Rating agencies react to AIG life insurance spin-off proposal

Standard & Poor’s Global Ratings Inc. on Wednesday placed American International Group Inc.’s property/casualty operations on “creditwatch” with negative implications following AIG’s announcement that it would split its life and general insurance units into separate businesses.

Rival rating agencies Moody’s Investors Service Inc. and Fitch Ratings Inc. put the insurer’s credit rating on negative, but A.M. Best Co. Inc. said its AIG ratings remained unchanged.

New York-based S&P said its decision, which can signal a possible future downgrade of its A+ financial strength and BBB+ debt rating of AIG, was due to the potential loss of the life and retirement business and the earnings diversification it provides, uncertainty over future expenses and performance of the property/casualty operations, and uncertainly over AIG’s capital structure.

The life and retirement business, which AIG said it would separate from its main property/casualty business in an as yet undetermined deal, account for about a third of its revenue. S&P placed the life and retirement unit on “creditwatch” with developing implications.

“General Insurance’s operating results, though improving, have been below average relative to peers. As many global insurers continue to confront COVID-related losses and economic uncertainties, AIG will not be an exception in facing similar headwinds. We anticipate the company to generate underwriting losses and premium declines in 2020 despite hardening of rates,” S&P said in a statement.

The rating agency said it will review AIG’s credit profile absent the life and retirement business and seek more information from management before making any decisions on its ratings.

Meanwhile, Moody’s on Wednesday affirmed the A2 financial strength rating of AIG’s general insurance and life and retirement units but said it has placed the parent company’s credit rating under review for a possible downgrade. AIG has benefited from the diversified earnings of its two core units, New York-based Moody’s said in a statement.

Chicago-based Fitch placed its A- debt rating of AIG on "watch negative" on Wednesday. The rating agency affirmed the A+ financial strength rating of the life and retirement unit and the A rating of the property/casualty operations.

"The negative watch on the AIG holding company reflects the anticipated consequences of the separation plans. As control of the earnings of life business diminishes, a shift to notching of the AIG holding company ratings based on the property/casualty insurance ratings is likely, resulting in a one-notch downgrade of the current ratings, if Fitch's standard practices are applied," Fitch said.

Oldwick, New Jersey-based Best said in a statement late Tuesday that its A financial strength ratings of AIG and its units remain unchanged following Monday’s announcement and it is awaiting more details on the proposed separation.

While AIG has benefited from the diversification of its business, various actions over the past several years, including changes in underwriting strategy and the purchase of additional reinsurance, “have improved AIG PC’s operational profile,” Best said.

Equity analysts also noted the improvements that have been put in place at AIG’s property/casualty operations since outgoing CEO Brian Duperreault rejoined the firm in 2017. Mr. Duperreault will be succeeded by Peter Zaffino, AIG’s president, in March 2021.

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