American International Group’s anticipated reserve charge has attracted the attention of Standard & Poor’s, which has downgraded certain ratings in light of the disclosure.

S&P said it lowered AIG’s long-term counterparty credit and senior unsecured debt ratings to ‘BBB+’ from ‘A-‘. At the same time, however, the ratings agency said the ratings action applies only to the primary AIG holding company, and that it is maintaining a stable outlook for both AIG and its subsidiaries.

Standard and Poor’s left its ‘A+’ rating for AIG’s core operating subsidiaries unchanged.

S&P said it based its decision in part on AIG’s announcement of a “material reserve deficiency charge” for its 2016 fourth quarter, a figure whose details will be known after the insurer discloses its full results on Feb. 14.

Because of this, “AIG will fall short of a 7x-8x fixed-charge coverage ratio for 2017-2017, which was our threshold for maintaining a nonstandard notching between AIG’s operating subsidiaries and its holding company,” S&P Global Ratings credit analyst Tracy Dolin said in prepared remarks.

Dolin added that “AIG’s global diversity of income streams has not contributed enough to overall profitability to offset operational challenges at its predominant U.S. operations.”

S&P said it is unlikely to raise AIG’s ratings over the next two years, in part, because of continued challenges AIG is dealing with “in improving the operating performance of its P/C operations, its aggressive plan to return capital to shareholders, and our expectation that earnings from life operations will decline modestly over our projection period, due mainly to ongoing pressure on investment income from low interest rates.”

Standard & Poor’s action follows recent moves by A.M. Best and Fitch relating to the same issue.

A.M. Best said it will place under review with negative implications the long-term issuer credit rating (ICR) of “bbb” for AIG, and the financial strength ratings and long-term ICRs of its insurance subsidiaries. Similarly, Fitch placed AIG’s ‘A-‘ ICR  and its ‘A’ insurer financial strength rating of its subsidiaries on rating watch negative.

 

Source: Standard & Poor’s