NEW YORK (Bloomberg) - American International Group Inc. (AIG), the troubled financial firm that threatened to bring down the US economy, is showing stable revenue for its insurance units and improving its ability to repay taxpayers 17 months after a bailout that swelled to $182.3 billion.

AIG property-casualty businesses, contributing more than a third of the company's revenue, posted sales increases in three straight quarters last year after plunging 23 percent following the company's near-death experience in September 2008. Life insurance and retirement-products sales, AIG's other main operations, rose for the first time since the bailout in the three months ended September 2009. AIG gained 6.5 percent in New York trading yesterday.

"There are clear signs that AIG has pulled out of what could have been a death spiral," said David Havens, managing director in credit trading at Nomura Securities International Inc. in New York. AIG's insurance results have been improving "after dropping off a cliff following the bailout", he said.

CEO Robert Benmosche, 65, must increase insurance profits to repay loans included in AIG's government rescue. The CEO has said he would rebuild businesses damaged after AIG's derivatives unit, called an unregulated hedge fund by Federal Reserve Chairman Ben Bernanke, sapped the parent company of cash in the weeks leading to the bailout.

The insurer, which may report fourth-quarter 2009 results by next week, could show underwriting improving "more in line with the industry as opposed to worse than the industry average", said Jennifer Marshall, an analyst at AM Best Co. in Oldwick, New Jersey, which rates insurers including AIG.

After scaling back operations at its plane-leasing unit, consumer lender and derivatives business and divesting its two largest non-US life insurance divisions, AIG may remain the No.1 US commercial insurer. It is among top sellers of workers' compensation, professional liability and property coverage, competing with Travelers Cos. and Warren Buffett's Berkshire Hathaway Inc.

AIG posted $7.1 billion in commercial property-casualty sales in the fourth quarter of 2008, the first full period after the bailout. That figure rose to $7.7 billion in the first quarter of 2009, $7.9 billion in the second and $8.1 billion in the third.

Life premiums and investment-product fees were $15.2 billion in the fourth quarter of 2008. That figure declined to $14.5 billion in the first quarter of 2009 after UK clients abandoned the firm, then fell to $13 billion in the second quarter before rising to $13.7 billion in the third.

"Things are stabilising," said Pennsylvania Insurance Commissioner Joel Ario, AIG's lead US regulator for commercial insurance, citing the revenue figures as evidence.

After the bailout, a 97 percent stock plunge in 2008 and criticism from lawmakers over retention bonuses paid to derivatives employees, there was "concern that most of AIG's largest customers would flee entirely", said Robert Hartwig, president of Insurance Information Institute Inc., a trade organisation in New York. "That didn't happen. Most of the larger insureds spread their business around, so AIG doesn't have as much of their account as they used to."

AIG is retaining more commercial customers, according to a Barclays plc. survey. About 75 percent of insurance buyers using AIG said they plan to stay with the insurer compared with 41 percent six months earlier, Jay Gelb, a Barclays analyst in New York, said in a December 14 research note.

"They've actually done a very good job of keeping the ship afloat," James Tisch, CEO of Loews Corp., which owns about 90 percent of rival property-casualty insurer CNA Financial Corp., said in an interview. "They've done relatively well under a lot of stress and duress."

Insurance buyers may find comfort in the government's 80 percent stake in the company and a $60 billion Federal Reserve credit line, said Shivan Subramaniam, CEO of FM Global, a Johnston, Rhode Island-based property-casualty insurer.

"People view the federal government as being a backstop," said Subramaniam. AIG "continued to be competitive in the marketplace as they've always been," he said.

Under Benmosche, AIG will focus on selling coverage to corporate customers worldwide, the company's core business for most of its four decades under former CEO Maurice "Hank" Greenberg. Greenberg, who ran AIG until 2005, added life insurance, asset management, derivatives and a plane-leasing business to diversify revenue.

Since the bailout, AIG has retreated from asset management for institutional clients and the US auto insurance industry by striking deals to sell businesses for a total of about $12 billion. The company has said it expects to close its derivatives unit by year-end, while keeping $300 billion to $400 billion in trades AIG expects to be profitable.

AIG's consumer lender, American General Finance Corp., has shut offices, cut jobs and sold receivables. Its Los Angeles-based aircraft-leasing unit, International Lease Finance Corp., may sell assets, Benmosche said in a February 4 statement. American General in Evansville, Indiana, and ILFC have been downgraded by rating firms and lost access to their usual funding sources.

The insurer said it will support both units through November 15.