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AIG

American International Group's Ratings Put Under Review

American International Group Inc.AIG recently saw its Long-Term Issuer Credit Rating (Long-Term ICR) of "bbb" being placed in the status of "Under Review with Negative Implications" by A.M Best. The Financial Strength Ratings (FSR) and Long-Term ICRs of AIG's insurance subsidiaries have also been put under the same status by the rating giant.

In a recent announcement, AIG disclosed that its fourth-quarter results would include a material adverse reserve adjustment and a capital supporting reinsurance transaction for its U.S. commercial business. This announcement is likely to have influenced A.M Best's review action significantly in the last-year quarter. Interestingly, AIG has already witnessed a $3.6 billion net adverse reserve adjustment in the same longer-tailed lines of business.

A.M Best is expected to keep the ratings of AIG under review until the impact of the loss reserves on the fourth-quarter financials of the company become clear.

The shares of AIG have been underperforming over last one year. The stock has gained only 19.4%, whereas the Zacks categorized Multi Line Insurance industry registered almost 29% increase. The recurrent issues with the company's reserving, pricing, and handling of the longer-tailed commercial lines business seem to have lowered shareholders' confidence on the AIG stock.

AIG's upcoming reinsurance transaction is likely to use up a portion of the expected reserve development. This is because any reserve development on the covered lines in excess of the current carried reserves of about $35.7 billion is covered on a quota share basis, up to the limit of the reinsurer's liability, which is 80% of $14.3 billion. However, certain lines of business are excluded from the contract.

The aforesaid rating action for AIG and its operating subsidiaries takes in to account the potential impact on the company's future earnings, capacity of dividend payment, and most importantly the ability to take the necessary actions outlined by management in order to enhance the shareholders' value within the scheduled time.

Zacks Rank and Stocks to Consider :

AIG presently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

Some better-ranked stocks from the insurance space include Primerica, Inc. PRI , Radian Group Inc. RDN and James River Group Holdings, Ltd. JRVR . While Primarica sports a Zacks Rank #1 (Strong Buy), the other two hold a Zacks Rank #2 (Buy).

Primerica, a major life insurer, posted positive surprise through out last four consecutive quarters with an average beat of 6.37%.

Radian Group, one of the leading multi line insurers, delivered positive earnings surprise in three of the last four quarters with an average beat of 5.87%.

Multi line insurer James River Group also delivered positive earnings surprise in three of the last four quarters with an average beat of 3.60%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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