NEW Y0RK (Bloomberg) ? American International Group Inc., the world's largest insurer, said first-quarter profit rose 36 percent after it raised property and casualty prices and expanded its life insurance and annuities business in Asia.

Net income climbed to $2.66 billion, or $1.01 a share, from $1.95 billion, or 74 cents, a year earlier, the New York-based company said in a statement. Revenue rose 25 percent to $23.64 billion.

American International, after increasing property and casualty rates as much as threefold since 2000, is investing in Japan and China as competition intensifies in the U.S. Chief Executive Officer Maurice "Hank" Greenberg, 78, said some domestic insurers have started charging less than American International to gain market share.

"It was not unexpected that there be some price erosion," Greenberg said on a conference call with analysts and investors. "We're not going to chase business downhill to levels that are unacceptable."

Shares of the company, the biggest insurer by market value, rose 15 cents to $73.35 at 12:14 p.m. in New York Stock Exchange composite trading. The shares had risen 34 percent in the past year, beating the 29 percent gain the Standard & Poor's 500 Insurance Index.

Profit benefited as realized investment losses dwindled to less than $1 million from $412.8 million a year earlier.

Earnings Forecast

Earnings excluding the investment losses and the cost of an accounting change rose 20 percent to $2.84 billion, or $1.08 a share, beating the $1.06 average estimate of 19 analysts surveyed by Thomson Financial. The accounting change, required by a new rule on reserving for life insurance benefits, cost $181.4 million.

Insurers are slowing the pace of rate increases, and in some cases lowering them, as business rebounds from the September 2001 terrorist attacks and a three-year stock market slump. American International's rates on casualty policies rose about 10 percent while prices on property coverage fell 11 percent in the quarter, Greenberg said.

"Each day we get more evidence of price cuts and slippage," said Wayne Bopp, an analyst at Cincinnati-based Fifth Third Bancorp in Cincinnati, which manages $34 billion and owned about 2 million shares of American International as of December.

Policy Sales

American International sold $10.21 billion of property and casualty policies, a 24 percent increase from the year-earlier period. It raised reserves for property and casualty claims $2.11 billion from year-end to $38.75 billion, including $200 million for policies sold in past years.

The $200 million increase in reserves boosted claims and expenses to $93.22 of every $100 in premiums collected, from $93.13 a year ago, said Morgan Stanley analyst Vinay Saqi, who rates the shares "underweight" and doesn't own any. Saqi had estimated $91.

International Expansion

To sustain revenue growth, Greenberg is expanding the company's life insurance business abroad, rising to No. 6 in Japan, the second biggest insurance market, from No. 10 by buying General Electric Co.'s life unit in August. The company has used its AAA debt rating -- shared only with one other insurer, Warren Buffett's Berkshire Hathaway Inc. -- to attract consumers who abandoned local insurers with lower credit ratings.

American International, founded in Shanghai in 1919 by entrepreneur Cornelius Starr, has also nurtured an early foothold in China, returning there in the early 1990s after being rejected by the communist government decades earlier to become the largest foreign life insurer.

"The mix of business still looks real good," said Craig Harris, a fund manager at Birmingham, Alabama-based Regions Financial Corp.'s Morgan Asset Management unit, which manages $10 billion and owns 600,000 shares of American International. "Their position in Asia seems very strong."

Premium Gains

Premiums from the company's foreign life insurance and retirement services division rose 25 percent to $5.41 billion, leading the 19 percent increase in worldwide life and annuities premiums to $6.9 billion. First-year premiums in China rose 54 percent to $31.9 million. U.S. premiums rose 2.9 percent to $1.49 billion.

"To accelerate growth, we are introducing new products, enhancing systems that support product roll outs" and cutting costs in the U.S., Greenberg said in a statement.

Investment income from life insurance rose 24 percent to $3.9 billion, helping pretax profit from life insurance and annuities rise 24 percent to $2.04 billion, excluding investment gains and losses.

U.S. life and annuities profit rose 28 percent to $972 million as the company paid out less on fixed annuities than it earned on investments and stock market gains boosted fees from variable annuities. Foreign life and annuity profit rose 20 percent to $1.07 billion as the company's fixed annuity business in Japan grew.

The company's airline leasing business, International Lease Finance Corp., reported an 8.2 percent decline in pretax profit to $160 million.

Greenberg, only the second CEO in the company's history, has declined to say when he will retire or who will succeed him.

In December, he promoted Donald Kanak, American International's top executive in Japan, to co-chief operating officer. Kanak, along with the other co-COO, Martin Sullivan, are the top contenders to replace Greenberg, said Jeff Arricale, an analyst at T. Rowe Price Group Inc. in Baltimore, which manages $190 billion and owned 12.4 million shares of American International as of December.