AIG’s second-quarter net profit took a pounding, but an after-tax operating profit that exceeded market expectations appears to have held the global insurer in good stead.

Net profit was $US1.8 billion ($2.5 billion) for the June quarter, down 41% on the corresponding period last year.

However, with an operating profit of $US1.9 billion ($2.6 billion), up from $US1.8 billion, the “too big to fail” insurer insists it is on target for long-term sustainability.

AIG – saved from bankruptcy by a US government bailout during the global financial crisis in 2008 – remains a work in progress. A program of asset divestment is ongoing.

In the second quarter it sold part of its stake in AerCap Holdings for $US4.2 billion ($5.7 billion), a stake in Springleaf Financial Services for $US410 million ($559 million) and a stake in People’s Insurance Company of China Property and Casualty for $US500 million ($681 million) – all of which contributed to the improved operating profit.

AIG’s share buyback program also continued, with $US2.3 billion ($3.1 billion) ploughed into share repurchases in the quarter. The insurer made additional repurchases of $US965 million ($1.3 billion) last month and has foreshadowed an additional $US5 billion ($6.9 billion) buyback.

CEO Peter Hancock says the second-quarter result demonstrates “our steadfast commitment to value-based management”, with a focus on balancing growth, profitability and risk.

“We continued to proactively manage our capital resources through both common stock and debt repurchases. We significantly reduced our non-core investments in both AerCap and Springleaf.

“These actions simplify our balance sheet and improve our risk profile. Our board’s approval of an additional $US5 billion share repurchase… and a 124% increase in the quarterly dividend to $US0.28 ($0.38) per share, highlights our commitment to shareholder return and… long-term profitability.”

In its core property and casualty segment, net premium written for the June quarter slipped 4% to $US5.58 billion ($7.6 billion) and underwriting income fell 67% to $US61 million ($83 million). The segment’s pre-tax operating income was down 4% to $US1.19 billion ($1.62 billion).

The combined operating ratio for the quarter deteriorated to 98.8% from 96.5%.