A Glimpse of The Post-Bailout AIG

NEW YORK (TheStreet) -- The performance of American International Group's (AIG) core insurance businesses gives an idea of what the firm will look like after it gets the government monkey off its back -- but that's unlikely to happen any time soon.

Despite a quarterly loss -- largely attributable to special restructuring costs -- the businesses that AIG plans to retain turned in an operating profit of $2.2 billion when the company reported its second-quarter results late last week.

CEO Robert Benmosche, to whom many credit the progress, said discussions have begun in recent weeks toward the end goal of wiping away all of AIG's debt to the government.

"AIG's continuing insurance operating results remain solid, while the company continues to execute on its restructuring plans and prepares for separation from the U.S. government," he said in a prepared statement.

Chartis, the company's main property and casualty business, provides perhaps the best example of AIG's turnaround. Chartis is one of the largest in the world and insures against the risk of damages from natural disasters, among other things.

During the three months ended June 30, there was an unlikely turn of events. Chartis faced exposure to Hurricane Alex, which killed 51 people during a devastating week-long run through the Caribbean and Western Gulf Coast. It also had to cover damage from what one report called "freak spring" hailstorms in the Midwest, as well as a volcano in Iceland that erupted (and wouldn't stop spewing ash for a month). Finally, there was the devastating explosion of the Deepwater Horizon oil rig in the Gulf of Mexico, a weeks-long disaster that still hasn't completely been settled.

Yet Chartis posted operating income of $955 million for the June period, a smidge below the year-ago quarter's results. Its net premiums declined by 1.6%, but that's because of a change in risk-management policies and "price discipline" in areas where rates are weak.

In other words, Chartis is staying away from risky business and demanding better prices for its protection. Combined with weak demand from a still-troubled economic environment, its results may be considered subpar but its strategy appears sound.