Despite the improved bottom line and a great reduction in catastrophic losses through the third quarter, AIG's Property Casualty unit was showing underwriting losses, as the company boosted reserves for policies underwritten in previous period. The P&C unit's third-quarter underwriting loss was $441 million, improving from $532 million in the third quarter of 2011. The P&C combined ratio was 105.0 during the third quarter, improving from 105.9 a year earlier. The combined ratio is the sum of incurred losses and expenses divided by earned premiums. It measures underwriting profitability, and a combined ratio of over 100% indicates an underwriting loss. When an analyst said that it seemed that P&C reserves were always being adjusted upward, Benmosche said "quite frankly, we at AIG are working really hard to do a bottoms-up analysis of all of our reserves, starting with the claims themselves," after which John Doyle -- AIG's CEO for Chartis Global Commerce Insurance -- said "we had a number of larger losses, about two times our average number of losses in the quarter, big fire losses in the quarter that impacted it as well," as well as "a failed satellite launch, as another example." In further comments about capital deployment in light of Federal Reserve supervision, Benmosche said that among the company's options would be to repurchase debt and that "it's important that we focus on the operating earnings within the insurance companies and where we can do more of that, as well as deal with the actual interest expense." In a show of confidence in just how far AIG has come since the doldrums of 2008 and 2009, CFO David Herzog said "will consider acquisitions," as well as investment in organic growth." Sterne Agee analyst John Nadel wrote after the earnings call that the focus of AIG's management "on interest coverage vs. buybacks, which makes some sense given Fed likely to be more responsive to de-leveraging near-term," and that "a likely call" of $1.1 billion in hybrid securities in December is expected to "cause analysts to reduce buyback assumptions for 2013." Reduced buyback assumptions would, of course, reduce forward earnings estimates. Nadel rates AIG a "Buy," with s $40 price target, and estimates the company will earn $3.28 a share in 2013. AIG data by YCharts Interested in more on American International Group? See TheStreet Ratings' report card for this stock.