Rating Agencies Give AIG Mixed Reviews

Despite reporting a $60 billion-plus loss for the fourth quarter, American International Group got generally mixed reviews from rating agencies, most supporting the company's insurance financial strength rating based on government support for the carrier.

Three rating agencies said they are supporting the insurance financial strength rating of the company, primarily the entities the insurer indicated it plans to keep in its portfolio. Ratings in other parts of its business, however, did not fair as well.

Standard & Poor's affirmed the financial strength rating and counterparty credit rating on AIG's insurance subsidiaries at “A-plus.” The rating agency removed all the ratings from credit watch, but the outlook on all the companies is negative.

“The affirmation primarily reflects our view that the U.S. Treasury and the Federal Reserve will continue their financial support of and ongoing commitment to AIG…,” said S&P's credit analyst Kevin Ahern in a statement.

Moody's confirmed the insurance financial strength of “AIG's core property-casualty operations,” which are primarily rated in the “A” category, but downgraded its life units.

“The rating confirmation for AIG and its core P&C operations reflects the benefits to policyholders and senior creditors from the restructuring steps announced today as well as our expectation that the government will provide incremental support as needed to ensure that AIG can meet its obligations through this period of severe economic recession and market turmoil,” said Bruce Ballentine, Moody's lead analyst for AIG.

Fitch Ratings affirmed the insurer financial strength rating of “double-A-minus” with a stable outlook on insurer subsidiaries the company plans to retain and placed the same financial strength rating on companies the company plans to divest on rating watch evolving.

The company has said it is looking for buyers for most of its units, except its core insurance business primarily in property-casualty.

A.M. Best said its ratings of AIG remained unchanged with negative outlook.

Rating agencies expressed concerns over AIG's competitive position going forward through the loss of customers, producers, and key personnel.

In an analyst's note, Cliff Gallant with Keefe, Bruyette & Woods said the earnings decline for AIG showed significant pressure on premiums.

“In our view, whether the decline is due to clients leaving or because AIG must significantly cut prices to keep clients, the implication is clear that AIG's franchise has suffered,” Mr. Gallant wrote. “We expect well-positioned competitors to gain momentum in gaining market share.”

In addition to announcing its fourth quarter results, AIG and the U.S. Treasury Department also announced a new loan arrangement making payment terms easier and providing $30 billion in fresh capital to the insurer.

Greg Case, president and chief executive officer of Chicago-based Aon Corp. said, “Aon supports any action taken in the marketplace where clients will benefit from reduced uncertainty and volatility in the commercial insurance industry, as there is an ongoing need for capital in order to provide a baseline of stability as well as a continued flow of innovative products to help clients through this crisis.”