Reinsurance News

AM Best turns positive on AIG, noting “steady improving trend”

19th December 2022 - Author: Kane Wells

AM Best has revised the outlook to positive from stable and affirmed the Long-Term Issuer Credit Ratings of “bbb” (Good) of AIG, and has revised the outlooks to positive from stable for the Long-Term ICRs and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of “a” (Excellent) of AIG P/C insurance subsidiaries (AIG PC).

According to AM Best, the ratings of AIG PC reflect the group’s balance sheet strength, which it assesses as very strong, along with its marginal operating performance, favourable business profile, and appropriate enterprise risk management.

Further, AIG PC’s risk-adjusted capital position remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), benefiting from improving underwriting performance.

This includes a reduction in net premiums written and net loss reserves, which declined at a larger rate than surplus, while also benefiting from strong reinsurance support from highly rated reinsurers.

AM Best views AIG PC’s operating performance as marginal.

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The rating agency writes, “The group’s historical combined and operating ratios have lagged composite peers materially.

“However, the positive Long-Term ICR outlook recognises that the group’s operating performance has demonstrated a steady improving trend in more recent years, attributable to numerous underwriting and risk management initiatives, as well as continued positive pricing momentum in most key business lines.”

AM Best notes that it also factored into the rating decision the announcement on Dec. 14, 2022, whereby the wholly owned subsidiary of AIG, AIG Financial Products Corp., filed a voluntary petition to reorganise under Chapter 11 bankruptcy.

Meanwhile, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) for the members of the AIG Life & Retirement Group (AIG L&R). The outlook of these Credit Ratings is stable.

AM Best states that the ratings of AIG L&R reflect its balance sheet strength, which it assesses as adequate, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management.

AIG L&R’s risk-adjusted capital position marginally improved in 2021 to the strong level, as measured by BCAR.

The rating agency suggests that this risk-adjusted capital position benefits from the large modified coinsurance agreement with Fortitude Reinsurance, which reduces much of the risk from the longer-term structured settlements book of business.

Furthermore, the new holding company, Corebridge Financial, provides projections for leverage and coverage ratios within AM Best’s methodology guidelines. AIG’s statutory entities are expected to remain well-capitalised.

However, AM Best notes that as the separation continues there will still be execution risk, and current projections may not materialise as planned.

In addition, longer-term reallocation of AIG L&R’s investment portfolio may hurt future risk-adjusted capital, says Best. The rating agency continues to assess AIG L&R segment’s operating performance as strong.

It writes, “While AM Best acknowledges the headwinds of strong competition within the segment, AIG L&R maintains a diversified product portfolio, along with spread and fee income that is consistent with strong operating peers. AIG L&R’s individual and group retirement segments continue to produce consistent returns.”

“While its life segment reported a loss in 2020, the institutional products segment, consisting of pension risk transfer, stable value wrap, guarantee investment contracts and bank-owned/corporate-owned life insurance, has been a growing portion of the business and is likely to see continued growth.”

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