American International Group (AIG) - Get American International Group, Inc. Report  plummeted Wednesday after reporting a larger-than expected quarterly loss, but the insurer says it's still on track to return $25 billion in capital to shareholders by the end of December.

Shares of the New York-based insurer slid 9% to close at $60.85, bringing its year-to-date loss to 6.8%. 

AIG's net loss of $2.96 a share in the last three months of 2016, far wider than the 61-cent loss estimated by analysts in a FactSet survey, was mostly due to a $5.6 billion increase in reserves for future insurance claims, the company said. 

"We felt it was a strategic imperative to radically reduce reserve risk and improve earnings sustainability," AIG CEO Peter Hancock said on the company's fourth-quarter earnings call. "We chose to make more prudent reserve assumptions. The trends we witnessed in this quarter were broad and, we believe, are materially impacting the overall U.S. casualty market."

The report follows AIG's agreement earlier this year to pay $9.8 billion for reinsurance coverage from Warren Buffett's Berkshire Hathaway (BRK.A) - Get BRK.A Report , a step intended to resolve a long-standing concern about the adequacy of the bailed-out insurer's reserves.

While addressing that issue, Hancock is simultaneously streamlining AIG through asset sales amid pressure from activist investors Carl Icahn and John Paulson. Icahn has previously urged the company, which received a $182 billion government bailout during the financial crisis, to break itself apart to escape stricter regulatory limits on capital spending.

Cathy Seifert, an analyst with CFRA Research who maintained a buy rating on the stock with a 12-month price target of $75, said she expected a reserve charge for the reinsurance transaction during the quarter, but she still believes AIG is undervalued. 

"To the degree that investors become comfortable with the quality of reserves, they should be able to close the valuation gap," Seifert added. "What people were also a little rattled about was current accident-year results were pretty weak and they look like they are going to be weaker than the industry average." 

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AIG's commercial insurance lines saw a pre-tax operating loss of $5 billion, increasing from a loss of $2.4 billion a year earlier.

"Arguably more focus should be on poor underwriting results in what should be AIG's better commercial property and casualty business," Ryan Tunis, a Credit Suisse analyst, wrote in a note to clients. 

Despite the earnings miss, Credit Suisse maintained an outperform rating on the stock with a price target of $75, saying that the company's goals are "likely to remain intact," though timing could be an issue. 

Returning capital to investors continues to be a priority for AIG's mangement, Hancock said. AIG disbursed a total of $13.1 billion to shareholders last year, and the board said this week it had authorized repurchasing an additional $3.5 billion of the company's stock.

That's a positive for the CEO, Seifert said. Hancock promised investors a specific amount, "and to the extent that he has been able to make good on that pledge is something that certainly enhances his credibility," she noted.

Additionally, AIG surpassed its goal of a 6% reduction in operating expenses in 2016, paring costs by 10% or $1.1 billion.

The company's outlook for 2017 includes continuing improve efficiency and divesting assets to release up to $9 billion in capital by the end of the year; the company has already reached more than 78% of the latter goal.

"Management does seem to be delivering (or better) on its other objectives including expense saves, capital return, increased disclosure/transparency, legacy asset sales, etc.," Credit Suisse's Tunis wrote. "Nonetheless, delivering on sustainable improvement of the underwriting process (the basics) is critical for this management team to restore/rebuild confidence from institutional investors."