Shares of American International Group, Inc. (AIG) rose slightly in the two trading sessions following the rating affirmations from credit rating giant, Moody’s Corporation (MCO).
On Sep 9 and Sep 10, Moody’s affirmed the insurance financial strength (IFS) rating of AIG Insurance Company of Canada and AIG Europe Limited (AIGEL) at “A1” with a stable outlook. The rating agency also affirmed the IFS ratings of the U.S.-based members of AIG Property Casualty (AIG PC) at “A1”, AIG Life and Retirement (AIG L&R) at “A2” and that of Mortgage Guaranty at “Baa1”. Additionally, the ratings of the senior unsecured debt, subordinated debt and short-term issuer rating were affirmed at “Baa1”, “Baa2” and Prime-2 respectively. All these ratings carry a stable outlook.
The IFS rating on AIGEL was affirmed on the back of its strong commercial market position in Europe. Notably, AIG is thriving in some businesses in the London market. It also maintains a conservative investment strategy. AIGEL boasts a favorable geographic mix and is free from the exposure to peripheral European countries. The rating agency stated that an upward revision in ratings is possible if AIGEL succeeds in maintaining a favorable market position without significant rate reductions, improving its profitability with return on capital (ROC) exceeding 12% or combined ratios below 100%. An upgrade in ratings is also likely if the company maintains its conservative investment strategy or if AIG PC’s main US units receive an upgrade in ratings. On the other hand, the ratings could be lowered if AIGEL witnesses a loss of market share, deterioration in combined ratio, or if the cross-cycle ROC is below 8% or if there is a downgrade in ratings at AIG PC’s main US units.
The IFS rating on AIG Canada came on the back of its robust market position in commercial lines, improved profitability, capitalization strength and conservative investment portfolio, along with the company’s focus on AIG PC and close ties to AIG PC affiliates. The ratings agency noted that a ratings upgrade is likely if AIG Canada witnesses a transition in business mix to more granular and less volatile product lines or if the gross catastrophe risk decreases. Moreover, consistent profitability with ROC exceeding 10% and an upward revision in ratings of other major AIG companies may lead to a ratings upgrade for AIG Canada. Conversely, factors that could lead to a ratings downgrade include significant growth in more volatile product lines, a sustained decline in adjusted ROC to less than 8%, reduction in regulatory capital or a downgrade in ratings of other major AIG companies.
The debt ratings on AIG were based on the insurance units’ market leading position, strong product portfolio, geographic expansion, focus on core operations through divestiture of non-core ones and strong liquidity. Moody’s stated that a ratings upgrade is likely if there is an improvement in the stand-alone credit profiles of AIG PC, AIG L&R or Mortgage Guaranty, further run-off of the Direct Investment book (DIB) and Global Capital Markets (GCM), and strengthening of financial flexibility. Conversely, deterioration in the stand-alone credit profiles of AIG PCAIG L&R and/or Mortgage Guaranty, poor liquidity and a decline in financial flexibility could lead to a downward revision in the ratings.
Rating affirmations play an important part in retaining investors’ confidence on the stock as well as maintaining its creditworthiness in the market. We believe that the company’s present score with the credit rating agency will help it write more business going forward.
At present, AIG carries a Zacks Rank #3 (Hold). Better-ranked stocks that warrant a look in the multiline insurance space include Fortegra Financial Corporation (FRF) and Radian Group Inc. (RDN). Both the stocks have a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment