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

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

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

The companies’ recent history of missing the mark on claimscosts “raises concerns about the companies’ ability to generateconsistent run-rate underwriting results” in line with Fitch’sprevious ratings, the rating agency said.

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

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

In the meantime, Standard & Poor’s said its financialstrength rating of “A-minus” for AIG is unaffected by the reservecharge, which represents about 6 percent of the AIG’s totalreserves 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 strengthenreserves in this line for the most recent years.”

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

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