Recently, AM Best Co confirmed its debt and credit ratings for insurance giant American International Group Inc, better known as AIG. The ratings spread to its many subsidiaries as well, including US property-casualty and life-health insurance companies. These included AIU Insurance Co, American General Property Insurance Co, Chartis US Insurance Group, and SunAmerica Financial Group.
A credit rating of “bbb” was issued to the parent company, and the debt ratings show a negative outlook. Meanwhile, Chartis and its associates (AIU Insurance Co and SunAmerica Financial Group) earned a financial strength rating of “A” and a credit rating of “a.” The ratings also predict a negative outlook. AM Best issued a financial strength rating of “B+” to American Property Insurance Co, as well as a “bbb-” credit rating.
The reason that AM Best Co has given AIG a negative outlook is the fact that its core operations have had weak prices and its underwriting growth has been declining. In addition to this, the high risk in connection with AIG’s implementation plan offsets the risk-adjusted capitalization for the company.
Despite this, AM Best Co predicts that SunAmerica Financial Group should experience improvements in its top line growth in the medium or long term. This is due to the fact that its operations should experience a decrease in volatility, as well as having a strong capital position, and improvements associated with product development initiatives as well as plans for improving the distribution abilities of the business.
The insurance company’s negative ratings are associated with the debt that it still owes to the Federal Reserve Bank. A large portion of the 182.5 billion dollar bailout loan that was given out in September of 2008 has yet to be paid off. According to a proposed plan, the Federal Reserve will divert the loan obligations to the US Treasury. When this occurs, the Treasury will convert a total of 49.1 billion dollars of preferred shares into 1.7 billion shares of common stock that will be sold at a decreased price.