Standard & Poor's and AM Best said today that they will take no rating action on AIG or its subsidiaries following the announcement of the company's settlement of certain regulatory investigations and the completion of its non-life reserve study.
AIG announced a settlement with the SEC, the New York Attorney General, the New York State Department of Insurance, and the US Department of Justice. Under the terms, AIG will pay $1.64bn ($1.15bn after tax) in disgorgement of profits and fines.
The company also announced $1.69bn of pretax additions to reserves ($1.1bn after-tax), which represents about 3% of its total net loss and loss expense reserves, following the completion of a comprehensive review of its property/casualty insurance reserves.
S&P's said the total of the combined charges falls within its previous expectation. It said it expects the company to meet the cost of these items with its current liquidity resources, including short-term borrowings, which will reduce the company's liquidity position for a period of time.
AM Best said The loss reserve charge, while substantial in combination with the adverse development noted in 2005, is within its expectations for reserve and earnings volatility that was partially considered in AIG's under review status.
S&P's said that the outlook remains negative due to a number of continuing uncertainties. First, while the net reserve deficiency falls within the expected range, Standard & Poor's does not yet have the detailed loss information to update its own view, which it plans to do following the receipt of 2005 statutory annual statements.
The ratings agency added that while a substantial portion of the settlement amount will be available to resolve shareholder lawsuits, it may not entirely mitigate future costs of litigation.
Thirdly S&P's said the company continues to be involved in litigation with former affiliates, resulting in some near-term management distraction and the possibility of monetary costs.
Finally, S&P's said that in 2005 the company identified a number of material weaknesses in controls that have not yet fully been remedied and could result in further charges or restatements of past accounts.
AM Best said that the under review status has been maintained throughout 2005 and will be into 2006 until it has fully reviewed the refiled statutory financial statements for 2004 and year-end 2005 results and completed the capital models associated with the individual rating units.
