July 31 (Reuters) - American International Group ( AIG )

reported a smaller-than-expected rise in second-quarter profit

on Wednesday, hurt by lower underwriting income in its general

insurance unit tied to divestitures and higher catastrophe

losses.

Adjusted after-tax income attributable to common

shareholders climbed to $1.16 per share from $1.06 a year

earlier. Analysts on average had expected $1.30 per share,

according to LSEG data.

"The core fundamentals were exceptional in a quarter that

included the complex accounting treatment of deconsolidation

along with prior year divestitures," AIG CEO Peter Zaffino said

in a statement.

AIG, one of the world's biggest commercial insurers, said

net premiums written in its general insurance arm rose 7% on a

comparable basis in the quarter ended June 30, driven by growth

in global commercial lines.

Individuals and businesses are reviving spending on their

insurance policies, allowing insurers to attract and retain

clients despite higher prices in some cases.

Meanwhile, insurers investment income has been bolstered by

buoyant U.S. equity markets on the back of a steady economy and

bets of interest-rate cuts.

AIG's total consolidated net investment income rose 18% to

$990 million, boosted by higher income from fixed maturity

securities and loans and dividends received from Corebridge

Financial ( CRBG ).

The company spun-off its life and retirement business into

Corebridge Financial ( CRBG ) in 2022 following years of

pressure from activist investors.

New York-based AIG's general insurance underwriting income

fell 28%, as year-ago quarter included the divested businesses,

but rose 2% on a comparable basis.

Catastrophe losses were $325 million, mainly related to U.S.

storms and Middle East rains.

Earlier this month, peer Travelers Cos ( TRV ) reported a

jump in second-quarter profit as higher investment income offset

steep catastrophe losses.

AIG's general insurance accident year combined ratio was

87.6%, compared with 88%, a year earlier. The metric excludes

catastrophe losses and a ratio below 100 signifies that the

insurer earns more from premiums than it pays out in claims.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by

Sriraj Kalluvila)