Fitch Affirms AIG’s Ratings; Outlook Stable
AIG's ratings reflect the company's previous success in restructuring and deleveraging efforts. Property/casualty subsidiary ratings consider the company's unique market position in the global insurance market given its absolute size, underwriting capabilities, and consolidated capital adequacy that is comparable to higher rated peers. The ratings of AIG's
KEY RATING DRIVERS
AIG continues to execute on its plans to further tighten operational focus. Earlier this year the company completed the sale of its independent broker-dealer network for a pre-tax gain of
Profit improvement plans emphasize a 14% reduction in operating expenses and target to improve the property/casualty loss ratio by six points over the next two years in part through further shifts in business mix to curtail unprofitable segments, including
A shift to steady, moderate underwriting profits in AIG's property casualty operations would have significant implications for AIG's overall profitability and debt servicing capability. The company noted significant progress in reducing the accident year loss ratio at mid-year 2016 from underwriting and pricing actions, reinsurance utilization and changes in the business mix. The Property Casualty current accident year combined ratio (consolidated to include commercial, personal lines and run-off) improved to 97.9% at mid-year 2016 versus 98.6% in the prior year first half.
Overall, operating performance for AIG's life insurance subsidiaries has generally been stronger and more stable than its property casualty subsidiaries; however, 2015 and 2016 results for the life and retirement businesses have been impacted by lower investment returns and adjustments related to the update of actuarial assumptions. The company is executing on a plan to improve returns by narrowing its distribution and product focus as well as reducing its exposure to alternative assets, particularly hedge funds, which should improve the quality and stability of earnings going forward.
Fitch believes capitalization is strong at both the property casualty and life subsidiaries. The
Financial leverage as measured by the ratio of financial debt and preferred securities to total capital (excluding operating debt and the impact of FAS 115) was 21.5% at
AIG's capital plan includes a commitment to return at least
Holding company liquidity currently includes
RATING SENSITIVITIES
Key triggers that could lead to an upgrade include:
--Successful completion of pending strategic actions and greater certainty that the corporate and operating structure is in place for the longer term, and further meaningful restructuring actions are unlikely;
--A shift to sustainable property/casualty segment underwriting profitability, with demonstration of greater loss reserve stability or reserve redundancies;
--Improvement in GAAP earnings to a level consistent with interest coverage at 10x or above;
--While achieving the above, maintenance of financial leverage and risk-based capital at the company's insurance subsidiaries remaining within newly revised targeted levels.
Key triggers that could lead to a downgrade include:
--Increase in financial leverage to above 25%, or an increase in the TFC ratio to above 0.7x;
--Significant reductions in debt servicing capacity from holding company assets and available dividends from subsidiaries to a level below 4.5x annual interest on operating debt;
--Large underwriting losses and/or further material reserve volatility of the company's non-life insurance subsidiaries;
--Sharp deterioration in the company's domestic life insurance subsidiaries' profitability trends;
--Material declines in risk-based capital ratios at either the domestic life insurance or the non-life insurance subsidiaries.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings with a Stable Outlook:
American International Group, Inc.
--Long-Term IDR at 'A-';
--Various senior unsecured note issues at 'BBB+';
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--Long-Term IDR at 'A-'.
--Long-Term IDR at 'A-';
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The
--IFS rating at 'A+'.
--IFS rating at 'A'.
ASIF Global Financing
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ASIF III Program
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Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub.
https://www.fitchratings.com/site/re/881564
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Fitch Ratings
Primary Analyst
James B. Auden, CFA, +1-312-368-3146
Managing Director
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Director
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Managing Director
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Media Relations,
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Source: Fitch Ratings
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