AIG To Take $4.1B Charge To Boost Chartis Loss Reserves

NU Online News Service, Feb. 9, 11:25 a.m. EST

American International Group Inc. (AIG) said it expects to record a $4.1 billion charge in the fourth quarter to bolster loss reserves for its Chartis property and casualty unit.

The decision was made after the company’s year-end review of loss reserves. About 80 percent of the charge will be put toward four classes of business: asbestos, excess casualty, excess workers’ compensation and primary workers’ compensation, AIG said.

The need to strengthen Chartis’ reserves is due to adverse development on prior accident years in these classes of business, which have long reporting tails, AIG said. Much of the adverse development is from accident years 2005 and older.

To partially fund the charge, AIG said it and the U.S. Department of Treasury have reached an agreement to allow AIG to retain $2 billion from the recent closed sale of AIG Star Life Insurance Company and AIG Edison Life Insurance Company.

AIG said the reserve strengthening represents about 6 percent of its total general insurance net liability for unpaid claims and claims adjustment expense as of Sept. 30, 2010.

In late January AIG announced two appointments it said recognized “the importance of the actuarial oversight function as key to AIG's re-emergence as a company independent of government support.”

AIG created a new position, senior vice president-corporate chief actuary, and appointed Charlie Shamieh, formerly the company’s executive director of enterprise risk management, to the role.

AIG then named Mark W. Scully, formerly global chief actuary and deputy chief risk officer at Allianz SE, as Chartis’ chief actuary.

In other news, a report naming anonymous sources close to the company said AIG will delay its stock offering until April or May.

An AIG spokesperson declined to comment on the report. In previous releases outlining its recapitalization plan to pay back taxpayers, AIG has only gone as far as to say it would like to do something early this year, subject to market conditions. AIG will report fourth-quarter earnings on Feb. 24 after the market closes, and investors must have time to analyze results before any offering.

AIG issued about 75 million 10-year warrants to shareholders in January, which gives shareholders the opportunity to buy common stock at $45 per share.

Currently, the U.S. Treasury, as part of the recapitalization plan, owns about 92 percent of AIG.