AIG Europe hit by Moody's downgrade

In a note to clients on Thursday, the ratings agency said AIG Europe’s outlook is stable and in line with that of sister companies within the worldwide property and casualty (P&C) insurance arm of AIG. (NYSE: "AIG" senior unsecured debt Baa1, stable). The move follows the downgrade to A2 from A1 of the IFSRs of AIG's P&C subsidiaries in the US and Canada.

In Moody's view, although AIG Europe remains strategically important to the wider group, the aforementioned downgrade of the insurers main US and Canadian P&C units - which reflects persistent adverse loss development and weak underwriting results plus the ongoing challenge of setting reserves for long-tail casualty lines - has reduced the benefit of these support mechanisms.

AIG Europe's A2 standalone IFSR reflects the company's “good commercial market position in Europe, which is particularly strong in the UK, its expertise within certain London-market books of business and a generally conservative investment strategy,” Moody's noted.

Moody’s was also positive on AIG Europe’s strong product mix and good geographic diversity across the continent.

“However, offsetting these strengths to some extent, AIG Europe is largely focused on more volatile, commercial lines of business, and is exposed to natural and man-made catastrophes. Adverse loss development and relatively weak profitability have also been a feature in the past,” the ratings agency concluded.