AIG May Avoid Reserve Charge, Barclays Says After Meeting CFO

American International Group Inc. (AIG), the insurer that took a $4.2 billion charge in last year’s fourth quarter after reserves proved inadequate, may avoid a similar cost in the current period, Barclays Plc said.

The insurer is confident it now has sufficient funds set aside to cover losses on policies sold in prior periods at its property-casualty unit Chartis, Jay Gelb, an analyst at Barclays, said in a note to clients today, citing a meeting with AIG Chief Financial Officer David Herzog.

“AIG now reviews its reserves throughout the year, which means the company probably will not take a reserve charge” when it reports fourth-quarter results, Gelb wrote.

AIG has sold non-U.S. life insurers, a consumer lender, an asset manager and other businesses to help repay a 2008 U.S. bailout that swelled to $182.3 billion. Chief Executive Officer Robert Benmosche, 67, is seeking to convince investors of the potential of remaining units, including Chartis, as the Treasury Department works to exit its majority stake.

Reserve additions at the unit last year and in 2009 hurt results and were a sign that the insurer had underestimated the cost of claims. Rivals such as Travelers Cos. and Chubb Corp. have booked gains after determining they had set aside more funds than necessary for policies sold in prior periods.

Additions to reserves cost Chartis $85 million in the nine months ended Sept. 30, according to a regulatory filing.

“Our sense is it will take time for investors to be convinced of Chartis’ reserve adequacy,” Gelb wrote.

AIG stock has slumped more than 50 percent this year. The company advanced 3 cents to $21.04 at 3:21 p.m. in New York. Mark Herr, a spokesman for the New York-based insurer, declined to comment.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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