(Reuters) - Insurer American International Group Inc reported a quarterly profit that beat analysts' estimates, driven primarily by higher operating income in its property and casualty business.

AIG shares were up 3 percent in after-market trading.

Net income fell to $1.98 billion, or $1.34 per share, in the first quarter, from $3.05 billion, or $1.71 per share, a year earlier.

On an operating basis, AIG earned $1.34 per share.

Analysts on average had expected earnings of 87 cents per share, according to Thomson Reuters I/B/E/S.

AIG has emerged as a much leaner company after a $182 billion bailout by U.S. taxpayers in 2008. The company eliminated the U.S. government's last financial interest in it, buying back warrants from the Treasury for about $25 million in March.

Operating income at its property and casualty business rose 52 percent to $1.59 billion, reflecting increases in both underwriting income and net investment income.

AIG's life-insurance business reported a 6 percent jump in operating income to $1.39 billion, helped by robust equity markets that boosted increased investment returns.

Its Direct Investment book reported after-tax operating income of $329 million, compared with a loss of $156 million.

AIG shares closed at $42.13 on Thursday on the New York Stock Exchange. They have gained 17 percent after the Treasury Department sold off the last of its remaining AIG stock in December.

(Reporting by Aman Shah and Anil D'Silva in Bangalore; Editing by Sriraj Kalluvila, Maju Samuel)