NEW YORK—American International Group Inc. said Wednesday that it expects to boost reserves at its Chartis Inc. property/casualty subsidiaries by $4.6 billion, which will result in a $4.1 billion reserve charge when it posts its fourth-quarter results on Feb. 24.

The $4.1 billion charge is net of $446 million in discount and loss-sensitive business premium adjustments, AIG said.

AIG said 80% of the reserve strengthening will be made to four classes of long-tail business, with most of it relating to developments in accident years 2005 and prior: asbestos, $1.3 billion before the discount; excess casualty, $1 billion; excess workers compensation, $825 million before the discount; and primary (specialty) workers compensation, $420 million before the discount.

In a statement, AIG also said it has strengthened reserves in its construction/commercial risk and national accounts classes of business by about $820 million before the discount. It said various other classes comprise the remaining $250 million of reserve strengthening.

AIG said the reserve boost is the result of a comprehensive review of net loss reserves that Chartis conducts at the end of every year, which represents the accumulation of estimates for reported losses and provisions for incurred-but-not-reported losses, both of which are reduced by applicable reinsurance recoverables and the discount for future investment income, where permitted.

AIG said the total reserve strengthening amounts to about 6% of the $63.7 billion of its total general insurance net liability for unpaid claims and claims adjustment expenses, which was reported as of Sept. 30, 2010.

Also Wednesday, AIG said it has entered into a letter of agreement with the U.S. Treasury Department that permits AIG to retain $2 billion of net cash proceeds from the recently closed sale of AIG Star Life Insurance Co. Ltd. and AIG Edison Life Insurance Co.

The insurer said the proceeds will be used to support Chartis insurance subsidiaries' capital in connection with the loss-reserve strengthening. As a result, AIG said it expects Chartis insurance companies' statutory surplus to remain largely unaffected.

Observers said they were not surprised by the charge.

“I've been noticing that while many other insurers are releasing reserves because of available prior-year reserve trends vis-à-vis reserve levels, that wasn't the case at AIG,” said Cathy Seifert, an equity analyst with Standard & Poor's Corp. in New York. She characterized the boost as “prudent.”

In addition, Oldwick, N.J.-based A.M. Best Co. Inc., which affirmed Chartis U.S. Insurance Group's A (excellent) financial-strength rating and its “a” issuer credit rating, said in a statement that although this is a significant increase to Chartis' reserves, the ratings remain unchanged because it “views the charge as being within its previous estimate of the group's reserve deficiency.” Best's ratings outlook on Chartis is negative.