American International Group, Inc.
AIGhas been removed from "under review with
negative implications" status of credit rating giant A.M. Best
Company. Concurrently, the rating agency affirmed the issuer
credit rating (ICR) and the financial strength ratings (FSR) of the
company, along with the ICRs of most of the company’s insurance
units.
The rating agency has also withdrawn the under review status
of AIG Asia Pacific Insurance Pte. Ltd. with negative implications
and affirmed the FSR of A (Excellent) of the company. In addition,
the company’s ICR of “a” was upgraded to “a+.” Each of the
aforementioned ratings carried a stable outlook.
The last rating action from A.M. Best for AIG and its
subsidiaries was in Jan 2016, when the ratings were put under
review with negative implications owing to the $3.6 billion build
up of loss reserves in the company’s non-life business during the
fourth quarter of 2015. In the fourth quarter, the company’s total
amount of loss reserve deficiency, excluding the reversal of
statutory discounts of reserves for worker’s compensation, exceeded
the rating agency’s expectations.
The "under review" status also reflected the probable impact
of management’s strategic initiatives to improve the
multi-line insurer’s competence and profitability shareholder value
creation on its business profile and future earnings capacity.
A.M. Best has evaluated the year-end financial information of
AIG and its rated subsidiaries, particularly the impact of loss
reserve strengthening. The credit rating giant also had a detailed
discussion with management regarding planned actions. Hence, this
evaluation enabled the rating agency to infer that AIG’s
consolidated risk-adjusted capitalization remains supportive of the
ratings of the insurer and its subsidiaries.
AIG will keep undertaking various strategic initiatives and
making organizational changes to achieve better results. The
insurer is also expected to narrow down its priorities. However,
the company will remain exposed to execution risks and intense
competitive pressures, which are likely to affect the progress of
its stated plans. The company is expected to further strengthen its
balance sheet through the sale of non-core business as well as
improve its financial flexibility. The multi-line insurer’s
financial leverage and coverage ratios fall under the guidelines of
the credit rating giant with respect to the current rating.
AIG Property Casualty US Insurance Group’s ratings
affirmations represent its supportive level of risk-adjusted
capitalization as well as leadership position in the global
commercial lines insurance market. Underwriting results
underperforming the P&C industry, persistent unfavorable
development of prior years’ loss reserves, and execution risks
associated with management’s strategic plans act as offsetting
rating factors.
Similarly, the rating affirmations of the reinsurer American
International Reinsurance Company Ltd. not only reflect the
supportive level of risk-adjusted capitalization, but also the
historical profitability of the company’s business. However,
limitations of the company’s direct business profile and
substantial exposure to closed block of U.K. deferred and payout
annuities will offset such rating factors.
Solid operating performance, coupled with strong
risk-adjusted capitalization and a robust business profile drove
AIG Europe Limited’s ratings. On the flip side, the recent volatile
operational performance and changes in senior management at the
company will play offsetting rating factors.
Another subsidiary, AIG Insurance Hong Kong Limited,
got ratings affirmed on its improved risk-adjusted
capitalization level. However, the continued volatile underwriting
results and a consistently high expense ratio than industry peers
will act as offsetting rating factors.
Rating affirmations or upgrades from credit rating agencies
play an important role in retaining investor confidence on the
stock as well as maintaining credit worthiness in the market.
Hence, it is expected that such ratings will help the company
instill and retain investor confidence in the future.
Zacks Rank and Stocks to Consider
Currently American International carries a Zacks Rank #3
(Hold). Some better-ranked stocks are FBL Financial Group Inc.
FFG, James River Group Holdings, Ltd.
JRVRand Loews Corp.
L. Each of these stocks holds a Zacks Rank #2
(Buy).