AIG insists its rejuvenation plans remain on track despite a massive fourth-quarter loss that dragged the insurance giant into the red last year.

Its net loss in the three months to December worsened to $US3.04 billion ($3.94 billion) from $US1.84 billion ($2.39 billion) in the corresponding period of 2015, hit by a $US5.6 billion ($7.26 billion) adverse development charge.

The insurer made a loss of $US849 million ($1.1 billion) last year, compared with a $US2.2 billion ($2.85 billion) net profit in 2015.

It announced last month that its fourth-quarter result would include a development charge arising from a reinsurance agreement with Berkshire Hathaway-owned National Indemnity Company. The agreement is backdated to January 1 last year, with National Indemnity covering 80% of AIG’s commercial long-tail exposures for 2015 and prior years.

President and CEO Peter Hancock said the agreement “significantly reduces the risk of further reserve additions in some of the most volatile lines, and we responded definitively to emerging severity trends that we believe are materially impacting the overall US casualty market”.

“Going forward we expect to see the results from our improved underwriting platform, reduced expense base, and the strong improvement in our business mix… We remain committed to continuing to execute our clearly defined transformation plan.”

Net written premium from the global group’s core commercial insurance business, comprising liability and financial lines and property and special risks, fell 20.2% to $US3.7 billion ($4.8 billion) in the fourth quarter.

The combined operating ratio for commercial insurance blew out to 241.6% from 163.3% in the corresponding quarter of 2015.