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Member, Beacon International Group, Ltd.
NEW YORK (Reuters)—Shares of American International Group Inc. fell 12% on Monday after an analyst raised concerns about a possible deficiency in the company's nonlife insurance reserves.
According to CNBC, Bernstein Research estimated AIG's property/casualty operations could face an $11 billion reserve deficiency in the next year.
Bernstein cut its target price for AIG shares to $12 from $20 to reflect the possible reserve deficiency, the business television channel reported.
AIG shares fell $4.00 to $29.30 in morning trade on the New York Stock Exchange.
An AIG spokeswoman said the company does not comment on analysts' reports.
Bernstein said the majority of the possible deficiency is in three lines of coverage—workers compensation, general liability and professional liability—underwritten by AIG's nonlife insurance businesses, CNBC reported.
Robert Schimek, chief financial officer for these businesses, recently said the company had been trimming its sales where prices for coverage were too low to be profitable, including for workers compensation.
Insurers set aside reserves to cover claims on coverage that has already been sold. The reserves may have to be maintained for many years, depending on the type of coverage.
AIG's global nonlife insurance business adopted the name Chartis in July to distance itself from its troubled parent. The unit has not been one of the AIG businesses needing taxpayer support and has remained profitable.
AIG was saved from collapse last year by a U.S. bailout that has since swelled to as much as $180 billion, including more than $80 billion in loans that must be repaid. The company is now about 80% owned by U.S. taxpayers.