NU Online News Service, April 21, 1:59 p.m. EDT

AIG Asbestos Liability Claims Transfer Moody’s Investors Service says a recently announced transaction that will see Chartis transfer legacy asbestos claims to National Indemnity Insurance Company (NICO) is credit positive for Chartis, as it reduces the insurer from adverse development of asbestos liabilities.

Chartis is the property and casualty unit of American International Group, Inc. NICO is the flagship reinsurer of Berkshire Hathaway Inc.

Under the transaction, Chartis will pay NICO about $1.65 billion to take on the bulk of its net asbestos reserves. Moody’s says NICO will assume responsibility for claims-handling and collection of approximately $2.8 billion of third-party reinsurance recoverable on the transferred portfolio.

Moody’s states that while asbestos liabilities account for “a modest portion” of reserves for Chartis, they represent “a sizable share of Chartis’ reserve development from year to year.

The rating agency asbestos has been one of four classes of business where Chartis has experienced adverse reserve development. “The pending transaction with NICO will substantially reduce the asbestos risk,” says Moody’s.

Moody’s notes that net asbestos reserves were just over 3 percent of balance sheet reserves at year-end 2010, but accounted for more than 30 percent of net adverse reserve development for the year.

Other classes that Chartis has seen adverse development include excess casualty, excess workers’ compensation and specialty workers’ compensation. But Moody’s notes that Chartis “has shifted its premium writings in recent years toward more attractive market segments—such as consumer, multinational, specialty, and accident and health—and away from excess casualty, workers’ compensation and catastrophe-exposed property lines.

While Moody’s expects that it will take time for this strategy to produce results, the rating agency says Chartis has taken “prudent steps” to reduce volatility and strengthen profitability.

Moody’s notes that Chartis’ expectation of around $1 billion in first-quarter catastrophe losses represents a “significant hit to earnings at the start of 2011.” But Moody’s adds that Chartis’ large capital base and diversified profile will allow it to settle claims and continue to write new business.

Moody’s also says Chartis’ recent management shakeup underscores the company’s credit challenges, but the rating agency contends that Chartis maintains the capital strength and management expertise to improve risk-adjusted returns over time.

Moody’s currently assigns a financial strength rating of A1 to Chartis with a stable outlook.

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Transfer Of Asbestos Claims To NICO &lsquo;Credit-Positive&rsquo; For Chartis

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