American International Group (AIG) (AIG) earned its first quarterly profit since the third quarter of 2007, after a year and a half of posting losses. The insurance giant gathered $1.8bn in net income or $2.30 per diluted common share for Q209. The earnings come after a $5.4bn net loss in the second quarter of 2008, according to a corporate release. The net income for its property and casualty insurance operation dropped 40% down to $1.02bn, compared to $1.7bn in the second quarter of 2008. The decline reflects a slip in underwriting profit as the combined ratio increased to 98.2 from 92.2 a year ago, meaning that for every dollar collected in premiums, $0.98 went to pay claims and expenses. The property-casualty business, long known as AIU, changed its name to Chartis in July. Though officially separate from AIG, Chartis is expected to be sold. Since the end of 2008, AIG Financial Products (AIGFP) reduced its derivative portfolio by 17% from $1.6trn to roughly $1.3trn. In Q209 alone, they shaved 13% from the portfolio, according to the release. AIG chairman and CEO Edward Liddy points to continued reductions in risk of the AIGFP portfolio among others, but that the financial services arm reports a $132m operating loss for the quarter. That is down from a $6.2bn loss in the second quarter of 2008. The Q209 loss included $636m in unrealized market valuation gains on its super senior default swap portfolio. AIG reports $62.1bn in total equity, an $8.9bn increase from March 31, 2009, but their total balance owed to the Federal Reserve Bank of New York credit facility stands at $44.8bn. AIG still has $41.6bn outstanding of Series E Preferred Stock pursuant to an agreement with the US Department of Treasury under the Troubled Asset Relief Program (TARP). “The primary drivers of our positive second quarter results were reductions in net realized capital losses, primarily due to the decline in other than temporary impairments resulting from the adoption of new accounting guidance and improved market conditions,” Liddy says in the release. Write to Jon Prior.