(Corrects paragraph 13 to show consumer underwriting combined ratio fell instead of rose)
Aug 4 (Reuters) - American International Group Inc reported a better-than-expected 12.5 percent rise in quarterly profit, helped by strong performance across all its key businesses, and the insurer said it would expand its buyback program by $2 billion.
The company's shares were up about 3 percent in extended trade.
AIG is in the middle of a turnaround after almost collapsing during the financial crisis under the weight of sour derivative bets. It has since repaid the $180 billion in bailout funds it received in 2008 and has focused on its core insurance business.
The company also declared a dividend of 12.5 cents per share on Monday after reinstating it last year.
Net income attributable to AIG rose to $3.07 billion, or $2.10 per share, in the second quarter ended June 30 from $2.73 billion, or $1.84 per share, a year earlier.
The U.S. insurer's net income for the quarter included a $1.4 billion after-tax gain on the sale of ILFC.
On an operating basis, the company earned $1.83 billion, or $1.25 per share. The company reported after-tax operating income of $1.12 per share a year earlier.
Analysts on average had expected earnings of $1.05 per share, according to Thomson Reuters I/B/E/S.
"Overall, our businesses demonstrated our continued discipline and resilience, underscoring our focus on improving the results of our core insurance businesses," outgoing Chief Executive Robert Benmosche said in a statement.
In June, AIG said Peter Hancock, head of the company's property-casualty business, would succeed Benmosche as chief executive and president, effective Sept. 1.
In commercial underwriting, net premiums earned rose about 4 percent to $5.27 billion, and the combined ratio improved to 95.4 from 101.7.
A combined ratio below 100 indicates an underwriting profit, meaning an insurer is receiving more in premiums than it is paying out in claims.
In consumer underwriting, net premiums earned fell slightly to $3.25 billion. The combined ratio fell to 98 from 100.1.
The company's shares were trading at $53.69 after the bell. They closed at $52.66 in regular trade on Monday. The stock has gained about 3 percent since the beginning of the year. (Reporting by Luciana Lopez in New York and Avik Das in Bangalore; Editing by Sriraj Kalluvila)