Following the recent announcement from U.S. insurance giant American International Group (AIG) that it was making Brian Duperreault its new President and Chief Executive Officer (CEO), its clear that rating agency A.M. Best sees a brighter future for the insurer.
A.M. Best had placed the credit ratings of AIG under review with negative implications in January 2017, after the insurer announced a major reserve charge of $5.6 billion, a level which had exceeded the rating agencies expectations for reserve worsening at the firm.
Now, having reviewed the latest financial information available and taken into account happenings since January, A.M. Best’s view has changed and the ratings of AIG have been removed from their negative review status and have been affirmed by the rating agency.
Factors taken into consideration include the benefits derived from the $9.8 billion adverse development cover and related loss portfolio transfer transaction that AIG entered into with Warren Buffett’s Berkshire Hathaway at the end of January.
Additionally, A.M. Best has undertaken a review of AIG’s reserves, finding nothing to worsen its view again, and discussed the insurers plans with AIG management, to assess the viability of corrective actions that will be taken.
Perhaps most noteworthy and a considerable input to the rating agencies improved outlook for AIG is the hiring of Brian Duperreault as the insurers new CEO, a move that A.M. Best says “brings his significant operating experience as an industry leader to the organization.”
A.M. Best believes that AIG’s insurance operations will benefit from “the leadership and experience of Duperreault, given his extensive industry experience running large global insurance enterprises.”
The rating agency notes that AIG’s risk-adjusted capital levels remain strong and that this “lessens A.M. Best’s immediate concerns regarding the execution risk of successfully implementing the corrective actions taken to improve overall operating performance, and susceptibility to reduced credibility of its franchise value.”
Underwriting results remain a concern though and this is where rating agencies and analysts are going to be looking for improvement, now Duperreault is on-board at AIG.
A.M. Best said that following its review and having taken the above into consideration it has removed AIG’s ratings from under review with negative implications and affirmed the Long-Term Issuer Credit Rating of AIG and the Financial Strength Ratings and Long-Term ICRs of its insurance subsidiaries, with the outlooks on these ratings now deemed stable.
Duperreault said that rather than breaking AIG up, as some of its more activist shareholders had been demanding, he aims to pursue both organic and inorganic growth as he looks to take the company forward.
The proof is going to be in the performance figures going forwards, as the benefits from the reinsurance deal with Berkshire Hathaway kick-in and the strategy adjusts under Duperreault’s tenure.
