LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of AIG Europe Limited (AEL) (United Kingdom). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect AEL’s balance sheet strength, which A.M. Best categorises as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.
AEL’s balance sheet strength is underpinned by its risk-adjusted capitalisation being at the very strong level as at year-end 2017, as measured by Best’s Capital Adequacy Ratio (BCAR), despite a deterioration in retained earnings driven by a significant underwriting loss for the year. In 2017, the company improved its quality of capital through a capital injection of GBP 200 million, from the immediate parent company, AIG Holdings Europe Limited, replacing the equivalent amount of contingent capital. Nevertheless, AEL still has a moderate dependence on contingent capital, in the form of letters of credit, which remains an offsetting factor. A.M. Best expects prospective balance sheet strength to remain at the very strong level.
The adequate assessment of operating performance reflects AEL’s long-term track record of profitability, with a five-year (2013-2017) average return on equity of 2%, although performance has weakened in recent years. In 2017, AEL reported a pre-tax operating loss of GBP 432 million, mainly driven by technical losses, with the company realising a combined ratio of 115% for the year. This result was primarily driven by a higher than budgeted exposure to catastrophe losses and adverse prior year loss development. During 2017, management put in place remedial actions to improve technical profitability and strengthen its underwriting and reserving practices through reductions in net risk exposures, more stringent risk selection, improved data quality and an increased focus on profitable lines of business. A.M. Best expects technical performance to improve as a result of these actions over the medium term.
AEL remains the second largest property and casualty insurer in the U.K. and has a strong competitive position across Europe, underpinning the company’s business profile assessment. A.M. Best notes that in response to Brexit, the ultimate parent, American International Group, Inc., has established two new entities in the U.K. and Luxembourg. Operations are anticipated to commence from 1 December 2018, when a full portfolio transfer is expected to take place between AEL and the two new entities.
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