January 28, 2016 by Canadian Underwriter
A.M. Best has placed under review with negative implications the issuer credit rating (ICR) of American International Group, Inc. and the financial strength ratings (FSR) and ICRs of its insurance subsidiaries.
“The under review status reflects the strengthening of loss reserves in AIG’s non-life business by US$3.6 billion during the fourth quarter of 2015, primarily reflecting adverse development on prior accident years in longer-tailed lines of business,” the rating agency noted in a statement Wednesday.
Approximately 41% of the strengthening relates to 2011-2013 accident years – for which either favourable or modestly adverse development had been previously reported – and the 2014 accident year, A.M. Best points out. “The total amount of the deficiency reported exceeds A.M. Best’s assumptions of loss reserve deficiency, excluding the reversal of statutory discounts of reserves for workers’ compensation.”
A.M. Best further notes that the under review status also considers the potential impact on the business profile and future earnings capacity of AIG of the strategic actions being taken by management to improve profitability and efficiency and maximize shareholder value.
On Tuesday, AIG announced a series of strategic actions the company plans to take to become a leaner, more profitable and focused insurer. AIG’s Board of Directors has committed to, among other things, the following actions:
“With these actions, AIG has taken another major step in simplifying our organization to be a leaner, more profitable insurer, while continuing to return capital to shareholders and improve shareholder returns,” president and CEO Peter Hancock (pictured left) says in a statement. “The creation of more nimble, standalone business units that can grow within AIG or be spun out or sold allows us to do what is in our shareholders’ best interests,” Hancock continues.
“After careful consideration, AIG believes that a full breakup in the near term would detract from, not enhance, shareholder value. A lack of diversification benefits would reduce capital available for distribution, and there would be a loss of tax benefits, notes Douglas Steenland (pictured below), AIG’s non-executive chairman.
“By overhauling the way the company is organized and creating modular, self-sufficient businesses, we will drive substantial operating performance improvements and maximize value for shareholders,” Hancock adds.
Hancock offers more views on AIG’s announcement and plans during a video interview at http://www.aig.com/strategy-update.
A.M. Best’s ratings review will continue while the rating agency reviews AIG’s planned actions in greater detail with management, receives and reviews year-end financial information for AIG and its rated subsidiaries and assesses the potential impact of these items on the current ratings.
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