AIG placed on creditwatch negative on life & retirement break-up plan

S&P Global Ratings has placed American International Group's (AIG's) ratings on creditwatch negative following the insurer's announcement that it will  separate its life & retirement (L&R) business to simplify its corporate structure and unlock "significant value" for shareholders.

The insurer's property/casualty (P&C) entities have been placed on creditwatch with negative implications, and its rated L&R entities on creditwatch with developing implications.

The rating actions reflect S&P's changing view on the strategic importance of the L&R group and the benefit its diversified earnings stream has provided to AIG. The agency believes that historically the L&R earnings have enhanced the group credit profile by providing AIG with the earnings and capital resources.

As a result of the planned divestiture, S&P said it will have to reassess AIG's group credit profile excluding L&R, and establish a standalone credit profile for the L&R operations.

The ratings agency cited uncertainty regarding future expense structure, underwriting performance and the capital structure of AIG's P&C operations, as well as "below average relative to peers" operating results of general insurance business as reasons for the downgrade.

"We anticipate the company to generate underwriting losses and premium declines in 2020 despite hardening of rates," S&P said.

The agency also noted L&R businesses' "top market positions in its core product segments", but added that "[it] cannot rule out any negative impact on the L&R businesses' capitalization and overall financial risk profile" following the divestiture.

Until the picture becomes clearer, there remains potential downward pressure on the L&R ratings, it said.

The agency expects to review the life operations standalone credit profile separately after learning more about the prospective earnings profile and capital structure of the standalone group.

S&P stated that "a standalone L&R group would potentially benefit from its competitive position in the life market unencumbered by the challenges in the P/C segment. If we determine that a ratings change is warranted, we would expect to raise or lower our ratings on the L&R operating entities by one notch."