(The following statement was released by the rating agency)
-- American International Reinsurance Co. (AIRCO), a core subsidiary of
AIG Property Casualty Group, which is ultimately owned by American
International Group Inc. (AIG), has strong capital underscored by strong
-- We are assigning our 'A' counterparty credit and financial strength
ratings to AIRCO with a stable outlook.
-- The stable outlook reflects our outlook on the AIG Property Casualty
Group, which we view as strategically important to the ultimate parent AIG.
On Jan. 14, 2013, Standard & Poor's Services assigned its long-term 'A'
counterparty credit and financial strength ratings to Bermuda-based American
International Reinsurance Co. Ltd. (AIRCO). The outlook is stable.
The ratings reflect the core status of AIRCO to the AIG Property Casualty
Group (which is ultimately owned by AIG--we rate the group's core operating
companies 'A/Stable') through the company's significant assumptions of the
group's core Japanese operations and management's commitment to strengthening
AIRCO's balance sheet through a combination of commutation, retrocession, and
loss portfolio transfer with other AIG property/casualty affiliates.
AIRCO's operations in lines of business integral to the overall group's
strategy, the brand name, management's commitment to strengthen balance sheet,
and common sharing of the global infrastructure and system all help support
its status as a core operation for the group.
AIRCO's core status reflects its operation acting as an internal reinsurer to
the group's core Japanese operations. AIRCO's well-diversified product and
client mix reflect that of AIG Property Casualty's core overseas operations.
AIRCO's line of business mainly comprises: accident and health (49%), personal
auto (34%), casualty (10%), and property (2%).
AIRCO is strongly capitalized with a capital redundancy above the rating level
based on the Standard & Poor's capital model. As of Aug. 31, 2012, statutory
capital and surplus totaled $835 million, up from $668 million in 2011.
AIRCO has strong operating performance as measured by its net combined ratio
and return on revenue (ROR); in 2011, the combined ratio was 94.7% and ROR was
9.3%, compared with 91.8% and 14.4%, respectively, in 2010. Over the past five
years, the average combined ratio and ROR were 90.5% and 20.1%, respectively.
As of Aug. 31, 2012, the company generated a combined ratio of 84.2% and an
ROR of 24.7%. We believe AIRCO will continue to generate consistent
underwriting performance in the long run (combined ratio at or below 98% and
ROR above 15%) commensurate with the rating. Despite the strong underwriting
performance, we believe the company is susceptible to earnings volatility
arising from its excess-of-loss casualty business, as shown by its 2008 and
2009 underwriting results as measured before commutation (before commutation,
the loss ratio reached as high as 110% in 2008).
Established in 1981, AIRCO is an indirect subsidiary of AIG Property Casualty
Group, which is ultimately and wholly owned by AIG (A-/Negative/A-2). AIRCO
used to have significant life insurance and reinsurance operations, but it
divested all of its life subsidiaries, unwound its reinsurance operations, and
commuted a large block of its excess casualty business by early 2012. The only
remaining life business is in the run-off annuities provided for its internal
The stable outlook reflects our outlook on the AIG Property Casualty Group,
which we view as strategically important to the ultimate parent AIG. We could
lower our ratings if operating performance deteriorates and falls short of our
expectations due to a material adverse reserve development or an investment
loss that could cause capitalization to decline below the 'A' level. On the
other hand, we could raise the ratings if operating performance materially
improves and consistently outperforms similarly rated peers, while continuing
to improve its overall financial profile and enterprise risk management.
Our counterparty and financial strength ratings on AIRCO are at the same as
our ratings on AIG Property Casualty Group. If we upgrade AIG Property
Casualty Group, we may take similar action regarding AIRCO, provided our view
of AIRCO's status within AIG Property Casualty Group remains unchanged.
Related Criteria And Research
-- Full Analysis: Chartis Group, May 18, 2012
-- Group Methodology, April 22, 2009
New Rating; Outlook Assigned
American International Reinsurance Co. Ltd.
Counterparty Credit Rating
Local Currency A/Stable/--
Financial Strength Rating
Local Currency A/Stable/--
(Caryn Trokie, New York Ratings Unit)