AIG’s ratings remain unchanged

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A.M. Best said it was too early to amend AIG’s ratings following the Feds bailout

A.M. Best has not changed the ratings of AIG following the Federal Reserves $85bn bailout.

The agency said AIG’s ratings remained under review with negative implications.

The majority of AIG’s subsidiaries were downgraded on September 15, 2008 based on the financial difficulties.

The extension of a two year $85bn loan from the Fed has removed the imminent threat of bankruptcy and staved off the concern of a disorderly unraveling of AIG’s businesses, said Best.

Further, the agency recognised the potential for ‘objective’ decision making from AIG’s newly appointed chief executive, Edward Liddy.

However, Best believed it was too early to change the outlook on the company.

‘The long-term corporate structure within which the remaining businesses will operate is not clear,’ said the agency.

“The long-term corporate structure within which the remaining businesses will operate is not clear.
A.M. Best

Best’s short-term concerns include potential for policyholder departures and continued erosion of confidence from consumers, policyholders, banks and employees.

It is also unclear whether AIG has the ability to realize the true economic value of its assets upon sale. Potential buyers of AIG’s assets may require certain undesirable investments to remain with AIG, said the rating agency.

AIG got into trouble because of its massive exposure to bad debts in the mortgage industry. These remained unchecked by AIG’s risk management efforts. The agency said AIG would also need to show improvement in its ERM capabilities.

The Feds $85bn of cash should help support this effort, but, the cost of drawing this facility could impede profitability going forward, concluded Best.

The agency will revise AIG’s ratings when the insurer sells assets over the next few weeks.