Fitch Affirms AIG's Ratings; Revises Outlook to Stable from Positive

martes 26 de enero de 2016 13:30 GYT
 

(The following statement was released by the rating agency) CHICAGO, January 26 (Fitch) Fitch Ratings has affirmed American International Group, Inc.'s ratings and revised the Rating Outlook to Stable from Positive. AIG's ratings include the long-term Issuer Default Rating (IDR) at 'A-' and senior debt obligations at 'BBB+'. Additionally, Fitch has affirmed the Insurer Financial Strength (IFS) ratings of AIG's rated property/casualty insurance subsidiaries at 'A' and U.S. life insurance subsidiaries at 'A+'. A complete list of ratings is provided at the end of this release. KEY RATING DRIVERS The revision of the Outlook to Stable reflects AIG's recent announcement of a $3.6 billion pre-tax charge for adverse development of property/casualty operations loss reserves in the fourth quarter of 2015, as well plans to return capital to shareholders at levels that far exceed prior rating expectations. Previous upgrade rating triggers disclosed by Fitch relating to profitability and interest coverage will not be met following the reserve charge, and financial leverage will also deteriorate to levels above previous upgrade ratings triggers. Reserve development represents 6% of existing reserves and will add more than 10 points to the full year property/casualty calendar year combined ratio, which was 100.6% at 9M2015. Continued adverse reserve development adds uncertainty regarding the impact of reserve experience on future performance, and is part of a long-term trend of under-reserving. Fitch believes there are no assurances that reserving issues have been fully addressed by the noted charge. On Oct. 28, 2015, investor Carl Icahn sent a letter to AIG CEO Peter Hancock suggesting that shareholders would benefit from a breakup of AIG into smaller, more focused entities. The letter suggested that a separation would promote operating and cost efficiencies allowing the new entities to generate a return on equity that is more in line with peers. The letter also suggested that the designation of AIG as a Non-Bank Systematically Important Financial Institution (SIFI) would likely be removed after a break-up of the organization into smaller segments, reducing regulatory compliance costs and the potential for more restrictive future capital requirements. AIG previously stated that a breakup of AIG is not part of the company's current strategic plan. The company presented an update of strategic plans today reiterating that management believes having a combined life and property/casualty business provides diversification benefits towards capital adequacy and liquidity, as well as benefits from a tax perspective in utilization of existing deferred tax assets. The AIG presentation advanced additional company plans to further tighten operational focus, improve profitability and return on capital, and as noted, the return of significant capital to shareholders. Changes in operational focus include a planned public offering of a partial interest in AIG's mortgage insurance subsidiary, and the sale of its independent broker-dealer network. Profit improvement plans emphasize existing plans for expense reductions and target to improve the property/casualty loss ratio by six points over the next two years in part through further shifts in business mix to curtail unprofitable segments, including U.S. casualty. The capital plan includes a commitment to return at least $25 billion of capital to shareholders over the next two years, funded by distributions from insurance subsidiaries, asset divestitures, capital freed up from asset sales and reinsurance transactions and debt financing. This is one of the largest returns of capital relative to existing shareholders equity that Fitch has observed in many years in the insurance industry, and from a credit perspective is viewed by Fitch as aggressive. AIG's financial leverage as measured by the ratio of financial debt and preferred securities to total capital (excluding operating debt and the impact of FAS 115) was approximately 18% at Sept. 30, 2015. Fitch believes run-rate financial leverage will move above 20% but will likely not exceed 25% as the capital plan is executed. Holding company liquidity currently includes $11.2 billion of unencumbered cash and investments at Sept. 30, 2015, and $4.5 billion of available capacity from credit and contingent liquidity facilities. The company has targeted maintaining $6-8 billion of liquidity assets at the parent going forward, which still represents a significant multiple of annual debt servicing obligations. The capital impact of the loss reserve charge on P/C statutory risk based capital levels are anticipated to be offset by a capital contribution from the parent. Fitch expects the life subsidiaries' year-end 2015 risk-based capital (RBC) ratio will remain above the company's long-term target range of between 425% and 470%. AIG's ratings reflect the company's status as an independent publicly held corporation with an operating focus on global property/casualty insurance, domestic life insurance and retirement products, as well as the company's previous success in restructuring and deleveraging efforts. Property/casualty subsidiary ratings consider the company's unique market position in the global insurance market given its absolute size, underwriting capabilities, and consolidated capital adequacy that is comparable to higher rated peers. The ratings of AIG's U.S. life insurance subsidiaries are driven by these entities' strong statutory capital position; leading market share in key lines of business; diversification of revenues from insurance premiums, spread business and fees; and