A.M. Best Co. has commented that the issuer credit rating of “bbb” of American International Group, Inc. (AIG) [NYSE: AIG] is unchanged following the announcement of the U.S. Treasury’s plan to sell its remaining holdings of AIG’s common equity and AIG’s agreement with an investor group to sell up to a 90% stake in its International Lease Finance Corporation (ILFC) subsidiary. In addition, the financial strength ratings (FSRs) and the issuer credit ratings (ICRs) of AIG’s property/casualty subsidiaries also are unchanged by those announcements, as well as the release of the anticipated loss from Superstorm Sandy. The outlook for all ratings also remains unchanged.
The sale of the majority interest in ILFC and the UST’s decision to sell its remaining common interest in AIG mark the completion of AIG’s plan to remove itself from U.S. Government ownership and refocus its operations on its core insurance business. A.M. Best’s assessment of AIG’s financial position has, in recent years, considered the potential calls on the holding company related to the debt of ILFC. Although this debt was secured by physical assets owned by ILFC and was without recourse to AIG, the reputational risk to AIG should timely payments not be made on that debt was considerable. With the sale of a majority position in ILFC, A.M. Best’s future assessment of AIG will no longer include a stressed scenario under which AIG would make payments on the ILFC debt.
Since the announcement of AIG’s recapitalization plan in 2011, A.M. Best’s ratings of AIG have not considered any benefit related to U.S. Government financial assistance. The eventual sale of the UST’s common equity position in AIG was anticipated in A.M. Best’s ratings. At this time, A.M. Best’s ratings of AIG reflect the assessment of its operating insurance companies, with consideration of the potential calls on liquidity related to the Direct Investment Book (DIB). Consequently, the reduction of the UST’s ownership interest does not have an impact on A.M. Best’s ratings of AIG or any of its subsidiaries.
At $2 billion pre-tax and $1.3 billion after-tax, the potential net loss that AIG’s property/casualty subsidiaries will bear as a result of Superstorm Sandy is material and will have an impact on the companies’ full-year 2012 earnings. The size of the loss is, however, well within the probable maximum loss (PML) incorporated in the assessment of the companies’ risk-adjusted capitalization using Best’s Capital Adequacy Ratio (BCAR). As such, the loss will not have any immediate effect on the ratings of those companies. AIG’s decision to infuse capital into the operating companies to partially offset the losses from Sandy substantially mitigates the impact of those losses on the companies’ consolidated risk-adjusted capital position.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Understanding BCAR for Property/Casualty Insurers”; “Insurance Holding Company and Dent Ratings”; and “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
Jennifer Marshall, 908-439-2200, ext. 5327
Managing Senior Financial Analyst
Andrew F. Colannino, 908-439-2200, ext. 5706
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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