(Bloomberg News) American International Group Inc., the insurer majority owned by the U.S. Treasury Department after a 2008 bailout, said first-quarter profit more than doubled on investment gains and lower claims costs from natural disasters.

Net income climbed to $3.21 billion, or $1.71 a share, from $1.3 billion, or 31 cents, a year earlier, when the insurer booked charges related to paying back a Federal Reserve credit line, according to a statement today from the New York-based company. Operating income, which excludes some investment results, was $1.65 a share, beating the $1.13 average estimate of 18 analysts surveyed by Bloomberg.

Chief Executive Officer Robert Benmosche, 67, has presided over a 47 percent surge in AIG's share price this year, as the insurer retired obligations to the Treasury and bought back shares, helping cut the department's stake to 70 percent. The transactions paved the way for a complete government exit, which Chairman Steve Miller said may come within a year.

"The biggest discussion with AIG seems to revolve around how quickly they can liquidate assets that could be used to repay the government," Paul Newsome, an analyst at Sandler O'Neill & Partners LP, said in a phone interview before results were released. "Investors have very wide-ranging views about both the size and the speed that AIG would be able to do that."

The Chartis property-casualty division posted pretax income of $910 million, compared with a loss of $374 million a year earlier. The division spent $1.02 for every premium dollar on claims and expenses, down from $1.19.

Natural Disasters

Catastrophe costs fell to $80 million from about $1.7 billion a year earlier. The March 2011 earthquake and tsunami in Japan was the most costly disaster for insurers last year, as the industry faced $105 billion in losses from catastrophes, according to Munich Re, the world's largest reinsurer.

Sales at Chartis, which insures commercial property, corporate boards and airplanes, fell 3.8 percent to about $8.82 billion as the company said it sought to improve on risk selection.

The insurer fell 14 cents to $34 at 5:10 p.m. in extended trading in New York. The Treasury needs to sell shares at an average of $28.72 to break even on the government's investment.

Net unrealized gains on bonds available for sale widened to $16.2 billion from $13.2 billion three months earlier, led by mortgage-backed and corporate debt. The figures, reflecting market fluctuations that aren't counted toward earnings, are monitored by investors and rating firms as a gauge of financial strength.

Shareholders' Equity

Shareholders' equity, a measure of assets minus liabilities, was $57.68 per share as of March 31, compared with $53.53 at the end of December. AIG published revised financial reports for prior periods last month to account for new rules that stipulate which costs related to acquiring and renewing insurance contracts can be capitalized.

AIG's U.S. life insurance and retirement services division posted pretax profit of $862 million, compared with a $967 million profit a year earlier. Premiums and other considerations declined about 13 percent to $5.6 billion.

Resurgent demand for mortgage-related assets and climbing equity markets boosted AIG's earnings and eased transactions that helped the insurer reduce obligations to the government. AIG raised about $6 billion by selling part of its stake in Hong Kong-based insurer AIA Group Ltd. on March 6. The next day, the Treasury said it was selling $6 billion of its AIG shares and that the bailed-out insurer had agreed to purchase half the offering. The stock sold for $29 a share, the same price as in the government's first offering, in 2011.

AIA Stake

The change in the fair value of AIA, including realized gains, added $1.8 billion to income.

AIG also struck a deal in March to retire $8.5 billion of the Treasury's interests in entities tied to the bailout. Part of the proceeds for that repayment came from the wind-down of a New York Fed-controlled fund called Maiden Lane II, which held mortgage-backed securities taken over in the rescue.

Another bailout fund, Maiden Lane III, holds mortgage investments that AIG had insured against losses. The New York Fed began divesting those assets last month in an auction. An increase in the value of AIG's stake in Maiden Lane III contributed $1.25 billion to earnings.

ILFC, United Guaranty

Selling the rest of Maiden Lane III, the remaining stake in AIA and plane-leasing unit International Lease Finance Corp. could generate funds for AIG to buy back additional shares, Josh Shanker, an analyst Deutsche Bank AG, said in a March note to clients. He estimated that asset sales and distributions from subsidiaries could allow the company to repurchase $15 billion to $20 billion of stock in the next year.

ILFC operating profit rose to $119 million from $117 million a year earlier. AIG said in September that it plans to sell more than 20 percent of the subsidiary in an initial public offering and divest most of the unit over time.

Operating income at AIG's mortgage insurer, United Guaranty, slipped 43 percent to $8 million. Mortgage insurers pay lenders when homeowners default and foreclosures fail to recoup costs.

So-called alternative investments generated income of $353 million, compared with a $665 million profit a year earlier. Income from private equity fell by more than half to $184 million. Hedge-fund income fell 23 percent to $169 million. Returns for hedge fund and private equity investments are reported on a one month and one quarter lag, according to the statement.

AIG had $18.6 billion in alternative funds at the end of the first quarter, compared with $18.2 billion on Dec. 31.

AIG has sold non-U.S. life insurance operations, a consumer lender and other businesses to raise funds to pay back the government. In the first quarter of 2011, the insurer incurred a $3.3 billion pretax charge in retiring a Fed credit line. At the same time, the Treasury got 92 percent of the company's common stock, after exchanging preferred shares. That holding has been cut through two share sales.