A.M. Best Affirms Ratings of American International Group, Inc.’s Domestic Life/Health Subsidiaries
28 February 2015 - 4:10AM
Business Wire
A.M. Best has affirmed the financial strength rating
(FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a+”
of American International Group, Inc.'s (AIG) (New York, NY)
[NYSE: AIG] four domestic life/health companies. AIG's U.S. life,
annuity and health operations are collectively referred to as
AIG Life & Retirement Group (AIGL&R). (See below for
a detailed listing of the companies.) The outlook for both ratings
is stable.
The ratings reflect AIGL&R’s solid risk-adjusted
capitalization, increased total revenue and very strong business
profile with a significant market presence. Offsetting factors
include lower sales, primarily due to unusually large sales for
their stable value wrap product in 2013, lower operating earnings
due to marginally lower spread income, lower returns on alternative
investments and reserve strengthening. Ignoring the stable value
wrap products, sales were slightly better than the prior year by
2%. AIGL&R continues to benefit from its maintained
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 is ranked third for 403(b) retirement plan assets under
management. Additionally, AIGL&R continues to make progress
toward achieving strong market positions in a number of core
business lines, such as fixed rate deferred annuity, K-12 assets
and total annuity sales. Net flows are positive at approximately
$455 million for 2014, down significantly from $4.6 billion in
2013, which was primarily due to two large group retirement
surrenders. A.M. Best notes the company maintained strong
risk-based capitalization after paying significant dividends to
their parent of $4.7 billion in 2013 and $9.9 billion in 2014. This
action supports AIG’s overall strategy to move excess capital from
the insurance company to the parent for capital management
initiatives, including share buyback activities, and to improve
parent company liquidity.
The ratings reflect AIGL&R’s 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 elevated
exposure to higher risk investments including structured
securities, collateralized debt obligations (CDO), direct
commercial mortgage loans and various alternative investment
strategies. As AIGL&R continues to reposition its asset
portfolio to achieve greater investment yield, A.M. Best remains
cautious on its investment risk appetite. For 2014, 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 Sept. 30, 2014, 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 $51 billion at Sept. 30, 2014
(statutory, amortized cost basis), which represents an elevated
exposure when compared with statutory total-adjusted capital. It
should be noted that the investment quality of these assets has
improved over time. In addition, AIGL&R's $10.9 billion
exposure to alternative assets (hedge funds, private equity and
real estate) represents additional risk within its investment
portfolio.
While its risk adjusted capital management ratios remain strong,
AIG’s current capital management strategy has resulted in high
parental dividend payments, thus pressuring growth in its
risk-adjusted and absolute capitalization levels. However, A.M.
Best notes that while the NAIC 2014 RBC ratio is lower when
compared with the prior year, it remains well above the range of
its current rating. Additionally, AIG's executive management has
indicated its commitment to maintain healthy capitalization ratios
to support the ratings of AIGL&R and manage to target levels.
Lastly, AIG's various implicit and explicit support initiatives are
in line with this commitment.
A.M. Best believes AIGL&R is well positioned at its current
rating level, but may experience positive rating movement if trends
in earnings and investment performance remain positive, 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 FSR of A (Excellent) and the ICRs of “a+” have been affirmed
with a stable outlook for the following four domestic life/health
subsidiaries of American International Group, Inc.:
- AGC Life Insurance Company
- American General Life Insurance
Company
- 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.
Key insurance criteria reports utilized:
- A.M. Best's Liquidity Model for U.S.
Life Insurers
- A.M. Best's Perspective on Operating
Leverage
- Rating Members of Insurance Groups
- Risk Management and the Rating Process
for Insurance Companies
- Understanding BCAR for U.S. and
Canadian Life/Health Insurers
- Evaluating Country Risk
This press release relates to rating(s) that have been
published on A.M. Best's website. For all rating information
relating to the release and pertinent disclosures, including
details of the office responsible for issuing each of the
individual ratings referenced in this release, please visit A.M.
Best’s Ratings & Criteria Center.
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 © 2015 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
A.M. BestJoan Sullivan, 908-439-2200, ext.
5144Senior Financial Analystjoan.sullivan@ambest.comorWilliam
Pargeans, 908-439-2200, ext. 5359Assistant Vice
Presidentwilliam.pargeans@ambest.comorChristopher
Sharkey, 908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim
Peavy, 908-439-2200, ext. 5644Assistant Vice President,
Public Relationsjames.peavy@ambest.com
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