NEW YORK—American International Group Inc. reported annual financial results Friday that showed Chartis Inc., AIG’s global property/casualty business unit, made an aftertax reserve addition of $1.8 billion on long-tail casualty business but ended 2009 with an operating profit.

Chartis’ net premiums written for fourth-quarter 2009 were $6.93 billion, down 2.2% from the year-earlier period. For the full year, Chartis’ net premiums written were $30.66 billion, down 13.9% from 2008. Its underwriting loss for the fourth quarter widened to $2.61 billion from $1.8 billion. For the year, the underwriting loss was $2.6 billion.

Pretax operating income for the year was $169 million vs. a loss of $2.45 billion for 2008. The full-year combined ratio deteriorated slightly to 108% from 101.9%.

“We’ve made a lot progress in strengthening the balance sheet of our organization,” said Rob Schimek, chief financial officer of Chartis. “We also made a decision to strengthen reserves, the vast majority of which relates to accident years 2002 and prior, long-tail classes of business that by definition are very complex to reserve for,” Mr. Schimek said.

Mr. Schimek noted that the reserve addition amounts to 3.6% of Chartis’ carried reserves of about $63 billion and came after internal and independent actuarial studies. The reserve boost was for long-tail casualty business, particularly excess workers compensation, he said.

Chartis expects to report that its U.S. policyholder surplus for 2009 grew from $26.1 billion to approximately $27 billion, Mr. Schimek said. In addition, Chartis’ statutory risk-based capital ratios for last year rose significantly from the levels reported in the prior year of approximately 400%, well above state regulators’ requirement to maintain a minimum 200% solvency ratio, he explained.

After the global financial crisis in late 2008, AIG spent much of the past year under extreme financial pressure, and its property/casualty units were consolidated and rebranded as Chartis.

“Our clients made a commitment to us a year ago” during that difficult period, said Kristian P. Moor, president and CEO of Chartis. “It’s with a lot of pride that we have been able to go back to them at renewal and say we’re a stronger company. We’ve strengthened our balance sheet, our account retentions are strong, new business is up. Also, we’ve attracted new talent to the management team, and our employee retentions are very, very strong,” he said.

Chartis so far in 2010 has named a new general counsel, a chief risk officer and will announce a new chief investment officer in a few weeks, Mr. Moor said.

The global property/casualty insurer continues to build world-class capabilities for its businesses, Mr. Moor said. “The first priority for our organization is maintaining our business. The second piece is making sure we’re a world-class organization from a management, risk-taking, financial and legal standpoint. That’s all about having financial flexibility and independent ratings,” he said. Chartis expects to have the past three years of audited worldwide financial statements by the end of the first quarter, Mr. Moor said.