OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best has placed under review with negative implications the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of American International Group, Inc. (AIG) (headquartered in New York, NY) [NYSE:AIG] and the Financial Strength Ratings (FSR) and Long-Term ICRs of its insurance subsidiaries. (Please see link below for a detailed listing of the companies and ratings.)
The under review status follows AIG’s recent announcement that its fourth quarter 2016 financial statement will include a material adverse reserve adjustment, as well as a capital supporting reinsurance transaction for its U.S. commercial business. This adverse development of loss reserves follows a $3.6 billion net adverse reserve adjustment for the fourth quarter of 2015 in the same longer-tailed lines of business.
While A.M. Best anticipated the potential of further reserve development, the timing of this latest charge highlights the challenges that AIG management continues to face in reserving, pricing, and handling this longer tail commercial lines business, and the effectiveness of the group’s enterprise risk management function.
The reinsurance transaction is anticipated to absorb a portion of the expected reserve development, as any reserve development on the covered lines in excess of the current carried reserves of about $35.7 billion is covered on a quota share basis, up to the limit of the reinsurer’s liability, which is 80% of $14.3 billion. It should be noted that certain lines of business are excluded from the contract.
The under review with negative implications status on the ratings of AIG and its operating subsidiaries considers the potential impact on future earnings, the available dividend capacity, and the feasibility of succeeding at the necessary strategies outlined by management and the board to improve profitability and efficiency and maximize shareholder value within stated timeframes.
The ratings will remain under review while A.M. Best analyzes the planned actions following the release of the loss reserve review, receives and reviews year-end financial information and engages in further discussions with management to assess the potential impact of these items on the current ratings.
For a complete listing of AIG and its subsidiaries’ FSRs and Long-Term ICRs, please visit American International Group Inc.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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