Best Affirms AIG Europe Limited Ratings; Outlook Stable

January 28, 2013

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” of UK-based AIG Europe Limited (AEL), formerly Chartis Europe Limited, and has assigned a stable outlook to both ratings. AEL is a wholly owned subsidiary of American International Group, Inc., which Best has also affirmed.

The ratings reflect AEL’s “excellent risk-adjusted capitalization, good operating performance and good business profile, which is supported by excellent distribution capabilities across Europe,” Best said. “Previous concerns regarding weaker underwriting results in recent years and the impact of the economic downturn on prospective results have been partly mitigated by the actions management has taken to address the underperformance of particular lines of business,” the report added.

Best also noted that on the first of December 2012, “AIG completed the restructuring of its European operations by merging Chartis Europe S.A. (France) into AEL. AEL is now a UK-domiciled insurance company operating through a branch network in 26 European countries. Key drivers and benefits of the restructuring include the creation of a simpler and more transparent operating structure, increased capital fungibility, particularly in the context of the pending implementation of Solvency II, operational efficiencies and alignment with the pan-European management structure.”

The report explained that following “corrective actions taken to address weaker performance in recent years, including the withdrawal from unprofitable lines of business, the introduction of revised underwriting guidelines and the refocus of the professional indemnity account away from recession exposed professions, a modest improvement in combined technical performance was achieved in 2011, with higher catastrophe losses offset by better results for casualty, specialty, financial lines and consumer business.

“A further improvement is expected to be reported for 2012, reflecting lower catastrophe losses and the benefits of the first stages of the restructuring of the European operations, and is likely to continue into 2013 following the completion of the restructuring.”

However, Best also, indicated that “with premium rates remaining weak for many of AEL’s core lines of business, prospective performance continues to be subject to considerable uncertainty. The effect on results of a prolonged economic downturn is also of concern, given the relatively high proportion of casualty and financial lines business underwritten.

“Nevertheless, as the European operations, now centered on one company, become better integrated with those of the wider group, AEL is expected to benefit from group-driven initiatives to improve performance and analytical capabilities.”

Best’s report pointed out that overall “AEL has a good business profile in the commercial insurance market, with a particularly strong competitive position in the aerospace, marine, energy and financial lines markets. In addition, the company is a significant writer of multinational programs. Its competitive position is enhanced by excellent distribution capabilities and the ability to offer a broad range of products across a wide geographic area.”

In conclusion Best said: “Factors that may lead to negative rating actions include a decline in risk-adjusted capitalization, weaker than expected operating performance or deterioration in reserves. Factors affecting other subsidiaries within the wider AIG group could place upwards or downwards pressure on the ratings of AEL.

Source: A.M. Best – Europe

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