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Moody’s Investors Service confirmed the “Aaa” insurance financial strength (IFS) ratings of the eight rated members of ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s U.S. commercial insurance group (Domestic Brokerage Group, or DBG). DBG’s “Aaa” IFS ratings had been placed under review for possible downgrade Feb. 4, 2003. Moody’s said, however, that the outlook for these ratings, is negative reflecting its continuing negative outlook on the “Aaa” senior unsecured long-term credit rating of the insurers’ ultimate parent, American International Group Inc.

According to Moody’s, the confirmation of the “Aaa” insurance financial strength ratings of members of ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s Domestic Brokerage Group reflects the group’s core strategic role within the worldwide ÌìÃÀÍøÕ¾´«Ã½´«Ã½ organization as the group’s major business platform in the U.S. property/casualty insurance sector. Because they represent the domestic P/C business, which is integral to ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s strategic identity, DBG members receive tangible financial and operational benefits from the “Aaa”-rated parent company and, indirectly, from other members of the ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s diversified group. Moody’s noted that DBG’s ratings today would likely be one notch lower absent these benefits. The “Aaa” rating and the negative rating outlook on the DBG members reflects the linkage between the DBG members and ÌìÃÀÍøÕ¾´«Ã½´«Ã½.

The group’s exceptional credit profile reflects its consistent and unparalleled leadership in U.S. commercial and specialty property/casualty insurance, according to Moody’s.

The risk profile and volatility of DBG’s business have increased, however, as reflected in the group’s significant fourth quarter 2002 charge to increase its core reserves. The nature, size and timing of this reserve re-estimation suggests that the group’s business is less predictable than Moody’s had previously expected, and raises the possibility that continued reserve strengthening in 2003 and perhaps into 2004 for business written in prior years could persist. Moody’s said that the nature of the feedback loop between reserving and pricing is such that any substantial and enduring mis-estimating of loss reserves raises questions about the adequacy of pricing during the intervening period.

While this remains a risk, Moody’s said that this risk is largely offset by the beneficial effect of recent premium rate level changes and tightened contractual terms and conditions, which have contributed to stronger earnings and dramatically improved cash flow at DBG in 2003.

Topics Trends USA Property Casualty ÌìÃÀÍøÕ¾´«Ã½´«Ã½