NU Online News Service, Feb. 10, 2:31 p.m. EST

Fitch Ratings has dropped the financial strength rating of American International Group Inc.’s domestic non-life insurance subsidiaries after AIG had to bolster Chartis reserves by $4.1 billion.

Fitch said the subsidiaries’ ratings were cut to “A” from “A-plus” as the agency views AIG’s “record of adverse development as a significant outlier relative to that of the company’s large commercial insurance lines competitors and to the overall non-life insurance market.”

The companies’ recent history of missing the mark on claims costs “raises concerns about the companies’ ability to generate consistent run-rate underwriting results” in line with Fitch’s previous ratings, the rating agency said.

About 80 percent of the $4.1 billion charge to be recorded in the fourth quarter will be put toward four classes of business: asbestos, excess casualty, excess workers’ compensation and primary workers’ compensation and much of the adverse development is from accident years 2005 and older, AIG said.

However, Fitch said that while it is true a majority of the charge is from older years, “reserves for more recent accident years have also developed adversely.”

In the meantime, Standard & Poor’s said its financial strength rating of “A-minus” for AIG is unaffected by the reserve charge, which represents about 6 percent of the AIG’s total reserves as of Sept. 30, 2010. Chartis is rated “A-plus.”

S&P said the adverse development in workers’ compensation is “consistent with our belief that the industry will strengthen reserves in this line for the most recent years.”

Chartis has been getting out of the workers’ compensation and excess casualty markets since 2006, S&P noted. At an industry event last month, Kristian P. Moor, president and CEO of Chartis, said workers’ compensation is underpriced and the company would continue to exit the market.

Rating agency A.M. Best Co. said its financial strength rating of “A” for Chartis’ U.S. group of companies remains unchanged. A.M. Best said it contemplated a reserve shortfall in its most recent assessment of the group’s reserves “and thus views the charge as being within its previous estimate of the group’s reserve deficiency.”

Special Reports /

Fitch Cuts Ratings For AIG Non-Life Companies After Reserve Charge

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