AIG to retain $2bn of life unit sales proceeds to fund increase

US insurance holding company American International Group expects to record a $4.1bn charge in its Q4 2010 results to strengthen loss reserves at its Chartis non-life insurance subsidiaries.

The figure is net of $446m in discount and loss-sensitive business premium adjusments.

The strengthening reflects adverse development on old accident years in classes of business with long reporting tails. Four classes – asbestos, excess casualty, excess workers’ compensation, and primary workers’ compensation – comprise approximately 80% of the total charge. The majority of the strengthening relates to development in accident years 2005 and before.

AIG has reached an agreement with the US Department of the Treasury to retain $2bn of the cash proceeds from the sale of two of its life units - AIG Star Life Insurance Co. Ltd and AIG Edison Life Insurance Company - which the insurer sold as part of its plan to repay the US Government for its 2008 bail-out.

AIG will use these proceeds, along with other funds, to support Chartis's capital in connection with the reserve strengthening.

The total reserve strengthening represents approximately 6% of AIG’s total general insurance net liability for unpaid claims and claims adjustment expense of $63.7bn reported at September 30, 2010.

The reserve strengthening breaks down as follows:

  • Asbestos: $1.3bn before discount
  • Excess casualty: $1bn
  • Excess workers' compensation: $825m before discount
  • Primary (specialty) workers' compensation: $420m before discount

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