AM Best Affirms Credit Ratings of American International Group, Inc. & Most Subsidiaries; Downgrades Issuer Credit Ratings of...
August 19 2020 - 7:02PM
Business Wire
AM Best has affirmed the Long-Term Issuer Credit Rating
(Long-Term ICR) of “bbb” of American International Group, Inc.
(AIG) (headquartered in New York, NY) [NYSE: AIG]. AM Best also has
affirmed the Financial Strength Rating (FSR) of A (Excellent) and
the Long-Term ICRs of “a” of its property/casualty insurance
subsidiaries (collectively referred to as AIG PC). The outlook of
these Credit Ratings (ratings) is stable. Concurrently, AM Best has
downgraded the Long-Term ICR to “a” from “a+” and affirmed the FSR
of A (Excellent) for the members of the AIG Life & Retirement
Group (AIG L&R). The outlook of the Long-Term ICR has been
revised to stable from negative, while the outlook of the FSR is
stable. (Please see below for a detailed listing of the companies
and ratings.)
AIG’s ratings reflect its consolidated risk-adjusted
capitalization at the strongest level, as measured by Best’s
Capital Adequacy Ratio (BCAR), which is an improvement from the
very strong level seen in the 2019 review period. Additionally,
consolidated risk-adjusted capital is likely to improve now that
the Fortitude Reinsurance Company Ltd. (Fortitude RE) transaction
has closed. While the closing of Fortitude RE brought with it
significant write-downs during 2020, these write-downs did not
impact the general insurance or life and retirement statutory
entities, and cash flow is still expected to be positive. Overall,
AM Best views this transaction as positive for AIG as it sheds
longer-tail risk liabilities, along with potentially riskier,
longer-duration assets paired with those reserves. Access to the
capital markets and significant liquidity at the holding company
level also aids the balance sheet. An offsetting factor in the
balance sheet strength assessment is the increase in financial
leverage and a lower interest coverage ratio expected for 2020.
AIG’s historical operating performance has been hampered by
significant losses in general insurance, but the company has made
strides in refining its risk profile and AM Best expects further
improvement. AIG’s business profile is global, with a distinctly
diverse set of property/casualty and life and annuity products, a
broad distribution network and significant market share on many of
its lines of business.
The ratings of AIG PC reflect the group’s balance sheet
strength, which AM Best categorizes as very strong, as well as its
marginal operating performance, favorable business profile and
appropriate enterprise risk management (ERM).
AIG PC’s risk-adjusted capital position improved in 2019,
reflective of a material reduction in net loss reserves as the
group continues to pay down claims for older accident years. The
group’s balance sheet strength continues to benefit from
reinsurance support from highly rated companies. Offsetting these
positive factors is the continued reduction in surplus levels that
have decreased in each of the past five years, as well as the
group’s high gross underwriting leverage, which has risen in recent
years as a result of increased use of reinsurance to curb
volatility and increase underwriting profitability.
AM Best views AIG PC’s operating performance as marginal. The
group has been materially impacted over the last five years by
underwriting losses and a reduction in investment income, leading
to a five-year operating ratio of 102.1 that continues to lag the
commercial casualty composite performance over the same time period
by a considerable margin. However, AM Best notes that the group’s
operating performance has demonstrated a steadily improving trend
for the past three calendar years, attributable to numerous
underwriting and risk management initiatives, as well as positive
pricing momentum in most key business lines. The potential for
further improvement in the near term is reduced by uncertainty
related to the COVID-19 pandemic, which could dampen growth
opportunities, increase underwriting losses and creates the
possibility of investment impairments.
The ratings of AIG L&R ratings reflect its balance sheet
strength, which AM Best categorizes as adequate, as well as its
strong operating performance, favorable business profile and
appropriate ERM.
The Long-Term ICR downgrade reflects a revision in AM Best’s
assessment of the AIG L&R’s operating performance to strong
from very strong. AM Best believes the group’s more-recent returns,
and prospective returns, will be more in line with its strong rated
peers, driven by intense competition within the annuity segment and
record low interest rates, both of which are likely to continue to
drive spread income and fee income lower. In addition, the low
interest rate environment is likely to negatively impact the top
and bottom lines within the individual and group annuity
segments.
AIG L&R’s balance sheet assessment remains stable at
adequate, and its year-over-year risk-adjusted capital position
remains virtually unchanged at year-end 2019. The risk-adjusted
capital position benefits from the large modified coinsurance
agreement with Fortitude RE, which reduces much of the risk from
the longer-term structured settlements book of business. AIG
L&R has had a high dividend payout ratio back to the parent due
in large part to a series of de-risking practices, which has
lowered the need for additional capital, but overall capital and
surplus growth has been limited. Going forward, the parent holding
company may become less reliant on AIG L&R dividends due its
recent sale of Fortitude RE, increased liquidity and improving
performance within its general insurance segment. AIG L&R’s
ratings also reflect its favorable business profile with a diverse
set of product offerings and national reach with its robust
distribution network.
The FSR of A (Excellent) and the Long-Term ICRs of “a” have been
affirmed with stable outlooks for the following subsidiaries of
AIG, which are collectively referred to as the AIG Property
Casualty Insurance Group:
- National Union Fire Insurance Company of Pittsburgh, PA
- American Home Assurance Company
- Lexington Insurance Company
- Commerce and Industry Insurance Company
- AIG Property Casualty Company
- The Insurance Company of the State of Pennsylvania
- New Hampshire Insurance Company
- Illinois National Insurance Company
- AIG Specialty Insurance Company
- AIU Insurance Company
- AIG Assurance Company
- AIG Insurance Company – Puerto Rico
- AIG Insurance Company of Canada
- AIG Insurance Hong Kong Limited
- Granite State Insurance Company
- Tudor Insurance Company
- Stratford Insurance Company
- Western World Insurance Company
- Blackboard Specialty Insurance Company
- Blackboard Insurance Company
- American International Group UK Limited
- American International Reinsurance Company, Ltd.
- AIG Asia Pacific Insurance Pte. Ltd.
- Validus Reinsurance, Ltd.
- Validus Reinsurance (Switzerland) Ltd.
The Long-Term ICRs have been downgraded to “a” from “a+” and the
FSR of A (Excellent) affirmed, with the outlook of the Long-Term
ICR revised to stable from negative and the FSR outlook maintained
as stable, for the following operating subsidiaries of AIG, which
are collectively referred to as the AIG Life & Retirement
Group:
- AGC Life Insurance Company
- American General Life Insurance Company
- United States Life Insurance Company in the City of New
York
- The Variable Annuity Life Insurance Company
This press release relates to Credit Ratings that have been
published on AM 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 AM Best’s Recent
Rating Activity web page. For additional information regarding the
use and limitations of Credit Rating opinions, please view Guide to
Best’s Credit Ratings. For information on the proper media use of
Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in New York, London,
Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more
information, visit www.ambest.com.
Copyright © 2020 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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Gregory Dickerson Associate Director—P/C +1 908
439 2200, ext. 5161 gregory.dickerson@ambest.com
Christopher Sharkey Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Erik Miller Associate Director—L/H +1 908 439
2200, ext. 5187 erik.miller@ambest.com
Jim Peavy Director, Public Relations +1 908 439
2200, ext. 5644 james.peavy@ambest.com
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