NU Online News Service, Feb. 28, 12:02 p.m.EST

Standard & Poor's Rating Services has downgraded thecounterparty credit and financial strength ratings of AmericanInternational Group Inc.'s (AIG) Chartis subsidiaries after thecompany reported a 2010 fourth-quarter underwritingloss of $5.2 billion.

S&P said its view is that the property and casualty company“will not be able to outperform the industry over the next one totwo years” despite its global presence.

S&P lowered Chartis' rating to “A” from “A-plus.”

Chartis booked a previously announced $4.1 billion charge in thefourth quarter to bolster reserves, raising questions amonganalysts.

S&P said Chartis' fourth-quarter underwriting results werelower than expected, notwithstanding the adverse reservedevelopment. The combined ratio for the Chartis group was 111.3 forthe last quarter and 103.6 for the year—a “marked deterioration”from the 101.2 combined ratio at the end of the 2010 third quarter,S&P said.

The rating agency said it recognizes “that some of thisdeterioration stemmed from nonrecurring items that we don't expectwill affect prospective operating performance” at Chartis and thatthe company has shifted toward lower-volatility business lines andengaged in underwriting initiatives. Chartis has been getting outof the workers' compensation and excess casualty markets since2006.

Shortly after the reserve charge was announced, Fitch Ratingsdropped the financial strength rating of AIG'sdomestic non-life insurance subsidiaries to “A” from“A-plus.” Fitch said Chartis' recent history of missing themark on claims costs “raises concerns about the companies' abilityto generate consistent run-rate underwriting results” in line withFitch's previous ratings.

S&P affirmed its “A-plus” rating for AIG's life insurancegroup, SunAmerica Financial, and its “A-minus” rating on AIG.

The diversification between the P&C and life business wasone reason S&P affirmed AIG's rating. Also, AIG faces lessuncertainty due to its executed recapitalization plan, S&P said.

AIG recorded net income of more than $11 billion on severalasset sales and the initial public offering of its Asian insurancebusiness.