AIG and core subsidiaries rating upgraded to AA- from A+ at S&P

Investing.com -- S&P Global Ratings has upgraded its financial strength rating and issuer credit ratings on American International Group Inc. (NYSE:AIG) and its core subsidiaries to ’AA-’ from ’A+’. The outlook on the core subsidiaries has been revised to stable from positive. The rating on AIG’s holding company has also been upgraded, with the outlook revised to stable.

The upgrade reflects AIG’s consistent strong underwriting performance, on par with higher-rated insurers. Despite divesting several businesses, including Corebridge, Validus Re, Crop Risk Services, and Travel Guard, AIG’s business risk profile is considered a strength to its ratings. The company’s efforts to reshape its portfolio to focus on higher-margin businesses and streamline its expense structure are expected to contribute to sustainable and profitable growth.

AIG has effectively transformed its corporate culture since Peter Zaffino took over as CEO in 2017, emphasizing underwriting improvements while maintaining a strong presence in the global market. AIG has made significant strides in reducing its loss and expense ratios and bolstering its reserves. The company has also revamped its reinsurance strategy to protect against tail events across the portfolio.

AIG has made significant progress in deleveraging its balance sheet, reducing $17.8 billion of debt obligations since 2020. The financial leverage was less than 20% by the end of 2024, down from approximately 30% in 2020. The company is expected to continue to prioritize a conservative leverage ratio between 15%-20%.

In 2025-2026, AIG is expected to post a combined ratio of 92%-94% and about $4 billion in net earnings. This underscores the company’s commitment to maintaining a strong profit margin. The projections include 8% premium growth, which aligns with the company’s growth strategy in global specialty lines, particularly in excess and surplus.

S&P Global Ratings expects AIG to sustain capital adequacy above the 99.95% confidence level, equivalent to a severe stress scenario. The forecast includes share buybacks of $6 billion in 2025 and stock dividends of $1.1 billion during the forecasting periods. The company is expected to return a substantial portion of its $7.65 billion of liquidity to shareholders in 2025.

S&P Global Ratings has also upgraded AIG Insurance New Zealand Ltd. (AIG NZ) group status to highly strategic from strategically important. Over the past five years, AIG NZ has improved its underwriting performance and has become a significant earnings contributor in the Asia-Pacific region.

The stable outlook on AIG’s P/C subsidiaries reflects the company’s market leadership, robust capital adequacy, and strong diverse earnings. S&P Global Ratings expects AIG’s operating performance to remain consistent, as demonstrated over the past more than 16 consecutive quarters.

The ratings could be lowered if capital adequacy weakens consistently below the 99.95% confidence level, operating performance declines significantly, or if there is substantial erosion of its competitive position. An upgrade would depend on the company’s commitment to hold higher levels of capital adequacy, continued improvement in leverage and coverage metrics, and generating operating performance comparable to ‘aa’ rated peers.

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