Standard & Poor’s Ratings Services announced that it has affirmed its ‘AAA’ ratings on American International Group Inc. and various AIG operating companies. S&P reaffirmed the increasingly rare triple ‘A’ rating despite the company’s announcement that it would incur a net, after tax charge of $1.8 billion in the fourth quarter of 2002 related to an increase of general insurance net loss and loss adjustment reserves.
S&P also announced that it has raised its financial strength ratings on several life insurance companies ultimately owned by AIG to ‘AAA’ from ‘AA+’ “based on explicit support from American Home Assurance Co. in the form of a guaranty for all existing and prospective policyholder obligations.” It also said it had withdrawn “its ‘AA+’ counterparty credit ratings on these companies, and had raised its ratings on several other AIG entities to ‘AAA’ because of their assignment of core status with the AIG group of life companies.” The outlook on all these companies is stable.
“The ratings are based on AIG’s well-diversified business position, track record of excellent operating performance (notwithstanding the unprecedented World Trade Center losses and restructuring charges in 2001 followed by the nonlife reserve charge in 2002), and very strong levels of capital adequacy,” noted S&P credit analyst Grace Osborne. S&P said it expects AIG’s mix of business “to be more heavily skewed toward domestic life product lines,” but also expects its P/C business “to remain robust, especially in light of improved market conditions.”
“AIG is a well-diversified provider of global property/casualty and life insurance that is uniquely positioned to make the most of market conditions,” the announcement continued. “The acquisition of American General Corp. (American General) in late 2001 increased the underlying life premium source to generate 2002 premiums of $20 billion. American General is considered fully integrated into AIG. The strong commercial insurance franchise–fortified by strong rate improvement since Sept. 11, 2001, combined with the personal lines–generated $27 billion in written nonlife premiums in 2002.”
S&P noted the leading role played by AIG management and Maurice R. “Hank” Greenberg, the group’s longtime CEO in developing “a clear corporate strategy to write global risks profitably,” which has “played an important role in world markets to expand AIG’s products broadly across jurisdictions.” It went on to specify that “The level of senior management attention to underwriting, financial, and corporate initiatives is unparalleled, providing both a strength to the rating as well as a possible risk if a significant change occurs. Although succession plans have been developed, the ability of any executive team to replicate AIG’s market influence and historical consistency of revenue expansion and profitability remains an uncertainty and could result in a rating action.”
“Operating and investment results are expected to benefit from improved property/casualty rate conditions, specialized product coverage offerings, and very strong and improving cash flows from operations despite the weakening effect of Asian foreign currency and a lower interest rate environment,” S&P continued.
In relation to the increased reserve announcements S&P stated: “Operating performance over the last five years has not been materially affected by asbestos and environmental development, and loss reserves at year-end 2002 are adequate. AIG has taken strong steps over the years to measure and resolve asbestos and environmental exposures, which included implementing an absolute asbestos exclusion in 1985, appointing centralized home office legally trained claim staff to resolve claims expeditiously, and resolving all Tier 1 accounts. Standard & Poor’s does not believe that AIG has material increased exposure to asbestos and environmental liabilities in light of its historical focus toward high-layer excess insurance and claim methodology.”
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