AIG's AA- Upgrade: A Testament to Turnaround and a Signal to Investors

The S&P Global Ratings upgrade of American International Group (AIG) to AA- with a stable outlook in early 2024 marks a pivotal moment for the insurer. This milestone validates AIG’s transformation from a crisis-prone insurer to a high-margin, capital-efficient operator, positioning it as a compelling investment opportunity. While macroeconomic risks loom, AIG’s deleveraged balance sheet, disciplined underwriting, and strategic portfolio reshaping argue strongly for sustained value creation. Here’s why investors should take note.

Deleveraging Success: A Foundation of Strength

AIG’s debt reduction has been nothing short of remarkable. Since 2020, the insurer has slashed net debt by $17.8 billion, reducing its debt-to-total-capital ratio to a conservative 17% by year-end 2024. This deleveraging, combined with $7.7 billion in parent liquidity, has created a fortress balance sheet. The sale of its Corebridge stake to Nippon Life in mid-2024 further bolstered liquidity, enabling AIG to return $9.7 billion to shareholders in 2024 alone—$6.6 billion in buybacks, $1.0 billion in dividends, and $500 million in preferred stock redemptions.

This capital discipline is critical. With $7.65 billion slated for shareholder returns in 2025, AIG’s commitment to rewarding investors is clear.

Underwriting Discipline: The Engine of Profitability

AIG’s 91.8% combined ratio in 2024—and a 92–94% target for 2025–2026—is a testament to its underwriting excellence. The insurer has systematically exited unprofitable lines, focusing on high-margin specialty businesses like casualty, property, and global commercial insurance. Even in catastrophe-prone environments (e.g., Hurricane Milton, California wildfires), AIG’s robust reserving and reinsurance partnerships have kept losses manageable.

The accident year combined ratio (AYCR) of 88.2% in 2024, its third consecutive sub-89% result, underscores a culture of underwriting rigor. This is no accident: AIG’s AIG Next cost-cutting program and advanced risk modeling tools have tightened operational controls, ensuring profitability even in volatile markets.

Strategic Shifts: A Focused, Global Play

AIG’s restructuring into three core segments—North America Commercial, International Commercial, and Global Personal—has sharpened its focus. By divesting non-core assets (e.g., Corebridge) and streamlining operations, AIG has boosted returns on equity (ROE) to a targeted 10%+ in 2025.

The launch of Syndicate 2478 at Lloyd’s, a Blackstone-backed reinsurance vehicle, further illustrates AIG’s strategic foresight. This syndicate, active since January 2025, diversifies its risk exposure while leveraging Lloyd’s platform for growth.

Addressing Lingering Concerns: Governance and Legacy Risks

Critics still point to AIG’s past accounting issues (e.g., the 2008 bailout fallout) and governance missteps. However, S&P’s upgrade explicitly cites enhanced risk governance, including improved board oversight and advanced risk models, as key to its decision. The company has also exited legacy exposures, reducing tail risks.

While macro risks like a potential recession or climate-related catastrophes linger, AIG’s stress tests show it can withstand a severe downturn with capital ratios above the 99.95% confidence level—a metric S&P deems “very strong.”

Why Invest Now?

The AA- rating is a credibility stamp for AIG’s turnaround. With $4 billion in net earnings projected for 2025, 8% premium growth, and shareholder-friendly policies, AIG is positioned to deliver high single-digit returns. The stock, trading at 1.2x book value, offers a discount to peers, with upside as its rating stabilizes.

Conclusion: AIG’s Resilience Justifies the Buy Signal

AIG’s upgrade to AA- is more than a ratings move—it’s a confirmation of operational resilience. The insurer has turned a corner, leveraging disciplined underwriting, strategic capital management, and structural reforms to build a sustainable business. While macro risks exist, AIG’s fortress balance sheet and shareholder-centric policies make it a high-conviction investment for 2025. The catalyst is here. Act now.