American International Receives Rating Action From A.M. Best

American International Group, Inc. (NYSE:AIG) has been removed from "under review with negative implications" status of credit rating giant A.M. Best Company. Concurrently, the rating agency affirmed the issuer credit rating (ICR) and the financial strength ratings (FSR) of the company, along with the ICRs of most of the company’s insurance units.

The rating agency has also withdrawn the under review status of AIG Asia Pacific Insurance Pte. Ltd. with negative implications and affirmed the FSR of A (Excellent) of the company. In addition, the company’s ICR of “a” was upgraded to “a+.” Each of the aforementioned ratings carried a stable outlook.

The last rating action from A.M. Best for AIG and its subsidiaries was in Jan 2016, when the ratings were put under review with negative implications owing to the $3.6 billion build up of loss reserves in the company’s non-life business during the fourth quarter of 2015. In the fourth quarter, the company’s total amount of loss reserve deficiency, excluding the reversal of statutory discounts of reserves for worker’s compensation, exceeded the rating agency’s expectations.

The "under review" status also reflected the probable impact of management’s strategic initiatives to improve the multi-line insurer’s competence and profitability shareholder value creation on its business profile and future earnings capacity.

A.M. Best has evaluated the year-end financial information of AIG and its rated subsidiaries, particularly the impact of loss reserve strengthening. The credit rating giant also had a detailed discussion with management regarding planned actions. Hence, this evaluation enabled the rating agency to infer that AIG’s consolidated risk-adjusted capitalization remains supportive of the ratings of the insurer and its subsidiaries.

AIG will keep undertaking various strategic initiatives and making organizational changes to achieve better results. The insurer is also expected to narrow down its priorities. However, the company will remain exposed to execution risks and intense competitive pressures, which are likely to affect the progress of its stated plans. The company is expected to further strengthen its balance sheet through the sale of non-core business as well as improve its financial flexibility. The multi-line insurer’s financial leverage and coverage ratios fall under the guidelines of the credit rating giant with respect to the current rating.

AIG Property Casualty US Insurance Group’s ratings affirmations represent its supportive level of risk-adjusted capitalization as well as leadership position in the global commercial lines insurance market. Underwriting results underperforming the P&C industry, persistent unfavorable development of prior years’ loss reserves, and execution risks associated with management’s strategic plans act as offsetting rating factors.

Similarly, the rating affirmations of the reinsurer American International Reinsurance Company Ltd. not only reflect the supportive level of risk-adjusted capitalization, but also the historical profitability of the company’s business. However, limitations of the company’s direct business profile and substantial exposure to closed block of U.K. deferred and payout annuities will offset such rating factors.

Solid operating performance, coupled with strong risk-adjusted capitalization and a robust business profile drove AIG Europe Limited’s ratings. On the flip side, the recent volatile operational performance and changes in senior management at the company will play offsetting rating factors.

Another subsidiary, AIG Insurance Hong Kong Limited, got ratings affirmed on its improved risk-adjusted capitalization level. However, the continued volatile underwriting results and a consistently high expense ratio than industry peers will act as offsetting rating factors.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. Hence, it is expected that such ratings will help the company instill and retain investor confidence in the future.

Zacks Rank and Stocks to Consider

Currently American International carries a Zacks Rank #3 (Hold). Some better-ranked stocks are FBL Financial Group Inc. (NYSE:FFG) , James River Group Holdings, Ltd. (NASDAQ:JRVR) and Loews Corp. (NYSE:L) . Each of these stocks holds a Zacks Rank #2 (Buy).

AMER INTL GRP (AIG): Free Stock Analysis Report

LOEWS CORP (L): Free Stock Analysis Report

FBL FINL GRP-A (FFG): Free Stock Analysis Report

JAMES RIVER GRP (JRVR): Free Stock Analysis Report

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