solid operating profits and earnings stability. RATING SENSITIVITIES Key triggers that could lead to an upgrade include: --Successful completion of pending strategic actions and greater certainty that the corporate and operating structure is in place for the longer term, and further meaningful restructuring actions are unlikely; --A shift to sustainable property/casualty segment underwriting profitability, with demonstration of greater loss reserve stability or reserve redundancies; --Improvement in GAAP earnings to a level consistent with interest coverage at 10x or above; --While achieving the above, maintenance of financial leverage and risk-based capital at the company's insurance subsidiaries remaining within newly revised targeted levels. Key triggers that could lead to a downgrade include: --Increase in financial leverage to above 25%, or an increase in the TFC ratio to above 0.7x from 0.5 currently; --Significant reductions in debt servicing capacity from holding company assets and available dividends from subsidiaries to a level below 4.5x annual interest on financial debt; --Large underwriting losses and/or further material reserve volatility of the company's non-life insurance subsidiaries; --Sharp deterioration in the company's domestic life subsidiaries' profitability trends; --Material declines in risk-based capital ratios at either the domestic life insurance or the non-life insurance subsidiaries. FULL LIST OF RATING ACTIONS Fitch has affirmed the following AIG entities with a Stable Rating Outlook: American International Group, Inc. --Long-term IDR at 'A-'; --Various senior unsecured note issues at 'BBB+'; --EUR42.24 million of 6.797% senior unsecured notes due Nov. 15, 2017 at 'BBB+'; --GBP100.2 million of 6.765% senior unsecured notes due Nov. 15, 2017 at 'BBB+'; --USD1 billion of 2.3% senior unsecured notes due July 16, 2019 at 'BBB+'; --USD638.4 million of 3.375% senior unsecured notes due Aug. 15, 2020 at 'BBB+'; --USD708 million of 6.4% senior unsecured notes due Dec. 15, 2020 at 'BBB+'; --USD1.5 billion of 4.875% senior unsecured notes due June 2022 at 'BBB+'; --USD1 billion of 4.125% senior unsecured notes due Feb. 15, 2024 at 'BBB+'; --USD1.25 billion of 3.75% senior unsecured notes due July 10, 2025 at 'BBB+'; --USD1.2 billion of 3.875% senior unsecured notes due Jan. 15, 2035 at 'BBB+'; --USD500 million of 4.7% senior unsecured notes due July 10, 2035 at 'BBB+'; --USD1 billion of 6.25% senior unsecured notes due May 1, 2036 at 'BBB+'; --USD243.43 million of 6.820% senior unsecured notes due Nov. 15, 2037 at 'BBB+'; --USD 2.25 billion of 4.5% senior unsecured notes due July 16, 2044 at 'BBB+'; --USD350 million of 4.35% senior unsecured notes due March 20, 2045 at 'BBB+'; --USD750 million of 4.8% senior unsecured notes due July 10, 2045 at 'BBB+'; --USD290 million of 4.9% senior unsecured notes due July 17, 2045 at 'BBB+'; --USD800 million of 4.375% senior unsecured notes due Jan. 15, 2055 at 'BBB+'; --USD20.3 million of 5.60% senior unsecured notes due July 31, 2097 at 'BBB+'; --EUR12.85 million of 8.00% series A-7 junior subordinated debentures due May 22, 2038 at 'BBB-'; --USD607.17 million of 8.175% series A-6 junior subordinated debentures due May 15, 2058 at 'BBB-'; --GBP88.2 million of 5.75% series A-2 junior subordinated debentures due March 15, 2067 at 'BBB-'; --EUR162.6 million of 4.875% series A-3 junior subordinated debentures due March 15, 2067 at 'BBB-'; --GBP5.6 million of 8.625% series A-8 junior subordinated debentures due May 22, 2068 at 'BBB-'; --USD403.18 million of 6.25% series A-1 junior subordinated debentures due March 15, 2087 at 'BBB-'. AIG International, Inc. --Long-term IDR at 'A-'. AIG Life Holdings, Inc. --Long-term IDR at 'A-'; --USD135.5 million of 7.50% senior unsecured notes due July 15, 2025 at 'BBB+'; --USD150 million of 6.625% senior unsecured notes due Feb. 15, 2029 at 'BBB+'; --USD116.4 million of 8.50% junior subordinated debentures due July 1, 2030 at 'BBB-'; --USD78.9 million of 7.57% junior subordinated debentures due Dec. 1, 2045 at 'BBB-'; --USD227.3 million of 8.125% junior subordinated debentures due March 15, 2046 at 'BBB-'. AGC Life Insurance Company American General Life Insurance Company The Variable Annuity Life Insurance Company United States Life Insurance Company in the City of New York --IFS rating at 'A+'. AIU Insurance Company American Home Assurance Company AIG Assurance Company AIG Europe Limited American International Overseas Limited AIG Property Casualty Company AIG Specialty Insurance Company Commerce & Industry Insurance Company Granite State Insurance Company Illinois National Insurance Company Insurance Company of the State of Pennsylvania Lexington Insurance Company National Union Fire Insurance Company of Pittsburgh, PA New Hampshire Insurance Company --IFS rating at 'A'. ASIF Global Financing --USD750 million of 6.9% senior secured notes due March 15, 2032 at 'A+'. ASIF II --GBP200 million of 6.375% senior secured notes due Oct. 5, 2020 at 'A+'; --USD82 million of 0% senior secured notes due Jan. 2, 2032 at 'A+'. ASIF III Program --GBP350 million of 5.375% senior secured notes due Oct. 14, 2016 at 'A+'; --GBP250 million of 5% senior secured notes due Dec. 18, 2018 at 'A+'; --EUR200 million of 1.66% senior secured notes due Dec. 20, 2024 at 'A+'. Contact: Primary Analyst James B. Auden, CFA Managing Director +1-312-368-3146 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Tana M. Higman Director +1-312-368-3122 Committee Chairperson Keith M. Buckley Managing Director +1-312-368-3211 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 16 Sep 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=998401 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.