American International Group is expanding bets on property lending and safe fixed-income securities after hedge-fund investments soured.

"We are reallocating roughly 50% of our hedge-fund portfolios," Sid Sankaran, who is taking over as the insurer's next chief financial officer, said in a conference call Friday. The shift will be "primarily into investment-grade bonds and commercial-mortgage loans, which we believe will free up about $2 billion in additional capital" because of how the assets are treated by regulators, he said.

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