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A.M. Best Upgrades Issuer Credit Ratings of American International Group, Inc.’s Domestic Life/Health Subsidiaries

  A.M. Best Upgrades Issuer Credit Ratings of American International Group,
  Inc.’s Domestic Life/Health Subsidiaries

Business Wire

OLDWICK, N.J. -- February 20, 2014

A.M. Best has upgraded the issuer credit ratings (ICR) to “a+” from “a” and
affirmed the financial strength rating (FSR) of A (Excellent) of American
International Group, Inc.’s (AIG) (New York, NY) (NYSE:AIG) four domestic
life/health companies. The outlook for the ICRs has been revised to stable
from positive, while the outlook for the FSR is stable. AIG’s U.S. life,
annuity and health operations are collectively referred to as AIG Life and
Retirement (AIGL&R). (See below for a detailed listing of the companies.)

The ratings reflect AIGL&R’s strong risk-adjusted capitalization, significant
increase in sales and total revenue, improved operating performance and strong
business profile with a significant market presence. AIGL&R continues to
benefit from its reinstated relationships with all key distribution networks
and has further expanded its marketing by establishing new relationships. The
group has maintained its long-standing top ranking in bank fixed annuity sales
and its number two ranking for 403(b) retirement plan assets under management,
with 2013 being a record year for sales of 403(b) plan assets. In addition,
AIGL&R continues to make progress toward achieving strong positions in a
number of core business lines. Moreover, after experiencing elevated surrender
rates over the last few years, policy surrenders have stabilized and are
currently near historical norms. A.M. Best also notes that the group’s overall
net flows have improved significantly from $1.3 billion at year-end 2012 to
$4.6 billion as of year-end 2013, reflecting favorable experience from fixed
annuities, variable annuities and retail mutual funds.

The ratings of AIGL&R recognize its strong risk-adjusted capitalization,
diverse business and earnings profile and robust multi-channel distribution
platform. The life/health group’s solid and increasing statutory earnings over
the past five years have facilitated growth in capital, comparing favorably to
its peers. AIGL&R maintains a diverse business profile with established
franchises in individual fixed and variable annuities, life insurance, group
retirement plans and mutual funds. The group’s market positions are supported
by a large and diversified distribution system that is made up of financial
institutions; national, regional and independent broker dealers; career
financial advisors; independent marketing organizations; insurance agents; and
a direct-to-consumer platform. Additionally, AIGL&R’s liability profile is
fairly well-balanced between spread, fee and mortality-based products,
providing diversified sources of earnings.

Partially offsetting these strengths is the group’s exposure to higher risk
investments including structured securities, collateralized debt obligations
(CDO), direct commercial mortgage loans and various alternative strategies. As
AIGL&R continues to restructure its asset portfolio to achieve greater
investment yield, A.M. Best remains cautious on its investment risk appetite.
For 2013, AIGL&R continued to meet the substantial dividend expectations of
its ultimate parent and managed the effect of the low interest rate
environment on its spread-based businesses. A.M. Best believes future
investment losses should be manageable in the context of AIGL&R’s current
capitalization level and earnings capacity. Based on results through September
30, 2013, asset impairments have continued to remain low, which is notable
given the uncertain economic environment and the group’s sizable structured
asset and alternative investment portfolios. A.M. Best further notes that
AIGL&R’s investments in non-agency mortgage-backed securities, asset-backed
securities, CDOs and commercial mortgage-backed securities totaled
approximately $48.9 billion at September 30, 2013 (statutory, amortized cost
basis). This exposure represents roughly 260% of statutory total-adjusted
capital. In addition, AIGL&R’s $14.9 billion exposure to alternative assets
(hedge funds, private equity and real estate) represents additional risk
within its investment portfolio.

As part of its current capital management strategy, AIGL&R continues to pay
high dividends to AIG, (albeit at less than current earnings), thus allowing
for a steady increase in its risk-adjusted and absolute capitalization levels.
However, A.M. Best notes that AIG’s executive management has indicated its
commitment to maintain healthy capitalization ratios to support the ratings of
AIGL&R and potentially remove any capital maintenance agreements the group has
with the parent in the future. Furthermore, AIG’s various implicit and
explicit support initiatives are in line with this commitment.

A.M. Best believes AIGL&R may experience positive rating movement if the
positive trends in earnings and investment performance continues, exposure to
structured assets and alternative investments remains constant and strong
risk-adjusted capitalization is maintained. However, downward rating pressure
may occur should the group experience unfavorable trends in earnings or net
flows, a decline in risk-adjusted capitalization in excess of A.M. Best's
expectations or significant deterioration in investment performance.

The ICRs have been upgraded to “a+” from “a” and the FSR of A (Excellent) has
been affirmed for the following four domestic life/health subsidiaries of
American International Group, Inc.:

  *AGC Life Insurance Company
  *American General Life Insurance Company
  *The United States Life Insurance Company in the City of New York
  *The Variable Annuity Life Insurance Company

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. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

       Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Company
Joan Sullivan, 908-439-2200, ext. 5144
Senior Financial Analyst
joan.sullivan@ambest.com
or
William Pargeans, 908-439-2200, ext. 5359
Assistant Vice President
william.pargeans@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
 
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