NEW YORK—Standard & Poor’s Corp. on Monday downgraded American International Group Inc.’s property/casualty subsidiary Chartis Inc.’s financial-strength rating to A from A+ and revised its outlook on AIG and its operating companies to stable from negative.

The move by S&P followed last week’s report by AIG that it made a profit of $7.79 billion for 2010, though Chartis reported a 2.6% decline in net premiums written for the year and a 3.3% decline in the fourth quarter.

In addition, S&P affirmed its A+ financial-strength rating of AIG subsidiary SunAmerica Financial Group.

“While recognizing the overall improvement in the holding company’s and SunAmerica’s financial profiles, we lowered the Chartis rating because of the deterioration in the group’s operating performance,” S&P Credit Analyst Steven Ader said in a statement.

The New York-based rating agency said the decision to downgrade Chartis’ financial-strength rating was not due to a $4.1 billion adverse prior-year reserve development, but because of poor fourth-quarter underwriting results and an increased combined ratio, which was 111.3% in the fourth quarter and 103.6% for all of 2010.

S&P cited a “marked” deterioration in Chartis’ combined ratio, which had been 101.2% during the first three quarters of 2010.

“Although we recognize that some of this deterioration stemmed from nonrecurring items that we don’t expect will affect prospective operating performance, the downgrade reflects our modified view that Chartis will not be able to outperform the industry over the next one to two years, despite its formidable competitive global presence,” Mr. Ader said in the statement.

Further, S&P said the decline in Chartis’ performance shows that while the insurer remains a strategically important part of AIG that analysts agree is important to the New York-based insurer’s long-term strategy, analysts “no longer view it as a core business, as defined under our group methodology.”

“We could lower the ratings on AIG, Chartis and SunAmerica if the group’s performance were to fall short of our expectations, particularly if there were a shortfall in earnings, capitalization or leverage,” S&P said in the statement. “Alternatively, we could raise the ratings if the consolidated group, while demonstrating enhanced ERM practices, were to improve its operating performance, particularly at Chartis, to a level markedly above industry norms while continuing to shift Chartis’ risk profile to less-volatile, short-duration, noncatastrophe-exposed business lines,” S&P said.