A.M. Best Co. has commented that the issuer credit rating of
“bbb” of American International Group, Inc. (AIG) [NYSE: AIG] is
unchanged following the announcement of the U.S. Treasury’s plan to sell
its remaining holdings of AIG’s common equity and AIG’s agreement with
an investor group to sell up to a 90% stake in its International Lease
Finance Corporation (ILFC) subsidiary. In addition, the financial
strength ratings (FSRs) and the issuer credit ratings (ICRs) of AIG’s
property/casualty subsidiaries also are unchanged by those
announcements, as well as the release of the anticipated loss from
Superstorm Sandy. The outlook for all ratings also remains unchanged.
The sale of the majority interest in ILFC and the UST’s decision to sell
its remaining common interest in AIG mark the completion of AIG’s plan
to remove itself from U.S. Government ownership and refocus its
operations on its core insurance business. A.M. Best’s assessment of
AIG’s financial position has, in recent years, considered the potential
calls on the holding company related to the debt of ILFC. Although this
debt was secured by physical assets owned by ILFC and was without
recourse to AIG, the reputational risk to AIG should timely payments not
be made on that debt was considerable. With the sale of a majority
position in ILFC, A.M. Best’s future assessment of AIG will no longer
include a stressed scenario under which AIG would make payments on the
Since the announcement of AIG’s recapitalization plan in 2011, A.M.
Best’s ratings of AIG have not considered any benefit related to U.S.
Government financial assistance. The eventual sale of the UST’s common
equity position in AIG was anticipated in A.M. Best’s ratings. At this
time, A.M. Best’s ratings of AIG reflect the assessment of its operating
insurance companies, with consideration of the potential calls on
liquidity related to the Direct Investment Book (DIB). Consequently, the
reduction of the UST’s ownership interest does not have an impact on
A.M. Best’s ratings of AIG or any of its subsidiaries.
At $2 billion pre-tax and $1.3 billion after-tax, the potential net loss
that AIG’s property/casualty subsidiaries will bear as a result of
Superstorm Sandy is material and will have an impact on the companies’
full-year 2012 earnings. The size of the loss is, however, well within
the probable maximum loss (PML) incorporated in the assessment of the
companies’ risk-adjusted capitalization using Best’s Capital Adequacy
Ratio (BCAR). As such, the loss will not have any immediate effect on
the ratings of those companies. AIG’s decision to infuse capital into
the operating companies to partially offset the losses from Sandy
substantially mitigates the impact of those losses on the companies’
consolidated risk-adjusted capital position.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Key criteria utilized include:
“Catastrophe Analysis in A.M. Best Ratings”; “Understanding BCAR for
Property/Casualty Insurers”; “Insurance Holding Company and Dent
Ratings”; and “Risk Management and the Rating Process for Insurance
Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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