AIG Expects 4Q Charge Of $4.1B For Loss Reserves
NEW YORK (CBSNewYork/AP) — American International Group Inc. said Wednesday that it expects a fourth-quarter charge of $4.1 billion to build up loss reserves for its Chartis property and casualty insurance units.
The New York insurance company said Wednesday that it also reached a deal with the Treasury Department allowing it to keep $2 billion in proceeds from the sale of its life insurance divisions.
Those proceeds, and other funds, will be used to support the Chartis units’ capital in connection with the strengthening of the loss reserve.
AIG, which was pulled from the brink of bankruptcy by a $182 billion U.S. bailout, said the strengthening of the reserve reflected “adverse development” in businesses including asbestos, excess casualty and workers’ compensation, mostly covering years before 2006.
AIG says it will report its complete fourth-quarter financial results after the market closes Feb. 24.
Earlier this year, the government rescue came closer to an end as AIG paid its $21 billion outstanding balance to the New York branch of the Federal Reserve. AIG also converted preferred stock owned by the Treasury Department into more than 1.6 billion shares of common stock that can be sold on the open market.
The government, which now owns about 92 percent of AIG’s common shares, will wind down its largest and most complex rescue from the financial crisis by selling stock over the next two years. AIG first announced its repayment plan in September. Since then, the company has worked to raise cash to pay back the government by selling parts of itself around the world.
Earlier this month AIG finished selling the two life insurance units. The company sold Japan-based AIG Star Life Insurance Co. Ltd. and AIG Edison Life Insurance Co. to Prudential Financial Inc. for $4.2 billion in cash and will assume $600 million in third-party debt.
AIG became a symbol for lax regulation and excess risk on Wall Street during the financial crisis that crested in late 2008. The company agreed to cover losses on hundreds of billions in mortgage investments held by banks. When the investments lost value, AIG could not afford to make good on its contracts. It used billions of government money to pay the banks.
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