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(Reuters) - American International Group Inc (AIG.N) earned a larger-than-expected profit during the third quarter, due in part to big gains on its investment holdings.
Questions about the sustainability of those profits, and uncertainty about the timing and structure of the U.S. Treasury Department selling its remaining 16 percent stake in the insurance giant, contributed to a drop in AIG shares in after-hours trading, analysts said.
"One of the biggest questions that people ask is the timing of the next offering of the U.S. government and whether AIG will participate in that offering," said Paul Newsome, an analyst who covers the firm for Sandler O'Neill Partners.
AIG had received $182.5 billion in bailout money from U.S. taxpayers at the height of the financial crisis, and has been working to repay the government for the past few years.
The remaining stake pertains to AIG shares the Treasury Department owns in exchange for capital it infused. Last quarter, the Treasury Department sold $26.5 billion worth of AIG shares, including approximately $8 billion purchased by AIG.
The government still holds 234.2 million common shares. The timing of future sales, and whether AIG will repurchase stock, is unclear.
AIG reported an overall profit of $1.9 billion, or $1.13 per share, for the period, compared with a loss of nearly $3 billion, or $2.10 per share, in the year-ago quarter.
Analysts had expected AIG to earn 86 cents per share, on average, according to Thomson Reuters I/B/E/S.
Because competitors like Travelers Cos Inc (TRV.N) reported even stronger third-quarter results, it may have set investors' expectations even higher for AIG than what analyst figures suggest, Newsome said.
AIG shares fell 2 percent after it reported results. The stock had closed at $35.20 on the New York Stock Exchange.
Combined net investment income from AIG's property-casualty and life and retirement divisions rose 15 percent, contributing $505 million to earnings. AIG's sale of certain securities, including a stake in former subsidiary AIA Group Ltd (1299.HK), as well as higher values of bond holdings, contributed to those profits.
In AIG's property-casualty division, net premium earnings fell 3.2 percent during the quarter. Pricing improved, but AIG has been limiting risk-taking in the business, the company said.
In its life and retirement division, premiums declined 2.7 percent. Policy fees climbed 5 percent, but low interest rates and costs related to a regulatory probe into death benefits claims also weighed on that business.
AIG's other business, aircraft leasing, also reported a small operating profit, compared with a large loss a year ago. Chief Executive Robert Benmosche, in an interview with CNBC, said he was still waiting for markets to improve before trying to take that business, ILFC Holdings, public.
It was too early for AIG to provide an estimate of how Hurricane Sandy will affect the insurance company's future results, Benmosche said in a statement. AIG's headquarters in Lower Manhattan was affected by the storm, and remains closed because of a power outage.
Reporting by Lauren Tara LaCapra; Editing by Leslie Gevirtz