S&P revises AIG’s rating outlook to negative on back of P/C performance

S&P has revised its outlook on AIG to negative from stable, citing below par performance in its commercial property and casualty business. The rating agency has, however, also affirmed AIG’s A+ insurer financial strength rating because it believes the group’s underlying risk and financial profiles remain strong. In addition, S&P has affirmed its BBB+ long- and short-term counterparty credit ratings on AIG and its A+ rating on the insurer’s core subsidiaries. Delivering the news on AIG’s outlook revision, S&P said: “AIG's recent track record of delivering on strategic goals, specifically within its P&C commercial insurance segment, has been subpar and subject to revisions, while its quality of consolidated earnings have somewhat weakened over the last few years.” The new negative outlook reflects S&P’s view that continued slower than expected progress in improving operating fundamentals could weigh on AIG ratings during the next 12 to 24 months. "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,” said S&P Global Ratings credit analyst Tracy Dolin. S&P added that while AIG's operating performance has continued to benefit from diversification, it questions the ability of group management to effectively execute its plan to achieve an adjusted accident year loss ratio of 62% for its “troubled” commercial insurance segment by the end of 2017. S&P said it expects AIG to post a combined ratio of about 104%, based on normal catastrophe losses and some adverse reserve development, for all P&C insurance business in 2017.The rating agency said this number will likely be weaker than many of AIG’s global multiline peers. AIG appointed Brian Duperreault as president, CEO and director to replace Peter Hancock last month, to steady the ship. AIG reported a large fourth quarter and full year 2016 loss, after taking a $5.6bn pre-tax charge for adverse prior year reserve development in its commercial P&C business in Q4. In a bid to stabilise its commercial business, AIG announced a retroactive reinsurance agreement with Berkshire Hathaway subsidiary National Indemnity Company. S&P recognised that Mr Duperreault is an “accomplished P&C insurance industry veteran” and added that “his track record speaks for itself”. “However, his succession comes at a precarious time. Mr Duperreault became the company's sixth CEO in nine years and there have also been a number of other senior management changes within the past couple of years. While Mr Duperreault's recent appointment addresses CEO succession uncertainty, in our view it may take a while to turn the commercial operations around and meaningfully improve operating performance and AIG's earnings quality,” said S&P. The ratings agency said it may lower AIG’s rating by one notch during the next 12 to 24 months if the firm does not “meaningfully improve its operating results relative to other global multiline insurer peers, while maintaining its key competitive strengths”.

S&P revises AIG’s rating outlook to negative on back of P/C performance

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