Credit analyst advises against aggressive buying of AIG due to charges

By Ronda Fears

Nashville, Feb 5 - American International Group Inc.'s reserves liabilities is a major source of concern, thus, Kathy Shanley, senior bond analyst at Gimme Credit, advises against being an aggressive buyer of the paper.

"We're not sure AIG will ultimately be well-insulated from exposure in its role as an excess insurer, as claims continue to mount rapidly," Shanley said in a report Wednesday.

"We would not be an aggressive buyer of this name."

American International Group (Aaa/AAA) conceded Tuesday it is not immune to the general trends that have roiled the property-casualty sector over the past few years by boosting its net loss reserves by $2.8 billion pretax in the fourth quarter, incurring a $1.8 billion after-tax charge.

Of the total charge, about 60% relates to excess casualty loss reserves, including excess workers compensation, 25% is for directors and officers liability and the remaining 15% covers other casualty, including healthcare liability.

"Distancing itself from rivals like Travelers and Ace, AIG said it did not see a need to take a major provision for its asbestos-related liabilities," Shanley said.

"AIG is insisting it does not need to bulk up its asbestos reserves, claiming it was not a large general insurer in the 1950s through the 1970s, and that it acted mainly as a high-layer excess insurer. AIG says it has been 'proactive' in resolving claims. Gross paid losses dropped to $205 million last year from $398 million in 2000."

But Shanley said she is not convinced that AIG is so well insulated.

For the domestic brokerage group, the combined loss ratio for the nine months ended Sept. 30 was 97%, a modest improvement over the 98% recorded in the year-earlier period, she noted. Strong premium growth outpaced higher loss and underwriting expenses.

"AIG has a variety of strengths that offset some of our concerns, including a strong competitive position, allowing it to take advantage of favorable rate trends, an efficient cost structure and a diversified product mix. It also has incentives to maintain a triple-A since there has been a flight-to-quality in the insurance sector," Shanley said.

"AIG is also a large player in structured finance and derivatives. But we're not convinced AIG is always more conservative than its rivals. Other insurers, such as The St. Paul Companies, added to reserves in areas such as healthcare over a year ago."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.