AM Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” (Good) of American International Group, Inc. (AIG) (headquartered in New York, NY) [NYSE: AIG]. AM Best also has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of “a” (Excellent) of AIG’s property/casualty (P/C) insurance subsidiaries (collectively referred to as AIG PC). Concurrently, 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 (ratings) is stable. (Please see below for a detailed listing of the companies and ratings.)
AIG’s consolidated risk-adjusted capital level, as measured by Best’s Capital Adequacy Ratio (BCAR), has been maintained at the strongest level. AIG’s historical consolidated performance has been marginal when compared with composite peers due to poor underwriting results from its P/C segment, albeit showing significant underlying improvement in recent years. Full-year 2020 consolidated operating results were negatively impacted by significant catastrophe losses, including the effects from the COVID-19 pandemic, with net income unfavorably impacted by the Fortitude Reinsurance Company Ltd. (Fortitude Re) separation. However, underwriting results in the first half of 2021 have shown improvement and are more consistent with the risk selection and reinsurance risk mitigation strategies implemented by AIG in recent years.
AM Best does not expect AIG’s planned separation of its life and retirement business to have a near-term impact on its rating. This is because the loss of life and retirement segment’s profitability and diversification is offset by an anticipated increase in available capital and liquidity with a more focused business profile, and improving operating performance from its core P/C operations in a hardening market.
The ratings of AIG PC reflect the group’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, favorable business profile and appropriate enterprise risk management (ERM).
AIG PC’s risk-adjusted capital position remains at the strongest level, as measured by BCAR, benefiting from 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. The group’s historical combined and operating ratios have materially lagged composite peers. However, AM Best notes 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.
The ratings of AIG L&R reflect its balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, favorable business profile and appropriate ERM.
AIG L&R’s risk-adjusted capital position marginally improved in 2020, but remains stable at the adequate level, as measured by BCAR. This risk-adjusted capital position benefits from the large modified coinsurance agreement with Fortitude Re, which reduces much of the risk from the longer-term structured settlements book of business. The new holding company projections for leverage and coverage ratios are within AM Best’s methodology guidelines and AIG’s statutory entities are expected to remain well-capitalized; however, AM Best notes that with this separation comes execution risk and current projections may not materialize as planned. Additionally, longer-term reallocation of AIG L&R’s investment portfolio may have an adverse impact on future risk-adjusted capital.
AM Best continues to assess AIG L&R segment’s operating performance as strong. While AM Best acknowledges the headwinds of the lower rate environment and strong competition within the segment, AIG L&R maintains a diversified product portfolio and also maintains 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 BOLI/COLI, has been a growing portion of the business and is likely to see continued growth.
The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed with stable outlooks for the following P/C subsidiaries of AIG, which are collectively referred to as the AIG PC:
- National Union Fire Insurance Company of Pittsburgh, PA
- American Home Assurance Company
- Lexington Insurance Company
- Commerce and Industry Insurance Company
- AIG Property Casualty Company
- The Insurance Company of the State of Pennsylvania
- New Hampshire Insurance Company
- Illinois National Insurance Company
- AIG Specialty Insurance Company
- AIU Insurance Company
- AIG Assurance Company
- AIG Insurance Company – Puerto Rico
- AIG Insurance Company of Canada
- AIG Insurance Hong Kong Limited
- Granite State Insurance Company
- Tudor Insurance Company
- Stratford Insurance Company
- Western World Insurance Company
- Blackboard Specialty Insurance Company
- Blackboard Insurance Company
- American International Group UK Limited
- American International Reinsurance Company, Ltd.
- AIG Asia Pacific Insurance Pte. Ltd.
- Validus Reinsurance, Ltd.
- Validus Reinsurance (Switzerland) Ltd.
The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed with stable outlooks for the following subsidiaries of AIG, which are collectively referred to as the AIG Life & Retirement Group:
- AGC Life Insurance Company
- American General Life Insurance Company
- United States Life Insurance Company in the City of New York
- The Variable Annuity Life Insurance Company
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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Erik Miller, CFA
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Manager, Public Relations
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Michael Lagomarsino, CFA, FRM
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