Despite American International Group’s poor 2016 fourth quarter earnings performance, Fitch Ratings and Standard & Poor’s both have affirmed the insurer’s ratings, with a few qualifiers slipped in.

The struggling insurance giant lost $3.0 billion, or $2.96 per share, compared to $1.8 billion, or $1.50 per share, in the 2015 fourth quarter. CEO Peter Hancock and his executive team are in an ongoing effort to reduce costs and streamline, and Hancock wants to return $25 billion to shareholders over a two-year period that began in January 2016.

On Jan. 31, S&P said it lowered AIG’s long-term counterparty credit and senior unsecured debt ratings to “BBB+” from “A-“, following an pre-earnings announcement from AIG of a “material reserve deficiency charge” for its 2016 fourth quarter. The ratings action applies only to the primary AIG holding company, and S&P said it would maintain a stable outlook for both AIG and its subsidiaries.

Standard and Poor’s left its “A+” rating for AIG’s core operating subsidiaries unchanged. On Feb. 14, S&P said that AIG’s weak results, due partly to $5.6 billion of reserve strengthening during the fourth quarter, would not have an immediate impact on those ratings or stable outlook.

“We view AIG’s accident-year performance as less indicative of future results given its track record of recalibrating its incurred loss picks in subsequent periods,” S&P said in its briefing. But the ratings agency expects capital adequacy and a further rebound to continue.

“The stable outlook reflects our expectation that AIG’s consolidated capital adequacy will remain redundant at the ‘AA’ level over the next two years on consideration of its capital return plans and de-risking efforts,” S&P said. “We also expect AIG to sustain its very strong competitive position during the course of its reunderwriting efforts within commercial insurance and consequential reduction of premiums.”

Fitch, meanwhile, affirmed all of AIG’s ratings, including its “A-” issuer default rating and the “A” insurer financial strength rating for its property/casualty insurance subsidiaries, removing them from ratings watch negative, but assigning a negative outlook for all the ratings. Fitch had announced the watch in January, in its initial reaction to AIG’s warning of “material adverse development.”

In its latest statement, Fitch noted that AIG has persevered, despite a net loss of $849 million in 2016 (versus $2.2 billion of net income in 2015).

“AIG has maintained holding company and subsidiary capital levels within previous rating guidelines,” Fitch Ratings said. “Also, while 2016 interest coverage ratios are down sharply to approximately 2.1x, significant resources are available for servicing holding company debt, including $8.4 billion in parent company liquidity at year end 2016.”

Fitch added that AIG’s capital plan to return $25 billion to shareholders through 2017 “appears to be on track,” and that “capitalization remains strong at both the property/casualty and life subsidiaries.”

As well, Fitch gave AIG credit for taking “significant actions in the last 12 months to change the operating risk profile and improve profitability, including noncore operation divestitures, reinsurance purchases, expense reductions and property/casualty underwriting initiatives.”

While these were good steps, Fitch noted that “results of many of these actions will take some time to fully materialize.”

That said, Fitch pointed out that AIG’s consumer insurance segment showed 31 percent improvement in 2016 after tax operating earnings.

Still, Fitch added that all is not well in areas such as commercial insurance, which “remains a primary source of uncertainty” despite AIG’s efforts to improve results and reduce volatility.

Source: Standard & Poor’s, Fitch Ratings