American International Group, Inc (AIG - Free Report) recently received rating action from Moody's Investors Service, a wing of Moody’s Corp. AIG’s $400 million of 30-year zero coupon senior unsecured notes issued in the Taiwan market has received Baa1 rating from the rating agency.
AIG might use the net proceeds from the offering for the repayment of existing indebtedness and other general corporate purposes. The rating outlook for AIG remained stable.
According to Moody's, these ratings not only reflect AIG’s leadership in global property casualty (P&C) insurance market but also justify its diversified operations across products and geographic regions. In addition, AIG’s strong financial health, supported by solid liquidity has also driven the rating action.
However, the company's volatile loss reserves, poor margins in P&C insurance, high exposure to structured and alternative investments, and the complexity of risk management across its geographically diverse business lines continue to hurt.
AIG’s exposure to catastrophe losses also remains a major headwind for its P&C operations. The recent catastrophic events like hurricanes Harvey, Irma and Maria led the company to incur a net loss of $1.7 billion in the third quarter of 2017.
These negatives have also hurt shareholders’ confidence in the stock. Despite its efforts to return capital to shareholders through extensive share repurchase programs, in a year’s time, the stock has lost nearly 4% while the industry gained 11.4%.
Nevertheless, with the appointment of its new CEO in May 2017, the company has taken up strategic initiatives to strengthen its P&C performance. It has started adding and shuffling P&C business leaders, reestablishing some specialty units, strengthening focus on individual account underwriting, reducing certain policy limits and bolstering the catastrophe reinsurance program to curtail earnings volatility.
The rating agency believes if these initiatives are executed according to the plan, it will take a couple of years for AIG’s P&C operations to deliver more stable results.
According to the rating agency, AIG is likely to witness a ratings upgrade if it can improve the standalone credit profiles of major operating units, generate consolidated return on capital in the high single digits and strengthen financial flexibility.
Zacks Rank and Stocks to Consider
AIG presently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the insurance industry are Radian Group Inc. (RDN - Free Report) , First American Financial Corporation (FAF - Free Report) and Prudential Financial, Inc. (PRU - Free Report) . Each of the stocks holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Radian Group offers mortgage and real estate products and services in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 4.52%.
First American Financial offers financial services. The company delivered positive surprises in each of the last four quarters with an average beat of 12.74%.
Prudential Financial provides insurance, investment management, and other financial products and services in the United States and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 0.16%.
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