The insurance giant reported adjusted third-quarter earnings of 52 cents per share on $12.82 billion in sales. Earnings fell about 60 percent from $1.19 per share in the previous year.
Analysts expected AIG to post earnings of $1.03 per share on $14.22 billion in revenue, according to a consensus estimate from Thomson Reuters. Profit and sales numbers both missed the Street's most pessimistic estimate.
Results suffered from $274 million in pre-tax restructuring costs in the quarter. AIG said it would spend $500 million on reorganization through 2017, hoping to eventually save $400 million to $500 million per year.
"This quarter's results, while falling short of expectations due to market volatility, show signs that we are making progress to transform AIG for long-term competitiveness," said AIG CEO Peter Hancock in a statement.
AIG will also cut 300 to 400 senior management jobs, about 20 percent of 2,000 senior positions, as part of the restructuring, a source familiar with the situation told CNBC. The changes were in the works before activist investor Carl Icahn announced his "large stake" in AIG last week, the source said.
Shares fell more than 1 percent in extended trading.
AIG also said it would increase its quarterly dividend to 28 cents per share.
The company has recently received pressure from key shareholders such as Icahn and John Paulson to break up the company, reduce regulatory risks and return more capital. Icahn last week called the company "too big to succeed."
Read More Icahn targets AIG: 'Too big to succeed'
AIG is considering spinning off or selling its mortgage insurance unit amid that pressure, according to reports last week. The segment, which sells coverage protecting mortgage lenders and investors, had pre-tax operating profit of $162 million in the third quarter, up 20 percent from last year.
The company did not give any immediate guidance on its plans for the business Monday.
Total insurance earnings plummeted 41 percent from the year earlier.
In both its commercial and consumer insurance segments, AIG's pre-tax operating income plunged from the previous year. Commercial income dropped 34 percent to $815 million, while consumer fell 48 percent to $657 million.
AIG shares have climbed about 14 percent this year.
— CNBC's Mary Thompson contributed to this report