American International Group Inc turned a quarterly profit after a year-ago loss as the bailed-out insurer got a boost from its investments and general insurance operations appeared to stabilize.

Chartis, the general insurance business, saw net premiums decline, but AIG said it was still a significant improvement over the prior four quarters. Combined ratio, a measure of profitability of the core insurance business, also improved significantly over the 2009 fourth quarter.

The external environment has been helpful for AIG in ways that it can't take credit for, Morningstar analyst Bill Bergman said. But there are things that they can take credit for.

Stabilizing the insurance premium and retaining the confidence of their customers seems like something they can point to and be proud of, Bergman said.

AIG, nearly 80 percent-owned by the U.S. government, reported a first-quarter profit to the company of $1.5 billion, or $2.16 per share, compared with a loss to the company of $4.4 billion, or $39.67 a share, a year earlier.

Net income attributable to AIG common shareholders was $294 million, compared with a year-ago loss of $5.4 billion.

We remain focused on further stabilizing and strengthening our businesses while continuing our restructuring activities, closing the pending transactions, and developing plans to address our highly leveraged capital structure, Chief Executive Robert Benmosche said in a statement.

Benmosche sees a future for AIG with the general insurance business, Chartis, and the U.S. life insurance and retirement services business, SunAmerica Financial Group, forming the core, as AIG sheds assets to repay the U.S. government after a $182.3 billion bailout.

Chartis' profit increased 24 percent in the first quarter to $879 million as its investment performance improved. The earnings came despite $481 million of catastrophe losses, including some due to an earthquake in Chile.

The company paid out 102.51 percent of premium income to cover claims and expenses, down from 132.46 percent in the 2009 fourth quarter. Excluding significant catastrophe-related losses, the combined ratio came to 96.22 percent, down from 132.46 percent. A ratio below 100 percent indicates profitability.

On the surface it appears to have stabilized, which is promising, Bergman said.

PROBLEMS PERSIST

But Chartis' net premiums written fell 1.1 percent to $7.6 billion, and AIG said net premium writings continue to be affected by challenging economic conditions.

Profit at SunAmerica also improved largely due to increased net investment income. But premiums, deposits and other considerations fell 6.5 percent on a decline in individual fixed annuities and lower life insurance sales.

What good news there is seems to be driven by their investment. And given that forward looking prospects of that are iffy, it is hard to bank on that, said Aite Group senior analyst Clark Troy, who focuses on life insurance.

AIG reported $16.3 billion in revenue for the quarter.

AIG said its aircraft leasing unit, International Lease Finance Corp, can fund itself and is unlikely to require additional support from it.

AIG Financial Products, the unit behind the insurer's collapse, reduced the notional amount of its derivative portfolio by 20 percent during the quarter, to $755.4 billion at March 31. The number of trade positions in its portfolio was cut 11 percent to about 14,300.

Earlier this year AIG agreed to sell two major foreign life insurance businesses for a total of about $51 billion.

But one of the deals -- the sale of American International Assurance to Prudential Plc for $35.5 billion -- has hit a rough patch, with the British insurer delaying a massive rights issue to fund the deal.

AIG shares closed 5.3 percent higher at $38.70 on the New York Stock Exchange.

(Reporting by Paritosh Bansal and Elinor Comlay; editing by John Wallace, Gary Hill)

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