Credit rating agency AM Best has affirmed American International Group, Inc.’s AIG Long-Term Issuer Credit Rating of “bbb”. Moreover, the credit rating giant has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of "a" of its property/casualty insurance units (AIG PC). Notably, the outlook of these ratings is stable.
AM Best also downgraded the Long-Term ICR to "a" from "a+" and affirmed the FSR of A (Excellent) for the members of the AIG Life & Retirement Group (AIG L&R). The outlook of the Long-Term ICR is changed to stable from negative while the outlook of FSR remains stable.
Rationale Behind the Ratings
The ratings of the company reflect its consolidated risk-adjusted capitalization at the strongest level, per Best’s Capital Adequacy Ratio (BCAR). It should be noted that the consolidated risk-adjusted capital level is likely to increase on the back of the Fortitude Reinsurance Company Ltd. deal.
The company’s solvency level also remains positive on its sufficient liquidity, access to capital markets, etc. However, the same is partially offset by higher leverage and lower interest rate coverage ratio for the current year. However, the rating agency expects its risk profile to improve.
AIG PC’s ratings show a robust balance sheet, which the rating body categorizes as very strong along with an impressive marginal operating performance, business profile and ERM (Enterprise Risk Management). Its risk-based capital position improved last year, which resulted from a material reduction in net loss reserves as the group continues to pay down claims for older accident years. However, these tailwinds are partly offset by the decrease in surplus levels that has continued in each of the past five years alongside the group’s high gross underwriting leverage. The credit rating giant views AIG PC’s operating performance as marginal.
The ratings of AIG L&R reflect its strong balance sheet, which the rating authority categorizes as adequate along with its sturdy operating performance, favorable business profile and proper ERM.
AIG L&R’s Long-Term ICR downgrade mirrors a change in the credit rating agency’s view of its operating performance. Per AM Best, the group’s more recent and prospective returns will be more in line with its highly-rated peers as a result of intense competition within the annuity segment and record low interest rates. Moreover, the low interest rate environment is likely to affect the top and the bottom line within the individual and group annuity segments.
AIG L&R’s ratings also highlight its healthy business profile with a wide array of products and national reach with its robust distribution channels.
Zacks Rank and Price Performance
AIG currently holds a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of the company have lost 42.5% in the past year, wider than its industry's decline of 11.8%.
Other companies in the same space, such as Aflac Incorporated AFL, Prudential Financial, Inc. PRU and Ageas SA AGESY have lost 22.4%, 11.6% and 18% each in the same time frame.
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