Fitch Ratings dropped the financial strength rating of AIG's domestic non-life insurance subsidiaries to “A” from “A-plus” as the agency views AIG's “record of adverse development as a significant outlier relative to that of the company's large commercial insurance lines competitors and to the overall non-life insurance market.”

Mark E. Rouck, senior director in Fitch's insurance rating group, said reserves for the classes of business outlined by AIG are harder to set because they are long-tail lines. Additionally, AIG has a large market share in these lines.

The subsidiaries' recent history of missing the mark on claims costs “raises concerns about the companies' ability to generate consistent run-rate underwriting results” in line with Fitch's previous ratings, the rating agency said.

Speaking at an investor conference recently, William R. Berkley, chief executive officer of W.R. Berkley Corp., an AIG competitor, said that “most people perceived AIG as being not particularly well reserved for an extended period of time” and that the bailed-out insurer was “required to be an aggressive competitor” in order to keep business.

Analysts caution investors to think about AIG's ability to accurately set reserves as developments for more recent accident years come to light.

“You have to think about AIG's history when you buy stock,” said Cliff Gallant, an analyst with Keefe, Bruyette and Woods. “Have they overstated earnings? You don't hear any noise like this from competitors like Travelers and Chubb.”

AIG's peers have been releasing reserves in recent years.

Mr. Howard said the chaos and disarray at AIG during its near collapse and subsequent $182.3 billion government rescue put “enormous pressure” on AIG and they “turned a blind eye at underwriting.”

“I think they were thinking: Get the cash in the door and worry about tomorrow, tomorrow,” Mr. Howard said.

Competitors have accused AIG of undercutting the market on pricing commercial policies as it tried to maintain market share during the bailout.

The U.S. Government Accountability Office and Pennsylvania's insurance commissioner have said there is no evidence AIG engaged in pricing misconduct.

Following the reserve charge, Mr. Berkley said “there will be more pressure on AIG, not less, and more pressure on the rest of the industry to face reality.” The chief executive has said the industry is pricing business irrationally. AIG will need to raise prices, he added.

Mr. Berkley said he hopes AIG addresses possible reserve deficiencies in years after 2005 before its public offering. In its recapitalization plan to pay back the bailout, AIG has said it would like to offer stock early this year, subject to market conditions. AIG will report fourth-quarter earnings on Feb. 24 after the market closes.