Feb. 13 (Bloomberg) -- American International Group Inc., theinsurer that repaid a U.S. bailout in 2012, posted fourth- quarterprofit that beat analysts’ estimates as the company lifted itsdividend and authorized $1 billion of share buybacks.

Net income was $1.98 billion, or $1.34 a share, compared with aloss of $3.96 billion a year earlier that was fueled by costs tiedto superstorm Sandy and the planned sale of a plane- leasing unit,New York-based AIG said today in a statement. Operating profit,which excludes some investing results, was $1.15 a share, exceedingthe 97-cent average estimate of 23 analysts surveyed byBloomberg.

Chief Executive Officer Robert Benmosche, 69, is seeking toimprove underwriting results at the property-casualty operationthat is the core of the company after he sold non-U.S. life unitsto help repay the rescue. He told staff today that he was cutting 3percent of the company’s workforce. Investments benefited in thefourth quarter from a stock-market rally and higher bond yieldsthan a year earlier.

“The investment environment is improving gradually for them,”Charles Sebaski, an analyst at BMO Capital Markets, said in aninterview before results were announced. He rates AIG theequivalent of a buy.

The quarterly dividend was lifted 25 percent to 12.5 cents ashare. It was expected to rise to 15 cents according to theBloomberg dividend forecast. AIG restored a payout last year, theinsurer’s first since the company almost collapsed in 2008. Thebuyback announced today adds to about $400 million left under a $1billion repurchase authorized last year.

Share Rally

The shares gained 1 percent to $50.08 at 5:03 p.m. in New Yorkin extended trading. AIG advanced 28 percent in the past 12 monthsthrough the close of regular trading.

The insurer expects to eliminate about 1,500 jobs, said a personfamiliar with the matter, who asked not to be identified becausethe figure isn’t public. The company recorded $265 million ofpretax severance costs in the quarter as it targeted reductions atthe property-casualty unit led by Peter Hancock.

Operating profit at the property-casualty unit was $1.09billion, compared with a loss of $944 million a year earlier. AIGpaid out $1.04 in claims and expenses for each premium dollar ittook in at the unit, down from costs of $1.25 a year earlier.Excluding catastrophes and claims in prior periods, the figureworsened to $1.02 from $1.01 a year earlier.

Policy sales to consumers declined about 6 percent to $3.19billion, while sales to commercial clients increased by 9.8 percentto $4.84 billion. AIG insures commercial property, corporateboards, airplanes and hospitals. It offers personal coverage inlines from golfing insurance to home policies.

Hedge Funds

Hedge funds generated $275 million at the life unit, more thandouble the year-earlier figure. At the property-casualty business,the funds added $172 million, about triple the contribution in2012. Private equity investments added $131 million to P&Cprofit and $153 million at the life unit.

The U.S. life and retirement unit posted operating profit of$1.41 billion, a 29 percent increase from a year earlier, as stocksclimbed and sales jumped. Premiums, deposits and otherconsiderations rose to $8.04 from $5.22 billion a year earlier,fueled by annuities and mutual funds.

AIG is expanding sales of retirement products as rivals such asMetLife Inc. and Prudential Financial Inc. scale back from variableannuities. Benmosche’s company said in January it’s rebranding theAmerican General career-agent sales force as AIG Financial Networkand adding 600 advisers by 2019.

‘Trending Favorably’

“We’re going to start hearing more about a growth strategy,”Sebaski said. “The interest-rate environment is trending favorablyfor the profitability of their products.”

Book value, a measure of assets minus liabilities, rose to$68.62 a share on Dec. 31 from $67.10 three months earlier.Full-year profit climbed to $9.09 billion from $3.44 billion in2012.

Fourth-quarter operating profit was $48 million at the UnitedGuaranty mortgage insurance unit, compared with a loss of $45million a year earlier. The business led by Donna DeMaio wrotecoverage on $10.9 billion of home loans in the period.

Benmosche struck a deal in December to sell the InternationalLease Finance Corp. plane business to AerCap Holdings NV for about$5 billion. AIG turned to Schiphol, Netherlands-based AerCap afteran earlier agreement fell apart when the would-be buyers failed todeliver funds. Costs tied to that deal were $4.4 billion in thefourth quarter of 2012.

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