AIG’s credit ratings are under review with negative implications after announcing its fourth-quarter financial result will include “a material adverse reserve adjustment and capital-supporting reinsurance transaction” for its US commercial business, AM Best says.

The move relates to AIG’s long-term issuer credit rating (ICR) of bbb and its insurance subsidiaries’ financial strength ratings and long-term ICRs.

AIG announced on January 20 that it has entered into a retroactive reinsurance agreement with National Indemnity Co, a subsidiary of Berkshire Hathaway, that is backdated to January 1 2016.

Under the deal National Indemnity covers 80% of AIG’s US commercial long-tail exposures, with an overall limit of liability of $US20 billion ($26.47 billion). 

The AM Best review “considers the potential impact on future earnings, the available dividend capacity and the feasibility of succeeding at the necessary strategies outlined by management and the board to improve profitability and efficiency and maximise shareholder value within stated timeframes”, the ratings agency says.

“The ratings will remain under review while AM Best analyses planned actions following the release of the loss reserve review, receives and reviews year-end financial information and engages in further discussions with management to assess the potential impact of these items on the current ratings.”

AIG will release its fourth-quarter results on February 14.