AIG's Ratings Removed From Under Review Status By A.M. Best
Zacks Investment Research | May 23, 2017 09:16PM ET
American International Group, Inc. (NYSE:AIG) recently received rating action from A.M. Best. The rating giant has removed from under review with negative implications and reiterated the Long-Term Issuer Credit Rating (Long-Term ICR) of the company. A.M. Best also affirmed the Financial Strength Ratings (FSR) and Long-Term ICRs of AIG’s insurance subsidiaries. The outlook remained stable.
Previously, AIG announced that it had incurred material adverse reserve development, primarily relating to its U.S. property/casualty long-tail business. The total amount of AIG’s gross deficiency was $5.6 billion – higher than A.M. Best’s estimate. As a result, pursuant to the announcement, the ratings of AIG and its insurance subsidiaries were put under review with negative implications in Jan 2017. AIG’s risk-adjusted capitalization, liquidity, franchise value and future earnings capacity, which were likely to be impacted by the adverse reserve development, are also likely have contributed to the under review status.
Adverse reserve development has been an area of concern for the company since long, affecting its operational efficiency. Shareholders’ confidence on the stock also seems to be dwindling. The stock gained only 7% over the last one year, underperforming the Zacks categorized Multi Line insurance industry’s increase of 19%.
However, in its recent analysis of the financial information of AIG and its subsidiaries, A.M. Best found the impact of the reserve development to be beneficial for the company. Also, a related loss portfolio transfer and an assessment of the adequacy of the group’s current reserve position led A. M Best to remove the under review status. After careful deliberations with AIG’s management and reviewing the feasibility of the company’s capital return goals and organizational changes, the rating giant affirmed the aforesaid ICR for AIG.
AIG’s consolidated risk-adjusted capitalization also supported the rating action on AIG and its subsidiaries. This significantly lowered A.M. Best’s concern regarding the execution risk of successfully implementing the corrective actions. The rating giant expects AIG to witness an improvement in its overall operating performance, and susceptibility to reduced credibility of its franchise value. AIG also maintains sufficient liquidity and financial flexibility, which substantially contributes to its current ratings.
AIG is striving to regain its lost glory through a host of corrective action plans. The recent appointment of Brian Duperreault as its new CEO, is expected to bring more efficiency to the company’s operation as an industry leader.
Zacks Rank and Stocks to Consider
AIG presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the finance sector are Cigna Corporation (NYSE:CI) , James River Group Holdings, Ltd. (NASDAQ:JRVR) and Torchmark Corporation (NYSE:TMK) . All stocks carry a Zacks Rank #2 (Buy). You can see Zacks Investment Research
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