Chartis booked a previously announced $4.1 billion charge in the fourth quarter to bolster reserves, raising questions among analysts.

S&P said Chartis' fourth-quarter underwriting results were lower than expected, notwithstanding the adverse reserve development. The combined ratio for the Chartis group was 111.3 for the last quarter and 103.6 for the year—a “marked deterioration” from the 101.2 combined ratio at the end of the 2010 third quarter, S&P said.

The rating agency said it recognizes “that some of this deterioration stemmed from nonrecurring items that we don't expect will affect prospective operating performance” at Chartis and that the company has shifted toward lower-volatility business lines and engaged in underwriting initiatives. Chartis has been getting out of the workers' compensation and excess casualty markets since 2006.

Shortly after the reserve charge was announced, Fitch Ratings dropped the financial strength rating of AIG's domestic non-life insurance subsidiaries to “A” from “A-plus.” Fitch said Chartis' 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.

S&P affirmed its “A-plus” rating for AIG's life insurance group, SunAmerica Financial, and its “A-minus” rating on AIG.

The diversification between the P&C and life business was one reason S&P affirmed AIG's rating. Also, AIG faces less uncertainty due to its executed recapitalization plan, S&P said.

AIG recorded net income of more than $11 billion on several asset sales and the initial public offering of its Asian insurance business.