American International Group Inc. 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.
Rating agency A.M. Best Co. said its financial strength rating of "A" and issuer credit rating of "a" for Chartis' 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."
In late January, AIG announced two appointments, which the company 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.
A.M. Best said as part of its statement on Chartis that AIG's "risk management and actuarial functions contributed to the refinement in Chartis' reserve analysis and judgments used in estimating loss reserves, which should prove beneficial going forward."
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