A.M. Best Removes From Under Review With Negative Implications & Affirms Credit Ratings of American International Group, Inc....
May 23 2017 - 2:14PM
Business Wire
A.M. Best has removed from under review with negative
implications and affirmed the Long-Term Issuer Credit Rating
(Long-Term ICR) of American International Group, Inc. (AIG)
(headquartered in New York, NY)(NYSE:AIG) and the Financial
Strength Ratings (FSR) and Long-Term ICRs of its insurance
subsidiaries. The outlook assigned to these Credit Ratings
(ratings) is stable. (Please see link below for a detailed listing
of the companies and ratings.)
In January 2017, the ratings of AIG and its insurance
subsidiaries were placed under review with negative implications
following the announcement that the group had again incurred
material adverse reserve development, primarily relating to its
U.S. property/casualty long-tail business. The total amount of the
group’s gross deficiency reported was $5.6 billion, which exceeded
A.M. Best’s estimation. The under-review status also considered the
potential impact on AIG’s risk-adjusted capitalization, liquidity,
franchise value and future earnings capacity from the corrective
actions being taken by management to improve profitability and meet
shareholder return targets.
A.M. Best has analyzed the most recent financial information of
AIG and its rated subsidiaries, in particular: the impact of the
reserve development, the benefit of the adverse development cover
and related loss portfolio transfer and an assessment of the
adequacy of the group’s current reserve position. A.M. Best also
has discussed with AIG management and reviewed the viability of the
planned corrective actions, capital return goals and organizational
changes, including the new modular management framework. Finally,
AIG has announced Brian Duperreault as its new CEO, a move that
brings his significant operating experience as an industry leader
to the organization. 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. This lessens A.M. Best’s immediate concerns regarding
the execution risk of successfully implementing the corrective
actions taken to improve overall operating performance, and
susceptibility to reduced credibility of its franchise value. AIG
maintains adequate liquidity and financial flexibility, while its
financial leverage and coverage ratios are within A.M. Best’s
guidelines for its current rating.
The rating affirmations for the members of the AIG Property
Casualty US Insurance Group (AIG PC US) reflect the benefit the
group receives by being a part of the AIG enterprise, which
includes AIG’s liquidity and financial flexibility, diversified and
dominant business profile and profitable consumer lines businesses.
AIG’s overall support has helped limit the negative impact of the
underwriting losses AIG PC US incurred on its long-tail casualty
business, and has given the group time to make corrective actions.
AIG PC US maintains supportive risk-adjusted capitalization and a
leadership position in the global commercial lines insurance
market. Additionally, AIG PC US should benefit from the leadership
and experience of Duperreault, given his extensive industry
experience running large global insurance enterprises. Offsetting
rating factors include AIG PC US’ underwriting results, which have
lagged the commercial casualty composite and the broader
property/casualty industry, continued adverse development of prior
years’ loss reserves and the execution risks associated with
management’s stated corrective actions and restructuring
measures.
The rating affirmations of AIG Life & Retirement
Group (AIG L&R) reflect the group’s improved risk-adjusted
capitalization, consistent and favorable statutory and GAAP
operating earnings from core business lines and a very strong
business profile with leading market positions in a number of
market segments, including the not-for-profit and individual
retirement markets. Moreover, AIG L&R has a very broad product
mix and diversified distribution platform. On a statutory basis,
capital and surplus increased significantly, reflecting a completed
redundant reserve financing transaction with a highly rated,
third-party reinsurer. Offsetting rating 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.
In addition, premium income declined in 2016, primarily due to the
U.S. Department of Labor’s fiduciary rules that affected the
qualified marketplace.
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
affiliate.
The ratings affirmations of AIG Europe
Limited (AEL) (United Kingdom) reflect its supportive
risk-adjusted capitalization, track record of good operating
performance and a strong business profile that is supported by
excellent distribution capabilities across Europe. AEL’s technical
performance in 2016 is considered a partially offsetting rating
factor. The company realized a combined ratio of 113% for 2016 (as
calculated by A.M. Best) driven by increased frequency and severity
of claims experience in longer-tail liability and financial lines,
coupled with a higher frequency of large losses incurred in the
property and special risks segment. The associated strengthening of
technical provisions at year-end 2016 also served to weaken AEL’s
risk-adjusted capitalization, although A.M. Best considers it to
remain supportive of the ratings. A.M. Best expects AEL’s
risk-adjusted capitalization and technical performance to
strengthen in 2017.
The rating affirmations of AIG Insurance Hong Kong
Limited (AIG HK) reflect AIG HK’s sound risk-adjusted
capitalization, as the company has reduced its overall risk
retention since 2015. Over the past two years, the company has
utilized reinsurance support from its affiliates to lower its risk
retention in the commercial lines segment, while the stop-loss
corridor and commission rate were renewed in December 2016 with
improved terms. Offsetting rating factors include deterioration in
AIG HK’s underwriting performance as a result of further adverse
loss development from major claims in the financial lines segment.
The continued soft market conditions may continue to place pressure
on the company’s underwriting profitability.
The rating affirmations of AIG Asia Pacific Insurance Pte.
Ltd. (AIG API) reflect the company’s good business profile and
strong risk-adjusted capitalization, as measured by Best’s Capital
Adequacy Ratio (BCAR). AIG API continues to maintain its position
as the insurance market leader in Singapore. Although premiums have
declined year-on-year in 2016, in line with the Singapore non-life
market, the company thus far has been able to maintain its
profitability despite increasing competition from new entrants. In
accordance with an intragroup reinsurance arrangement, AIG API
cedes a majority of its premiums to other members of the AIG group.
This also supports AIG API’s risk-adjusted capitalization.
Offsetting rating factors include an expected reduction in the
capital of the company as AIG moves to improve capital efficiency
across the group. Additionally, the reliance on AIG’s affiliates
for reinsurance leads to concentration risk.
For a complete listing of American International Group, Inc. and
its subsidiaries’ FSRs and Long-Term ICRs, please visit American
International Group, Inc.
This press release relates to Credit Ratings 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. For
additional information regarding the use and limitations of Credit
Rating opinions, please view Understanding Best’s Credit
Ratings. For information on the proper media use of Best’s
Credit Ratings and A.M. Best press releases, please view
Guide for Media - Proper Use of Best’s Credit Ratings and A.M.
Best Rating Action Press Releases.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating
Services, Inc. and/or its subsidiaries. ALL RIGHTS
RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20170523006331/en/
A.M. BestDarian Ryan, CPA, +1-908-439-2200, ext.
5449Senior Financial
Analyst—P/Cdarian.ryan@ambest.comorWilliam Pargeans,
+1-908-439-2200, ext.
5359Director—L/Hwilliam.pargeans@ambest.comorAlex
Rafferty, ACA, +44-20-7397-0285Financial
Analystalex.rafferty@ambest.comorJim Peavy, +1-908-439-2200,
ext. 5644Director, Public
Relationsjames.peavy@ambest.comorVivian Cheung,
+852-2827-3421Senior Financial
Analystvivian.cheung@ambest.com
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