Standard & Poor’s Ratings Services announced that it is taking no action on its ratings on American International Group Inc. (currently rated “AAA”/Negative/”A-1+”) following the announcement that the company received subpoenas from the Office of the Attorney General for the State of New York and the SEC relating to investigations of nontraditional insurance products and certain assumed reinsurance transactions. The subpoenas are examining AIG’s accounting for such transactions.
S&P noted that last October that it had revised its outlook on AIG to negative “reflecting the increased exposure to reputational damage, financial settlements, and litigation costs that this well-diversified global financial services company faces when its largest market (the U.S.) is subject to intense scrutiny by federal and state agencies.”
The rating agency indicated that it is “not aware of any specific allegation that would individually or in the aggregate result in a material financial impact. AIG’s consolidated GAAP revenues reached $98.6 billion at year-end 2004 with net income reaching a record $11 billion, which was slightly more than Standard & Poor’s expectations in 2004.”
S&P pointed out that “these solid returns, offset in part by catastrophe losses, settlement costs, and continued adverse development of prior-year nonlife loss reserves, have contributed to a 16.3 percent increase in stockholders’ equity to $83 billion at year-end 2004. The financial benchmarks achieved in 2004 reflect the level of earnings and capital strength commensurate with an extremely strong rating.
“The negative outlook, however, indicates that the rating might be under pressure if the ongoing investigations produce meaningful findings that hamper the company’s competitive position, stability of earnings, or quality of capital.”
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