AIG’s massive strategic plan – including a move to boost its loss reserves – caught the attention of A.M. Best. The ratings outfit is not impressed.
The financial strength rating for American International Group and its subsidiaries is now under review with negative implications. A.M. Best also placed AIG’s issuer credit rating under the same status.
Standard & Poor’s, Moody’s and Fitch also issued similar negative or mixed assessments.
Their actions follow AIG CEO Peter Hancock’s rollout of a plan to boost shareholder value that includes a 19.9 percent IPO of its mortgage unit, the sale of AIG Advisory Group, a reduction of $1.6 billion of costs, and the creation of a “legacy” portfolio of assets targeted to be sold off or winded down. As well, AIG pledged to improve its loss ratio by 6 points by 2017 and hit a 9 percent return on investments within two years.
AIG also strengthened the loss reserves in its non-life business by $3.6 billion during the 2015 fourth quarter due to adverse loss development on previous accident years in longer-tailed lines of business.
Both actions spurred A.M. Best’s move to put AIG’s ratings under review with negative implications.
“A.M. Best is concerned that approximately 41 percent of the [reserve] strengthening relates to 2011-2013 accident years, for which either favorable or modestly adverse development had been previously reported,” the ratings entity said.
A.M. Best added that the total amount of the deficiency reported exceeded its assumptions of loss reserve deficiency, “excluding the reversal of statutory discounts of reserves for workers compensation.”
AIG’s strategic plan drew A.M. Best’s critical response because it is considering how the actions might affect “the business profile and future earnings capacity” of the insurer.
A.M. Best isn’t the only ratings firm critical of AIG’s latest moves. Here’s a rundown of the others:
Standard & Poor’s. S&P revised its outlook for AIG to negative from stable, and affirmed its ‘A-‘ long-term counterparty credit rating. As well, it affirmed its ‘A+’ financial strength ratings on AIG’s core operating insurance companies, with a stable outlook. Additionally, S&P placed all ratings on AIG’s mortgage arm – United Guaranty Residential Insurance Co., United Guaranty Mortgage Indemnity Co., and AIG United Guaranty Insurance (Asia) Ltd. – on credit watch negative.
Moody’s. Moody’s Investors Service affirmed the Baa1 senior unsecured debt rating for AIG. But it downgraded the insurance financial strength ratings of AIG’s property/casualty subsidiaries in the U.S. and Canada to A2 from A1. At the same time, Moody’s also affirmed the A2 insurance financial strength ratings of AIG Life and Retirement.
Fitch Ratings. Fitch affirmed AIG’s insurer financial strength ratings at ‘A’ and its U.S. life insurance subsidiaries at ‘A+’. But it revised AIG’s outlook to stable from positive.
Sources: A.M. Best, Standard & Poor’s, Moody’s, Fitch Ratings.