Ratings Roundup: AIG Asia-Pacific, Fuji Fire/AIU

February 21, 2014

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Singapore-based AIG Asia Pacific Insurance Pte. Ltd. (AIG APAC) and its fully-owned subsidiaries, AIG Australia Limited (AIG Australia) and AIG Insurance Hong Kong Limited (AIG Hong Kong). Best has also, revised its ratings’ outlook to positive from stable for the ICR of AIG APAC. The outlook for AIG APAC’s FSR of is stable. The outlook for the ICR and FSR of AIG Australia and AIG Hong Kong is also stable. The ultimate parent company is American International Group, Inc. (AIG). Best said “AIG APAC’s ratings reflect its solid capitalization, diversified insurance portfolio and leading market position, along with its subsidiaries, in the Asia-Pacific region. AIG APAC’s insurance portfolio is well diversified geographically in the Asia-Pacific region and has a balanced mix of various consumer and commercial lines, which strengthen AIG APAC’s leading regional market position, provide competitive advantages in servicing multinational client accounts and provide benefits of risk diversification.” As offsetting factors Best cited the “impacts from potential major natural catastrophes and potentially high dividends in the coming years.” Best said: “AIG Australia’s ratings reflect its strong reinsurance support from its affiliates, favorable operating results and risk-adjusted capital position, which remained adequate after the company reduced its capital level in 2012.” As offsetting factors Best cited “the company’s exposure to volatile liability lines, reduction in prospective investment income due to the decline in capital size and interest rates, and uncertainty of reserve developments for its liability lines. In addition, a decline in its affiliates’ ratings could materially reduce the company’s risk-adjusted capitalization.” Concerning AIG Hong Kong’s ratings, Best said the “reflect its strong market presence in selected commercial and personal non-life insurance segments in Hong Kong, and its improved operating performance over the past few years.” As partial offsetting factors Best noted the “company’s relatively volatile underwriting results, which are due to its exposure in workers’ compensation and financial lines businesses, and the expected decrease in risk-adjusted capitalization due to an increase in risk retention, which began in 2013. Notwithstanding, the company’s risk-adjusted capitalization level is expected to remain adequate to support its current ratings over the short to medium term.” In conclusion Best said: “Future positive rating actions could occur if AIG APAC achieves a consistently favorable underwriting performance in its Asia-Pacific insurance portfolios and it maintains its strong capitalization. Negative rating actions could occur if AIG APAC shows significant worsening in its operating results or the payout of high dividends that trigger substantial deterioration in its risk-adjusted capitalization. While AIG Australia and AIG Hong Kong are well placed at their current rating level, negative rating actions could occur if there is a significant worsening of their operating results and a substantial deterioration in their risk-adjusted capitalization. Any unfavorable rating actions on AIG also could put downward pressure on the companies’ ratings.

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” of The Fuji Fire & Marine Insurance Company, Limited (Fuji Fire), based in Japan, and AIU Insurance Company, Ltd. (AIU), also based in Japan. The ultimate parent company is American International Group, Inc. (AIG). The outlook for all of the ratings is stable. “Fuji Fire’s ratings reflect its “adequate risk-adjusted capitalization and improvement in its profitability,” Best explained. “The company reported an improvement in its operating performance in the first half of fiscal year 2013, driven by the recovery in its auto underwriting results. AIU’s ratings reflect its distinctive presence in the Japanese market as a significant provider of accident and health insurance (A&H) and the expected improvement in its profitability. AIU’s underwriting results are expected to improve in the midterm, driven by a restructuring in its reinsurance arrangements. AIU’s retention remained at approximately 22 percent over the past five years ending in 2013, with a significant portion of risk ceded to AIG’s affiliates. The small base of net premium income under J-GAPP resulted in weak profitability and high volatility in its operating ratio in that five-year period.” Best added that it ratings for Fuji Fire and AIU “consider the support from their parent company, AIG Japan Holdings KK, ultimately owned by AIG, in the areas of cross-selling opportunities with its group companies, risk management and strategic initiatives for business integration. In the second half of 2015, Fuji Fire is scheduled to merge with AIG, subject to regulatory approval. The companies’ operating performance is expected to improve in the midterm, as they accelerate their integration by sharing infrastructure and implementing group-wide initiatives.” Best indicated that the “companies are well positioned at their current rating level. Negative rating actions could occur if there is a significant worsening of their operating results and a substantial deterioration in their risk-adjusted capitalization. Any unfavorable rating actions on AIG could also put downward pressure on the companies’ ratings.”

These reports are part of several that Best has released on the AIG Group’s ratings.

 

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