Standard & Poor's Ratings Services (S&P) has upgraded
the financial strength of American International Group
Inc. 's ( AIG ) property &
casualty (P&C) segment, formerly known as Chartis Group. The
elevation acknowledges the segment's improved operating
Accordingly, S&P has lifted the long-term counterparty
credit rating and financial-strength rating (FSR) of AIG P&C
from "A" to "A+", which is the 5 th highest position on
the rating table. This marks the first upgrade since 2008.
Additionally, the ratings agency affirmed its "A+" rating on AIG
life and retirement services' segment. AIG's senior debt remains
pegged at "A-". All the ratings carry a stable outlook.
AIG has come a long way post its financial crisis, according to
S&P. The full repayment of the government bailout loan has
injected financial flexibility into the company and helped
management concentrate completely on generating higher operating
leverage. Meanwhile, asset disposals in the last few years have
left AIG with a focused core-business portfolio, thereby
strengthening its competitive leverage.
Core operations' growth on track
AIG's life insurance and retirement service 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. Although the low rate environment limits the
desired upside, this segment has the potential to generate higher
earnings.The segment's pre-tax earnings escalated about 82% year
over year to $1.57 billion in the first quarter of 2013, while it
rose 28% to $3.78 billion in 2012 from $2.96 billion in 2011.
Further, 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. The
company repositioned its P&C portfolio to strengthen its
underwriting capacities, whereas the ongoing restructuring and
re-pricing initiatives will likely drive earnings growth in the
near future. The pre-tax income further surged about 76% year over
year to $1.6 billion in the first quarter of 2013, generating $231
million in underwriting income against a loss of $180 million in
the year-ago quarter along with an improved combined ratio.
Concurrently, AIG continues to reduce debt and non-core
operations, as reflected by the recent bond repurchase and the
scheduled sale of its aircraft-leasing unit - International Lease
Finance Corp. (ILFC), to a Chinese consortium by mid-2013. This
will further improve the company's financial leverage.
While anyrobust growth compared with the peer group 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 #2 (Buy).
Meanwhile, other outperformers of the insurance industry include
Amerisafe Inc. ( AMSF ),
Employers Holdings Inc. ( EIG ) and
Hilltop Holdings Inc. ( HTH ), all of which
carry a Zacks Rank #1 (Strong Buy).AMER INTL GRP (AIG): Free Stock Analysis ReportAMERISAFE INC (AMSF): Free Stock Analysis
ReportEMPLOYERS HLDGS (EIG): Free Stock Analysis
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