So most at this year's AMRAE meeting will therefore presumably welcome the latest good news from rating agencies AM Best and Fitch on Chartis Europe and AIG respectively and perhaps be less enthusiastic to hear that ex-AIG chairman Hank Greenberg has issued another suit against the US government based on the takeover of his former empire.

First the good news.

AM Best has assigned a financial strength rating of A (Excellent) and issuer credit ratings of "a" to London-based Chartis Europe Limited and Paris-based Chartis Europe S.A. The outlook assigned to all ratings is stable.

The agency said that the ratings reflect the 'excellent' risk-adjusted capitalisation of both operations and the companies' good business profile, which it said is supported by 'excellent' distribution capabilities across Europe.

It added that concerns about weaker underwriting results in recent years and the impact of the economic downturn on future results are 'partly mitigated' by the actions that management has taken to address the underperformance of some lines of business.

By the end of 2012, Chartis Europe S.A. is expected to have merged into Chartis Europe Limited.

AM Best said that this move will largely complete the Chartis group's restructuring of its European operations and help more closely align its legal entity and management structures in Europe.

Commenting on performance in 2011, AM Best said that a 'modest' improvement in combined technical performance is expected as higher catastrophe losses will probably offset improved results for casualty, specialty, financial lines and consumer business.

The credit rating agency said that it expects a further improvement in Chartis' performance in 2012 that will be underpinned by the 'corrective' actions taken on weaker performance in recent years.

This action included the withdrawal from unprofitable lines of business, the introduction of revised underwriting guidelines and the refocus of the professional indemnity account away from recession exposed professions, stated the agency.

Best pointed out, however, that future performance is subject to 'considerable uncertainty.'

"Rates remain weak for many of the companies' core lines of business. In addition, results are particularly susceptible to the effects of a prolonged economic downturn due to the relatively high proportion of casualty and financial lines business underwritten," stated the agency.

"Results between 2008 and 2010 were adversely affected by financial crisis related losses, a series of large property losses due to catastrophes and severe winter weather in the United Kingdom and Ireland, as well as the weak performance of the now discontinued UK motor account," it added.

But AM Best countered this by pointing out that Chartis European entities have a good business profile in the commercial insurance market, with a particularly strong competitive position in the aerospace, marine, energy and financial lines markets. Both companies are also significant writers of multinational programmes, it added.

The credit rating agency also believes that the restructure of the group last year following the arrival of CEO Peter Hancock (see CRE November 2011 issue for full interview) will reap rewards.

Last year Mr Hancock decided to focus Chartis more sharply on its respective commercial and consumer businesses as part of the group's wider recovery process after the funding crisis suffered by parent group AIG that ultimately led to its nationalisation.

At the start of this year Mr Hancock announced a further refinement of the group structure that saw the company re-organised along three geographic regions—EMEA, Americas and Asia—rather than the four previously that also included growth economies as a standalone operation.

As part of that move Robert Schimek was named the CEO of Chartis EMEA (Europe, Middle East and Africa) as Lex Baugh, former head of Chartis Europe, moved on to become group Chief Risk Officer.

Mr Hancock said of the latest move: "This simplified structure will permit closer coordination of the regions with the commercial and consumer teams, and it will allow us to put greater emphasis on growth economy nations by aligning them under our top regional executives. Profitable growth in developing countries is an essential component of our strategic plans to create greater value for all of Chartis' stakeholders."

AM Best appeared to agree with Mr Hancock.

"The European operations are expected to become better integrated with those of the wider group, and both companies are expected to benefit from group-driven initiatives to improve performance and analytical capabilities," stated the agency.

The rating agency is not getting carried away with the recent feel-good factor at Chartis and said that it does not expect positive rating actions in the near future.

"Factors that may lead to negative rating actions include a decline in risk-adjusted capitalisation, weaker than expected operating performance or deterioration in reserves," stated AM Best.

Of perhaps more significance, particularly in the light of Mr Greenberg's latest action, was the final comment from the rating agency that factors that may affect other subsidiaries of the Chartis group or its ultimate parent AIG could place 'downwards pressure' on the ratings of the two European entities.

But let's stick with the good news for now.

Fitch Ratings affirmed its 'BBB' rating on AIG's senior unsecured notes and its 'A' Insurer Financial Strength (IFS) ratings on various subsidiaries, all with a Stable Rating Outlook. Fitch said that its positive action on AIG mainly reflects the benefits of the AIG organisation's strong competitive positions in life and non-life insurance, partially offset by the comparatively poor recent operating results of the company's core insurance operations.

The rating agency said that the Positive Outlook on AIG's IDR and the upgrade of the company's subordinated securities ratings reflect improvements in the group's liquidity and financial profile over the last 12-18 months as it shed operations and de-leveraged.

Fitch said that it believes that AIG has 'reasonable' access to public and private capital markets, a key characteristic of investment-grade rated insurance holding companies.

