(Reuters) - American International Group Inc, the largest commercial insurer in the United States and Canada, reported a bigger quarterly loss, largely due to a charge related to higher reserves to meet claims.
Shares of the company, which also raised its share buyback program by up to $3.5 billion, were down 4.5 percent in after-hours trading on Tuesday.
AIG's net loss widened to $3.04 billion, or $2.96 per share, in the fourth quarter ended Dec. 31, from $1.84 billion, or $1.50 per share, a year earlier.
The fourth quarter included a $5.6 billion, or $3.56 per share, impact from prior year adverse reserve development.
The adverse reserve development cover reduced the risk of further reserve additions in some of the most volatile lines, AIG Chief Executive Peter Hancock said in a statement.
The company responded to "emerging severity trends that we believe are materially impacting the overall U.S. casualty market," Hancock said.
AIG agreed last month to pay about $10.2 billion to Warren Buffett's Berkshire Hathaway Inc to take on many long-term risks on U.S. commercial insurance policies it has already written.
Of the $5.6 billion charge in the fourth quarter, $5.3 billion is related to long-tail commercial exposures, or liabilities that emerge long after policies are issued, the company said.
The reinsurance agreement will also help lower risk at the insurer and free up capital for share buybacks.
AIG, which has reduced exposures and shed businesses since its 2008 federal bailout, has been boosting its share buyback program through 2016.
The New York-based company said it had returned a total of $13.1 billion of capital to shareholders in 2016.
On an operating basis, the company reported a loss of $2.72 per share in the three months ended December.
Total general operating expenses fell 9.6 percent to $2.48 billion. The insurer is looking to cut its gross general operating expenses by $1.6 billion by the end of 2017.
AIG's adjusted accident year loss ratio for its commercial insurance unit, its biggest, was 78.2 percent, up from 65.6 percent a year earlier.
Adjusted accident year combined ratio for the unit rose to 108.3 percent from 95.8 percent.
A ratio below 100 percent means an insurer earns more in premiums than it pays out in claims.
Billionaire investor Carl Icahn, one of AIG's largest shareholders, wants the insurer to become a smaller and simpler company and to shed its label as a non-bank systemically important financial institution (SIFI).
AIG's near collapse in 2008 and the government bailout that followed drove regulators to consider some non-bank companies as "too big to fail."
Up to Tuesday's close of $66.89, AIG's shares had risen about 12 percent since the U.S. Presidential election in November.
(Reporting by Nikhil Subba in Bengaluru; Editing by Sriraj Kalluvila)