A.M. Best Removes From Under Review With Negative Implications and Affirms Credit Ratings of American
International Group, Inc. and Its Subsidiaries
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.
A.M. Best
Darian Ryan, CPA, +1-908-439-2200, ext. 5449
Senior Financial Analyst—P/C
darian.ryan@ambest.com
or
William Pargeans, +1-908-439-2200, ext. 5359
Director—L/H
william.pargeans@ambest.com
or
Alex Rafferty, ACA, +44-20-7397-0285
Financial Analyst
alex.rafferty@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com
or
Vivian Cheung, +852-2827-3421
Senior Financial Analyst
vivian.cheung@ambest.com
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