It pointed out that, since December 2010, the company has raised $6.9bn through public debt and equity offerings and entered into a $4.5bn syndicated bank credit facility.

AIG has also 'significantly' reduced its financial leverage over the last 12-18 months and the company's ratio of holding company financial debt-to-capital of 19% at September 30, 2011 roughly equates to industry peers, pointed out the rating agency.

It also noted, however, that broader leverage metrics indicate that AIG remains more leveraged than insurance industry peers.

This is because of the company's comparatively heavy use of debt to fund spread-based investments, the financing needs of the company's aircraft leasing subsidiary, and the notional value of the company's run-off portfolio of credit-default swap (CSDS) contracts, all of which Fitch views as forms of leverage.

The rating agency pointed out that at the end of September 2011, AIG's TFC ratio was 1.6 times. It described this as a 'dramatic' improvement against the company's year-end 2008 ratio of 10.4 times.

But it noted that this is still higher than insurance industry averages which Fitch estimates at approximately 1.0 times for large domestic life insurers and 0.5 times for large commercial lines focused non-life insurers.

AIG has disclosed a goal of improving its normalised after-tax operating return on equity (ROE) to 10% or higher by year-end 2015, compared with 6.2% as of year-end 2010. This will be achieved through a combination of earnings growth and capital management initiatives, says the company.

Fitch notes that this will largely depend upon growth in assets and a reduction in Chartis' combined ratio to 90%-95%.

The agency said that it believes that if these objectives are met, AIG's operating performance would 'more closely resemble' those of similarly positioned peers that generally carry higher ratings than AIG.

Fitch said that it recognises that Chartis has implemented changes to its underwriting processes that more explicitly consider each business line's risk-adjusted profitability and the cost of capital needed to support the business written, as explained by Mr Hancock in his recent interview with CRE.

The rating agency said that it views these changes more closely align Chartis' underwriting practices with peers.

The era of dropping rates to protect the book, as claimed by competitors during the crisis period, is most definitely over for Chartis underwriters it seems.

But, given Chartis' leading position in the US commercial insurance market, enviable global distribution network and lead position in the global programmes market you would think that it would no longer need to fight for market share now that the worst appears to be over.

One variable that could mess up this and the overall strategy, however, would be the reserving position.

It is a fact that Chartis' long-term underwriting results have not been as good as competitors because of prior accident year reserve development. This was epitomised by a whacking great addition last year shortly after Mr Hancock's arrival when everyone else was still boosting their results with additions.

Fitch pointed out in its report that the company's NAIC RBC (risk-based capital) ratios are generally lower by a 'meaningful margin' than those of big domestic competitors that also concentrate on commercial insurance.

The good news for Chartis and any still nervous customers is that Fitch, for one, said that it believes the group's reported reserves are within a 'reasonable range' of estimates that it developed in part based on Schedule P data included in the company's combined statutory annual statement.

Fitch also said that it believes that the risk of the company experiencing material adverse development is 'adequately incorporated' into Chartis' current ratings.

"Fitch's view is that Chartis' June 2011 decision to reinsure its asbestos claims and charges the company took in 2009 and 2010 to add to prior accident year reserves have materially decreased the company's exposure to adverse reserve development," it added.

So if that potentially big and nasty red herring has been confidently set aside what else is out there that could wreck the recovery party for Mr Hancock and the team?

Well don't forget Hank Greenberg who would, it seems, be more than happy to calm everyone down.

News broke last week in the US press that Starr International, of which Mr Greenberg is now Chairman and Managing Director, has amended a lawsuit filed against the federal government last November to claim that the terms of government aid to AIG in 2008 amounted to an attempt to steal the business.

The original suit seeks $25bn from the federal government for Starr, Mr Greenberg and others in a similar situation. Not satisfied with that, Starr has also sued the Federal Reserve Bank of New York.

The Bank funded the initial $85bn in aid to AIG in September 2008 on what Starr claims were unfavourable terms compared to what struggling banks were able to secure at the time.

As such, Starr charges that the government aid, that saw it take 79.9% of AIG's stock, was an unconstitutional act.

The Starr filing claims that the government takeover was not necessary because AIG was not under threat of insolvency but rather suffered temporary liquidity problems. It points out that the government ended up with over 90% of the shareholders' equity without paying 'just compensation.'

AIG is a nominal defendant in the case which means the company would be bound by any judgment. Whatever the merits of Mr Greenberg's case one suspects that everyone at Chartis and the vast majority of its existing and potential customers would hope that Mr Greenberg and his suit would just disappear.

The corporate insurance market has done a remarkably good job to retain customer confidence in its ability to deliver on promises made over a very tricky period worldwide.

The survival of Chartis as a serious player in what is still a limited pool of truly international carriers is good news for customers and its continued rehabilitation is eagerly supported. Cross your fingers that the recovery continues unhindered.

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