Reuters logo
Fitch Rates AIG's New Senior Notes 'BBB+'; Outlook Remains Negative
November 10, 2017 / 3:38 PM / 8 days ago

Fitch Rates AIG's New Senior Notes 'BBB+'; Outlook Remains Negative

(The following statement was released by the rating agency) CHICAGO, November 10 (Fitch) Fitch Ratings assigns a rating of 'BBB+' to American International Group, Inc.'s (AIG) new offering of senior notes, and affirms all outstanding ratings including the 'A-' Issuer Default Rating (IDR), 'A' (Strong) Insurer Financial Strength (IFS) rating of the property/casualty (P&C) insurance subsidiaries and 'A+' (Strong) IFS rating of the life insurance subsidiaries. The Rating Outlook is Negative. The new issuance consists of $400 million 4.45% senior unsecured, zero coupon callable notes issued in Taipei that mature in 2047 and rank pari passu with the existing senior unsecured debt. KEY RATING DRIVERS The ratings affirmation follows the announcement of a net loss of $1.7 billion in third quarter 2017 relating to approximately $3 billion in total reported losses from natural catastrophes and $837 million of Commercial Insurance adverse loss reserve development. Fitch revised AIG's Rating Outlook to Negative in February 2017 following large 2016 loss reserve charges and a full year GAAP net loss of $849 million, tied largely to adverse loss experience in the Commercial Insurance segment that indicated a need for greater improvement than previously anticipated in commercial lines experience to generate an underwriting profit. Fitch's affirmation of the ratings reflects its expectation that the volatility in Commercial results will decline over the next 12 months and the segment will move towards an underwriting profit. AIG's P&C subsidiaries' ratings consider the company's unique market position in the global insurance market given its absolute size, underwriting capabilities, and consolidated capital adequacy that is comparable to higher rated peers. The ratings of AIG's U.S. life insurance subsidiaries are driven by these entities' strong statutory capital position, leading market share in key lines of business, and diversification of revenues from insurance premiums, spread business and fees. The hiring of Brian Duperreault in May 2017 as CEO led to a re-evaluation of the prior strategic plan. Several structural and operational changes in Commercial Insurance have commenced to reduce inherent volatility and promote underwriting profitability. Return of capital through share repurchases are anticipated to sharply decline, with a renewed emphasis on deploying earnings into the existing business and new growth opportunities. Continued Commercial segment underwriting actions led to a 15% decline in segment net written premiums in the first nine months of 2017. The segment combined ratio was 133.9% at nine months 2017, which includes approximately 27 points for catastrophe losses, and compares with 133.1% in the full-year 2016. Reserve increases reported in the third quarter were largely in the 2016 accident year. AIG has approximately $6.9 billion of coverage remaining for future adverse development in covered segments for accident year 2015 and prior from the retroactive reinsurance treaty purchased in early 2017. Overall, operating performance for AIG's life insurance subsidiaries is stronger and more stable than the property casualty subsidiaries. In the first nine months of 2017, the core Life and Retirement segments produced after-tax operating earnings of approximately $1.9 billion, a 20% increase from the same period in 2016, largely reflecting improved expense efficiencies and profitable growth in life insurance business. Fitch views AIG Life's diversification and strong business positions as key ratings strengths, though the company does have exposure to legacy underperforming businesses. Over recent years, AIG Life narrowed its distribution and product focus, and is now focused on reducing its expenses, while enhancing its digital experience and underwriting in order to improve the quality and stability of earnings going forward. AIG's interest coverage ratio was 3.9x in the first nine months of 2017 compared with 3.1x in the full-year 2016. Significant holding company resources remain available for debt servicing including $6.7 billion in parent company liquidity at Sept. 30, 2017. The company's financial leverage ratio, excluding the effect of FAS 115 was 25% at Sept. 30, 2017. Capitalization remains strong at both the property casualty and life subsidiaries, demonstrated by Prism capital-model scores of "Strong" in 2016. AIG's life and P&C RBC ratios were 509% and 206%, respectively, at year-end 2016. RATING SENSITIVITIES Key sensitivities that could lead to a downgrade include: --Further reserve development within the NICO cover for 2015 and prior long tail reserves that approaches exhaustion of available limits and/or further material development in the 2016 or 2017 accident years; --A failure to move towards underwriting profits in commercial insurance; --Increase in financial leverage to above 28%, or an increase in the TFC ratio to above 0.7x; --Significant reductions in debt servicing capacity from holding company assets and available dividends from subsidiaries to a level below 4.5x annual interest on financial debt; --Sharp deterioration in the Consumer Insurance segment's profitability trends; --Material declines in risk-based capital ratios or Prism scores at either the domestic life insurance or the non-life insurance subsidiaries. Key sensitivities that could lead to a return to a Stable Outlook, which Fitch expects to review over the next six to 12 months include: --Demonstration of greater loss reserve stability or reserve redundancies, particularly within the 2016 and 2017 accident years; --A shift to sustainable property/casualty segment underwriting profitability. --Continued stability in the company's Consumer Insurance segment; --Maintaining capitalization metrics, including RBC ratios and Prism scores, for the company's insurance subsidiaries near current levels. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings with a Negative Outlook: American International Group, Inc. --Long-Term IDR at 'A-'; --Senior unsecured note issues at 'BBB+'; --Junior subordinated debentures at 'BBB-'. AIG International, Inc. --Long-Term IDR at 'A-'. AIG Life Holdings, Inc. --Long-Term IDR at 'A-'; --Senior unsecured notes at 'BBB+'; --Junior subordinated debentures at 'BBB-'. AIU Insurance Company American Home Assurance Company AIG Assurance Company AIG Europe Limited AIG Property Casualty Company AIG Specialty Insurance Company Commerce & Industry Insurance Company Granite State Insurance Company Illinois National Insurance Company Insurance Company of the State of Pennsylvania Lexington Insurance Company National Union Fire Insurance Company of Pittsburgh, PA New Hampshire Insurance Company --IFS rating at 'A'. AGC Life Insurance Company American General Life Insurance Company The Variable Annuity Life Insurance Company United States Life Insurance Company in the City of New York --IFS rating at 'A+'. ASIF Global Financing --Senior secured notes at 'A+'. ASIF II --Senior secured notes at 'A+'. ASIF III Program --Senior secured notes at 'A+'. Fitch has assigned the following rating: American International Group, Inc. ---Senior unsecured notes due in 2047 at 'BBB+'. Contact: Primary Analyst James B. Auden, CFA Managing Director +1-313-368-3146 Fitch Ratings, Inc. 70 W. Madison St. Chicago, IL 60602 Secondary Analyst Jamie R. Tucker, CPA Associate Director +1-212-612-7856 Committee Chairperson Keith M. Buckley, CFA Managing Director +1-312-368-3211 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below