S&P Global Ratings announced a revision of its outlook on American International Group Inc. (AIG), a global multiline insurer, and its core property and casualty (P/C) subsidiaries (excluding Validus Re) to stable from negative.
Concurrently, S&P affirmed AIG’s issuer credit ratings at ‘BBB+/A-2’ and its insurer financial strength ratings for AIG’s core P/C insurance entities at ‘A+’.
This rating action reflects S&P’s observation that AIG has significantly improved its underwriting performance over the past two years through a series of strategic actions.
AIG’s efforts to enhance earnings and reduce capital and earnings volatility have led to a positive shift in its underwriting results.
The company implemented measures such as reducing catastrophe exposure, rate hikes to mitigate higher loss costs and inflationary pressure, expense management, and the use of reinsurance to decrease earnings volatility.
Additionally, AIG purchased an adverse development cover for accident years 2015 and earlier, further reducing risk exposure, the rating agency noted.
These actions have collectively contributed to improved underwriting results, with AIG’s consolidated combined ratio improving to 92.6% in 2022, down from an average combined ratio of 106% in 2018-2020.
The group’s capital adequacy is expected to remain strong, and it is anticipated that AIG will maintain this ‘AA’ level as it divests its life and retirement and reinsurance businesses, the rating agency said.
S&P noted that AIG’s underwriting results, while improved, have been slightly worse than the peer average, with a 2020-2022 average combined ratio of 98.1%, which is still somewhat higher than the peer average.
The stable outlook for AIG and its P/C subsidiaries indicates S&P’s expectation that the company will continue to maintain strong underwriting performance in line with its peers and retain capital adequacy at the ‘AA’ level.
In a downside scenario, S&P could lower AIG’s ratings in the next 12-24 months if underwriting performance weakens or if capital adequacy deteriorates.
On the upside, while unlikely in the short term, AIG’s ratings could see an increase if the company demonstrates strong sustainable operating performance, favourable prior-year reserve development, and maintains capital adequacy at the ‘AA’ level.
