Login Register Subscribe
Current Issue

AIG ratings under review on loss reserves disclosure

Reprints

A.M. Best Co. Inc. has placed its financial strength and other ratings of American International Group Inc. and its insurance subsidiaries under review with negative implications following news that the insurer’s upcoming quarterly results will contain a material adverse reserve adjustment.

AIG currently has an “A” financial strength rating from Best.

“This adverse development of loss reserves follows a $3.6 billion net adverse reserve adjustment for the fourth quarter of 2015 in the same longer-tailed lines of business,” Oldwick, New Jersey-based Best said Thursday in a statement.

While Best said it had anticipated the potential of further reserve development, “the timing of this latest charge highlights the challenges that AIG management continues to face in reserving, pricing, and handling this longer tail commercial lines business, and the effectiveness of the group’s enterprise risk management function.”

Best said a capital supporting reinsurance transaction for AIG’s U.S. commercial business is also a factor in the review. The reinsurance transaction, which AIG agreed with a Berkshire Hathaway Inc. unit, is expected to absorb a portion of the expected reserve development, as any reserve development on the covered lines in excess of the current carried reserves of about $35.7 billion is covered on a quota share basis, up to the limit of the reinsurer’s liability, which is 80% of $14.3 billion, Best said in the statement.

Best said it should be noted that certain lines of business are excluded from the contract.

“The under review with negative implications status on the ratings of AIG and its operating subsidiaries considers the potential impact on future earnings, the available dividend capacity, and the feasibility of succeeding at the necessary strategies outlined by management and the board to improve profitability and efficiency and maximize shareholder value within stated timeframes,” Best said.

Best said the ratings will remain under review while it analyzes the planned actions following the release of the loss reserve review, receives and reviews year-end financial information and engages in discussions with management to assess the potential impact of these items on the current ratings.

AIG did not respond to a request for comment. The insurer is scheduled to report fourth-quarter earnings on Feb. 14.