(Reuters) — American International Group Inc. capitulated in its boardroom fight with activist investor Carl Icahn, nominating both his representative and billionaire John Paulson to its board, as it unveiled a bigger-than-expected quarterly loss.

Shares of the company, which boosted its share buyback program and dividend, rose marginally in after-hours trading.

Mr. Icahn has been threatening a proxy fight at AIG, the biggest U.S. commercial insurer, as he pushes to break it up into three smaller companies.

"We continue to believe that smaller and simpler is better," Mr. Icahn said in a statement.

AIG said it had agreed to nominate Mr. Paulson, a billionaire investor and president of Paulson & Co., and a managing director from Icahn Capital L.P. to its board.

The company reported a bigger-than-expected operating loss for the quarter, hurt by weak underwriting and lower returns on investments in a turbulent market.

The company is cutting costs as its underwriting business struggles with falling rates for commercial property/casualty insurance.

The insurer, which has frozen its employee pension plan, is looking to cut its gross general operating expenses by another $1.6 billion by the end of 2017.

AIG reported an after-tax operating loss attributable to the company of $1.35 billion, or $1.10 per share, for the fourth quarter ended Dec. 31.

Analysts on average were estimating a loss of 93 cents per share, according to Thomson Reuters I/B/E/S.

The company's commercial property/casualty insurance business, traditionally AIG's forte, posted a pretax operating loss of $2.34 billion, as the company strengthened its reserves.

AIG added $3.6 billion pretax to its nonlife loss reserves to cover shortfalls during the quarter.

Net Investment income at the unit fell about 34% to $730 million.

AIG, which traces its roots to a two-room office in Shanghai in 1919, said it would buy back an additional $5 billion of its shares and raised its quarterly dividend to 32 cents per share from 28 cents. AIG repurchased about $10.7 billion of shares in 2015.

The company's catastrophe-related losses at its commercial property and casualty unit rose more than sixfold to $213 million.

The unit's combined ratio jumped to 161.5% from 103.4%.

A ratio below 100% means an insurer earns more in premiums than it pays out in claims.

The company's shares closed at $50.52 on the New York Stock Exchange.