American International Group won’t be reporting its Q4 2016 financials until Feb. 14, but a disclosure about a “material adverse reserve adjustment” from the insurer for its U.S. commercial business drew warnings from both A.M. Best and Fitch Ratings.

A.M. Best said it will place under review with negative implications the long-term issuer credit rating (ICR) of “bbb” for AIG, and the financial strength ratings and long-term ICRs of its insurance subsidiaries. Similarly, Fitch placed AIG’s ‘A-‘ ICR and its ‘A’ insurer financial strength rating of its subsidiaries on rating watch negative.

They’re responding to AIG’s announcement that it expects to report a material prior year adverse reserve adjustment, plus a capital supporting reinsurance transaction for its U.S commercial arm.

‘This adverse development of loss reserves follows a $3.6 billion net adverse reserve adjustment for the fourth quarter of 2015 in the same longer-tailed line of business,” A.M. Best said in its statement on the matter.

The ratings agency noted that it anticipated the possibility of more reserve development, but said that the timing of this latest charge “highlights the challenges that AIG management continues to face in reserving, pricing, and handling this longer tail commercial lines business, and the effectiveness of the group’s enterprise risk management function.”

Fitch said its rating watch negative status for AIG is based on uncertainty about how big the material adverse development charges will be. Whether or not Fitch downgrades or affirms AIG’s ratings “will be based on review of the size and source of the adverse development charge, both its economic and accounting impact on AIG’s balance sheet and “any implications for recent pricing inadequacy,” Fitch wrote.

On Jan. 20, when AIG disclosed the expected reserve charge, the company also announced a $20 billion reinsurance agreement with Berkshire Hathaway’s National Indemnity Company (NICO) that’s designed to protect against future adverse reserve development. As Fitch noted, AIG will pay $9.8 billion for the coverage, plus some interest, and cede about $8.6 billion in “nominal reserves” to NICO once the deal starts, retroactive to losses prior to Jan. 1, 2016.

When AIG announced its NICO deal, AIG President and CEO Peter Hancock billed it as a “decisive step” that “enables us to focus firmly on the future and build on the progress we’ve made.”

Fitch and A.M. Best both noted that the agreement is designed to absorb some of the expected loss reserve development. Fitch, in particular, said that the deal mitigates credit exposure risks, in part, due to NICO’s “very strong financial strength” and a guarantee from Berkshire Hathaway for its obligations as stipulated in the treaty.

Credit Suisse Group AG, meanwhile, said that Berkshire Hathaway’s deal with AIG to transfer so much risk is so large that the company Warren Buffett built may leave Berkshire’s P/C operations without an underwriting profit.

Source: Fitch Ratings, A.M. Best