Best Affirms AIG Europe’s Ratings; Outlook Stable

February 21, 2014

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of UK-based AIG Europe Limited (AEL), a wholly owned subsidiary of American International Group, Inc. (AIG), both with stable outlooks. The report is one of several that Best had released on the AIG Group’s ratings.

The ratings reflect AEL’s “strong risk-adjusted capitalization, excellent operating performance and strong business profile, which is supported by excellent distribution capabilities across Europe, Best explained.

The report notes that on December 1st, 2012 “AIG completed the restructuring of its European operations by merging Chartis Europe S.A. (France) into AEL. AEL is 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.

“Following corrective actions taken to address weaker performance in recent years, including the withdrawal from unprofitable lines of business and the introduction of revised underwriting guidelines, AEL achieved a profit before tax for 2012 of £338 million [$563.5 million] on a pro forma combined basis. A further improvement is expected to be reported for 2013, the first full year of operation of AEL as the single European company, with strong underwriting profits and good investment returns.”

However, Best indicated that with “premium rates remaining weak for many of AEL’s core lines of business, prospective performance continues to be subject to 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, Best observed, “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 also noted that “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

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