NU Online News Service, August 3, 11:41 a.m.EDT

American International Group reported a 27 percent increase insecond-quarter net income compared to the same period last year,and predicted “we are close” to paying off the government for itsinvestment in the company starting in 2008.

AIG says it also believes the government will make a profit onits investment.

The growth was primarily in its insurance operations, and wasnearly double the consensus of Wall Street analysts.

Net income attributable to AIG was $2.3 billion and after-taxoperating income was $1.9 billion for the quarter, compared to netincome of $1.8 billion and after-tax operating income of $1.2billion for 2011's second quarter.

Chartis, the company's multinational property and casualtyoperations, reported operating income of $936 million in the secondquarter of 2012, compared to operating income of $783 million inthe second quarter of 2011.

The combined ratio dropped to 102.4 compared to 104 a year ago.Excluding catastrophes, the accident-year combined ratio was 98.3,compared to 97.7 in the second quarter of 2011

A factor in the growth of sales at Chartis was a stronger marketand a focus on more profitable, less risky lines of P&Cbusiness, the company says.

During a conference call with financial analysts, Peter Hancock,executive vice president, general insurance, said the 20 percentincrease in operating income for Chartis was due to the combinationof underwriting improvements and lower catastrophe losses. Theresults were slightly offset by an increase in expenses that wereattributed to higher acquisition costs for underwriting businessand higher operating expenses “tied to people and processes.” Hesaid improvement in the expense and loss ratios are expectedthrough the end of 2013.

He added that the $328 million in catastrophe losses for thequarter were primarily from storm activity in the United States,Japan and floods in the United Kingdom. Catastrophe losses werehigher than expected, but “we're comfortable with the result giventhe general level of cat activity and the extent of our geographicmix of business.”

Chartis remains focused on international growth during thesecond quarter, Hancock continued, with 48 percent of totalpremiums generated outside of the United States and Canada, and hesaid that “growth economy nations or emerging markets” represented10 percent of total premiums.

Turning to underwriting, he said commercial rates improved by 8percent, while in Europe rates rose 1 percent, .

“While we have not characterized the environment as a hardmarket, it is certainly improving,” said Hancock.

AIG's life unit, SunAmerica Financial Group, reported operatingincome of $933 million in the second quarter of 2012, compared tooperating income of $723 million in the second quarter of 2011.

United Guaranty Corporation, AIG's residential mortgage guarantyoperations, reported stronger growth, and operating income of $43million for the second quarter of 2012, compared to operatingincome of $12 million in the second quarter of 2011, reflectingfavorable prior-year development and a 17 percent decline in newdelinquencies.

At the same time, AIG reported that the fair value of theordinary shares it still owns of AIA, its Asian life insurance unitthat it is spinning off, decreased $493 million during the secondquarter of 2012.

But the value of the company's investment in Maiden Lane III, aspecial purpose vehicle created to hold securities AIG had torepurchase in exchange for credit default swaps it issued before itgot into trouble in 2008, increased $1.3 billion during the secondquarter of 2012.

That amount is rising as the Federal Reserve Bank of New Yorkcontinues to auction off the securities held in the facility.

AIG President and CEO Robert Benmosche says in a statement,“Every day, the people of AIG continue to make significant progressin restoring our reputation in the communities we serve; respectfor the AIG name has endured among our partners and customers.”

He reiterated that, in October, the SunAmerica Financial Groupsegment will be renamed AIG Life and Retirement, and that theproperty and casualty insurance operations will return to the AIGname, from Chartis.

Additional reporting by Mark E. Ruquet