Best’s News & Research Service - July 12, 2019 12:21 PM (EDT)
AM Best Affirms Credit Ratings of American International Group, Inc. and Most Subsidiaries
- July 12, 2019 12:21 PM (EDT)
Oldwick //BestWire// - 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 Ratings (FSR) of A (Excellent) and the Long-Term ICRs of “a” of most of its property/casualty insurance subsidiaries. The outlook of these Credit Ratings (ratings) is stable. Concurrently, AM Best has revised the outlook of the Long-Term ICR to negative from stable and affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a+” for the members of the AIG Life & Retirement Group (AIG L&R). The outlook on the AIG L&R FSR remains stable. (Please see below for a detailed listing of the companies and ratings.)
AIG’s ratings reflect its consolidated risk-adjusted capitalization at the very strong level, albeit modestly weakened in 2018, the very strong operating performance in the group’s life and retirement segment, which has served to offset ongoing poor performance on its general insurance business, and its diversified business platform. AIG’s financial leverage measures are within AM Best’s guidelines for its current ratings, with adjusted debt-to-total-capital of approximately 29% at first-quarter 2019. This figure is adjusted by removing the debt backed by assets and allowing for hybrid equity credit. Interest coverage ratios are weak, driven by poor underwriting performance on the general insurance business in recent years. AIG maintains cash and liquid assets, access to lines of credit and access to the capital markets, providing liquidity and financial flexibility for the group.
While AIG’s general insurance operations continue to fall short of AM Best’s expectations, the stable outlook reflects management’s ongoing corrective actions, including enhancing senior management talent; taking aggressive re-underwriting initiatives, including changes in risk appetite; a material reduction in gross limits; greater use of reinsurance reducing net exposures, which should reduce volatility from shock losses; and achieving stronger rate adequacy. Although AM Best views the group’s corrective actions favorably, when the group will realize the intended benefits remains uncertain, as does the longer-term consistency of earnings. Failure to report improvements in its general insurance operations over the short-term could place pressure on the overall balance sheet strength of AIG and the operating companies, due in part to the need to service holding company obligations through subsidiary dividends, resulting in negative rating pressure.
The ratings of AIG Property Casualty Insurance Group (AIG PC) reflect its balance sheet strength, which AM Best categorizes as very strong, as well as marginal operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The rating affirmations for AIG PC also reflect the benefit the group receives by being part of the AIG enterprise. These benefits have helped to limit the negative impact of its ongoing poor underwriting performance, driven largely by losses on its long-tail casualty business and has given the group time to achieve a noticeable benefit from the aforementioned corrective actions. The group’s overall balance sheet assessment and ratings could come under negative pressure should management’s corrective actions not materialize in improved underwriting and operating performance over the short-term.
The ratings of American International Reinsurance Company, Ltd.’s, AIG Insurance Hong Kong Limited, AIG Asia Pacific Insurance Pte. Ltd. and American International Group UK Limited have been grouped to AIG PC, resulting in the companies being extended the group’s ratings.
The ratings of AIG L&R ratings reflect its balance sheet strength, which AM Best categorizes as adequate, as well as its very strong operating performance, favorable business profile and appropriate ERM.
AIG L&R’s adequate balance sheet assessment is backed by a diverse investment portfolio, which is becoming more closely asset-lability matched with a continued focus on risk reduction. The strong operating returns come from a diverse set of operating segments and products, which contribute positively to the AIG L&R. The ratings also reflect its favorable business profile, with significant economies of scale and leadership positions in many lines of business. However, despite the robust profile and operating performance, much of AIG L&R’s strong returns have not been retained but rather have been upstreamed to the parent company for general corporate purposes, limiting capital and surplus growth and resulting in a decline in AIG L&R’s risk-adjusted capital. The decline is risk-adjusted capital resulted in the Long-Term ICR outlook revision.
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.
The Long-Term ICR has been downgraded to “a” from “a+” and the FSR of A (Excellent) has been affirmed with stable outlooks for AIG Asia Pacific Insurance Pte. Ltd. (Singapore), as it has become a member of a member of the AIG Property Casualty Insurance Group.
The FSR of A (Excellent) and the Long-Term ICRs of “a+” have been affirmed, with the outlook of the Long-Term ICR outlook revised to negative from stable and the outlook of the FSR maintained at stable, for the following 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
The rating affirmations and revised outlooks follow an accepted appeal from the rated company in which new material information was provided that enhanced AM Best’s opinion of the company’s risk-adjusted capitalization and forward-looking operating performance volatility.
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 Understanding 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.
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