AIG May Face An $11 Billion Shortfall In Insurance Reserves

AIG hq


The disaster at AIG keeps getting worse.

Today a Sanford C. Bernstein analyst released a note on his discovery that the insurer has an undisclosed $11 billion shortfall in reserves to pay property-casualty claims.

Todd Bault said that AIG may have cut back on its use of reinsurance and become too “aggressive” in pricing workers’ compensation and professional liability policies.  As a result, AIG would likely have to take a huge reserve charge before it could sell its Chartis property-casualty business.

“AIG shareholders and the federal government face considerably more uncertainty than they may have anticipated,” Bault wrote.

For months there have been rumours that Chartis was selling insurance an unsustainably low levels. Chartis officially dismisses these as whining from competitors. But if Bault is right, it looks like there may be some merit to this complaint.

Bault cut the price target on AIG from $20 to $12. Look out below!

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at