Fitch Ratings lifted the insurer financial strength (IFS)
American International Group Inc.
) US life insurance arm - AGC Life Insurance Co. Additionally,
the ratings agency asserted other credit and debt ratings of the
Accordingly, Fitch upgraded the AGC's IFS to "A+" from "A,"
while it affirmed the IFS of AIG's property-casualty (P&C)
wing at "A." AIG's issuer default rating (IDR) of was avowed at
"BBB+", whereas the company's senior debt rating continues to be
pegged at "BBB". The outlook for all the ratings remains
AIG has come a long way post its financial crisis, according
to Fitch. The full repayment of the government bailout loan has
injected financial flexibility into the company and helped
management completely focus on generating higher operating
leverage from its businesses.
Subsequently, AIG's life insurance operations have been
improving on account of stability in surrender activity along
with recoupment of higher investment returns, aided by improved
base yields due to the recovery in the financial market over the
past couple of years. While the low interest rate environment
continues to pose tough challenges on this business, Fitch
anticipates this segment to generate higher profitability with
stable operating earnings of about $4.0 billion, on an annual
basis, backed by a solid statutory capital.
Moreover, the ratings agency remains confident of AIG's
P&C business based on its strong brand name, underwriting
capability and global expansion of a multilateral product
portfolio. Although this segment has underperformed when compared
with its peer group, over the past 5 years, most of the issues
were related to the company have subsided now.
Concurrently, AIG has repositioned its P&C portfolio to
strengthen its underwriting capacities, thereby filling loopholes
to produce lower loss ratio over the past several quarters. The
interest coverage ratio also improved from 4.2x at end of Jun
2012 to 4.9x at the end of Sep 2012. While the macro factors such
as higher catastrophe losses continue to mar the bottom line in
2012, this segment is expected to grow as markets rebound in the
On the liquidity front, AIG has seen vast improvement in its
financial leverage to 22% now from 31% at 2010-end. Although, the
company total financial commitment (TFC) ratio improved to 1.3x
now from 2.5x at 2010-end, it is still higher than the peer
group. These are further expected to recover once the company
culminates the sale of its aircraft leasing unit - International
Lease Finance Corp. (ILFC), to a Chinese consortium by
While anyrobust growth appears overly ambitious at present, we
believe a positive turnaround in the global economy and an
improved macro scenario is likely to pave the way for significant
growth of AIG. Currently, the company carries a Zacks Rank #4
Meanwhile, other outperformers of the insurance industry
XL Group Plc
First American Financial Corp.
), all of which carry a Zacks Rank #1 (Strong Buy).
AEGON N V (AEG): Free Stock Analysis Report
AMER INTL GRP (AIG): Free Stock Analysis
FIRST AMER FINL (FAF): Free Stock Analysis
XL GROUP PLC (XL): Free Stock Analysis Report
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