The hiring of Brian Duperreault to lead AIG into a new promised land impressed Standard & Poor’s but at the same time didn’t impress the rating’s firm. Last week S&P revised AIG’s ratings downward to negative from stable.
The struggling property and casualty commercial insurance division is the reason.
S&P’s Global Ratings credit analyst Tracy Dolin made the call and said, “The outlook revision reflects AIG’s protracted period of delivering P&C Commercial Insurance underwriting initiatives, which we believe may be a predictor of its executional effectiveness on a prospective basis.”
The ratings firm did — however — have nice things to say about AIG but noted Duperrault is the sixth CEO in nine years. And S&P continues to wonder if AIG will make its adjusted accident year loss ratio performance target of 62. The original prediction was 60.
However, S&P is impressed with how AIG continues to do well in product diversification.
Other reasons for the downgrade:
• For two years AIG’s commercial division has produced weaker than expected profitability
• In the last two years strengthening measures had to be taken for U.S. liability lines
• The accident loss ratio in 2016 hit 66.7 for AIG’s commercial insurance and that’s a deterioration from 68.7 in 2012
• S&P’s prediction is AIG will hit a combined ratio of 104 in 2017 which is weaker than many of its multiline peers
The good news for AIG is its consumer insurance division is offsetting some of the troubles of the commercial division. And more good news is in how S&P affirmed the ratings for AIG:
• A+ for insurance financial strength rating
• BBB+ for long and short-term counterparty credit ratings
• A+ for AIG’s core subsidiaries
The AIG reinsurance deal with Berkshire Hathaway is a significant step in the right direction to reduce the volatility of its reserves. And in the end, S&P said AIG has a “very strong business risk profile and strong financial risk profile.”
Source link: Carrier Management