AIG South Africa Ltd Downgraded by Global Credit Rating

Strategic Insights -

AIG South Africa Ltd (AIGSA) has seen its domestic currency claims paying ability rating downgraded to AA+ by South African Global Credit Rating Co (GCR), following a similar downgrade of its owner, American International Underwriters Overseas Ltd (AIUO), by Fitch ratings. This downgrade reflects a perceived decline in AIUO's brand value and competitive positioning in the American market, despite maintaining surplus capital and a conservative investment portfolio. AIGSA continues to operate normally, with a low exposure to intercompany debtors and comfortable solvency margins.

Key Takeaways:

  • AIG South Africa Ltd's domestic currency claims paying ability rating was downgraded to AA+ by GCR, reflecting a similar downgrade of its owner, AIUO, by Fitch ratings.
  • The downgrade is attributed to a perceived decline in AIUO's brand value and competitive positioning in the American market, despite maintaining surplus capital and a conservative investment portfolio.
  • AIGSA continues to operate normally, with a low exposure to intercompany debtors and comfortable solvency margins.
  • The insurer's ability to grow its business may be constrained by uncertainties surrounding its parent company, AIG.
  • AIGSA's continued use of reinsurance and intercompany debtors increases its concentration risk.
  • The company's underwriting profitability has deteriorated over the past four years, driven by motor losses.

Statistics:

  • AIG South Africa Ltd's domestic currency claims paying ability rating was downgraded to AA+.
  • AIUO's rating was downgraded from AA- to A+ by Fitch ratings.
  • The company has maintained surplus capital and a conservative investment portfolio.
  • AIGSA's solvency margins have been above the industry average, with further comfort derived from its investment portfolio.
  • Cash claims coverage has remained comfortable.
  • The insurer's position in the market has declined, driven by financial difficulty and a negative impact on operating results.

Sources:

  • South African Global Credit Rating Co (GCR), "News Issue for June 2009".
  • Fitch ratings, "Downgrade of American International Underwriters Overseas Ltd".
  • AIG South Africa Ltd, "Annual Report 2009".
  • GCR website: www.globalratings.net.