that could impede progress of the stated plans. There is a continued strengthening of its balance sheet through the sale of non -core businesses, as well as an improvement in its financial flexibility. AIG’s financial leverage and coverage ratios are within A.M. Best’s guidelines for the current rating.

The ratings affirmations for the members of the AIG Property Casualty US Insurance Group (AIG PC US) reflect the group’s supportive level of risk-adjusted capitalization and its leadership position in the global commercial lines insurance market. The ratings also benefit from the support offered by its parent, AIG, which includes a significant capital contribution following the aforementioned reserve strengthening, as well as AIG’s financial flexibility and overall diversification. Offsetting rating factors include AIG PC US’ underwriting results which have lagged the commercial casualty composite and broader P/C industry, continued adverse development of prior years’ loss reserves and the execution risks associated with management’s stated corrective actions.

The rating affirmations of AIG Life & Retirement Group (AIG L&R) reflect the group’s acceptable risk-adjusted capitalization, strong statutory and GAAP earnings from core business lines and a very strong business profile with a significant market presence. In addition, AIG L&R has a very broad product mix and diversified distribution platform resulting in increased sales of group retirement and individual annuity products. Offsetting factors for AIG L&R include potential earnings pressure due to spread compression on its large book of interest-sensitive business, significant parental dividend payouts and exposures to some higher risk asset classes.

The rating affirmations of American International Reinsurance Company Ltd. (AIRCO), a Bermuda-domiciled reinsurer, acknowledge its supportive level of risk-adjusted capitalization, the historical profitability of the business it assumes from its affiliates and its role as the primary Bermuda presence for AIG. Offsetting these factors are AIRCO’s historically limited direct business profile and substantial gross exposure to a closed block of U.K. deferred and payout annuities, which are retroceded to an affiliated.

The affirmation of the ratings of AIG Europe Limited (AEL) (United Kingdom) reflects its strong risk-adjusted capitalisation, good operating performance and a strong business profile that is supported by excellent distribution capabilities across Europe. Partially offsetting rating factors include operating performance that has shown some volatility in recent years but is generally good, as well as changes in senior management at AEL.

The ICR upgrade of AIG API reflects the company’s strong business profile, improving financial performance and strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). AIG API’s strong business profile in Singapore’s non-life market has been demonstrated by its ability to grow new lines of business as core lines have softened, while maintaining good profitability. A simplified intra-group reinsurance arrangement that has been rolled out to AIG API enhances its risk-adjusted capitalization and profitability. Offsetting rating factors include uncertainty surrounding the company’s capital targets as capital requirements have decreased with the new group reinsurance arrangement and due to potential strategy changes at the parent company level.

The rating affirmations of AIG Insurance Hong Kong Limited (AIG HK) reflect its improved risk-adjusted capitalization level as the company reduced its overall risk retention in 2015. Partially offsetting rating factors are the company’s continued volatile underwriting results, which are mainly attributable to unfavorable loss experience in the general liability (workers’ compensation) and financial lines of business, and a consistently higher expense ratio relative to its industry peers. AIG HK’s market share in Hong Kong has deteriorated over the past few years and will continue to be challenged by the competitive market environment.

For a complete listing of AIG and its subsidiaries’ FSRs and ICRs, please visit American International Group Inc.

Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

A.M. Best
Jacqalene Lentz, +1 908 439 2200, ext. 5762
Managing Senior Financial Analyst - P/C
[email protected]
or
William Pargeans, +1 908 439 2200, ext. 5359
Assistant Vice President - L/H
[email protected]
or
David Drummond, +44 20 7397 0327
Senior Financial Analyst
[email protected]
or
Vivian Cheung, +852 2827 3421
Senior Financial Analyst
[email protected]
or
Chi-Yeung Lok, +65 6589 8400, ext. 211
Senior Financial Analyst
[email protected]
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
[email protected]
or
Jim Peavy, +1 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best



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