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AIG Property-Casualty Unit Gets First Credit Upgrade Since 2008 Financial Crisis

Source: Dow Jones

Posted on 07 May 2013 by Neilson

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AIGAmerican International Group Inc.'s (AIG) big property-casualty unit earned an upgrade Monday from Standard & Poor's Ratings Services, the first improvement in the closely watched measure for the division since the company nearly collapsed in 2008.

S&P bumped the long-term counterparty credit rating and financial-strength rating of the AIG PC Group, until recently known as Chartis Group, to A-plus from A. It cited "the successful restructuring that the AIG has undertaken during the past two years" and has made "significant investments" in the unit to improve its operations. The A-plus rating is S&P's fifth highest.

Under AIG Chief Executive Robert Benmosche, the company has repaid its $182 billion bailout package--one of the biggest during the 2008-09 crisis--and is now focused on a narrower set of businesses. Mr. Benmosche became CEO in 2009.

S&P credit analyst David Zuber said in a release that "AIG has sold nearly all of the businesses and assets that it had identified as noncore to repay fully" its rescue package. S&P also said the ratings action reflects a belief that " management is committed to maintaining and enhancing AIG's competitive position in the global P/C and U.S. life businesses," and has used some proceeds from the sale of noncore operations to reduce its outstanding debt and hybrid securities.

S&P also affirmed the A-plus ratings on AIG's life-and-retirement group, which hadn't been downgraded as steeply as the property-casualty unit during the crisis period. Both units have a stable outlook.

The upgrade was the first for the property-casualty unit since ratings companies began slashing credit grades at AIG in 2008. Some ratings firms have previously upgraded the life unit.

The Treasury completed a profitable sale of its equity interest in AIG in December. AIG's aircraft-leasing subsidiary, International Lease Financial Corp., "is the only significant noncore asset remaining," said S&P. AIG has an agreement to sell up to 90% of the business to an investor group.

AIG's Mr. Benmosche has said that winning ratings upgrades is a priority, and that making ratings firms comfortable with the company's restructuring plays into capital-management decisions.

In reporting first-quarter earnings earlier this month, Mr. Benmosche said the company has been spending more on information technology and a so-called re-engineering of some of its underwriting and claims systems in the property- casualty unit. The company said the unit already was benefiting from these initiatives.

The combined ratio at the unit was 97.3, meaning the company spent just over 97 cents on claims and expenses for every dollar it collected in premiums, compared with 102.1 in the year-earlier period.