AIG to Pay $100 Million in Fines Under Multi-State Settlement in Pennsylvania

Settlement of Workers Compensation Violations Imposes Further Monitoring

HARRISBURG, Pa., Dec. 22, 2010 /PRNewswire-USNewswire/ -- American International Group Inc., AIG, and its workers compensation insurance affiliates have agreed to pay $100 million in fines to insurance regulators in all 50 states and the District of Columbia for alleged premium under-reporting, acting Pennsylvania Insurance Commissioner Robert L. Pratter announced today.

The fines are included under a settlement resolving a multi-state probe that examined whether AIG violated premium reporting rules governing workers compensation insurance.  Under the settlement signed by the insurance regulators of the eight states that led the examination, the company will also pay approximately $46.5 million in additional taxes and assessments.

"Accurate company financial data is an essential ingredient of proper insurance regulation," said Pratter. "AIG will pay a significant penalty, $100 million divided among the participating states, to resolve violations of insurance laws. This reflects the seriousness of the violations in this instance over a sustained period of time – primarily prior to 1996 – by AIG's prior senior management."

Under the terms of the settlement, AIG will:

• Pay a $100 million fine to be apportioned among all the participating states;
• Pay approximately $46.5 million in additional taxes and assessments;
• Enter into a compliance plan containing agreed-upon specific steps and standards for evaluating AIG's ongoing compliance with workers compensation insurance rating and reporting requirements;
• Submit to periodic internal and state monitoring and a confirmatory examination at the end of 24 months; and
• Agree to pay a contingent potential fine of up to $150 million if AIG fails to meet the terms of the compliance plan.

The AIG insurance companies will be filing restated financial statements by March 1, 2011 reflecting the reallocation of approximately $2.1 billion of premium.

The multi-state examination was led by the states of Delaware, Florida, Indiana, Massachusetts, Minnesota, New York, Pennsylvania and Rhode Island. All the other states and the District of Columbia are participating. The scope of the examination was AIG's writing and financial reporting of workers compensation insurance.

The examination found non-compliance with rating, forms and financial reporting laws. Most significantly, it found that AIG misreported $2.12 billion of workers compensation premium that was reported instead as general or commercial automobile liability premium.

AIG has undergone changes in management. Its current chief executive officer and board of directors have pledged their commitment to the terms and principles expressed in the confidential compliance plan. The company has cooperated fully throughout the examination, Pratter noted.

This settlement is conditioned upon its adoption by at least 35 of the remaining 43 states and the District of Columbia by March 1, 2011, and settlements of AIG's pending litigation with insurer members of the workers compensation residual market and separate claims by insurance guaranty funds. The residual market and guaranty fund claims arise from the under-reporting of workers compensation insurance premium by AIG and its impact on the assessments charged others for the operation of the residual market and guaranty fund systems.

Under the settlement, Pennsylvania will receive $8.69 million in fines and an additional $4.63 million in state taxes.

To see this settlement online, go to the "What's Hot" section in the TOP NEWS tab at www.insurance.pa.gov.

Editor's Note: Contacts for the settlement's other lead states are as follows:

Delaware Department of Insurance - Elliott Jacobson, 302-674-7303, 202-294-3266 cellular

Florida Office of Insurance Regulation - Jack McDermott, 850-413-2515

Indiana Department of Insurance - Logan Harrison, 317-234-7734

Massachusetts Division of Insurance - Jason Lefferts, 617-973-8767

Minnesota Department of Commerce - Nicole Garrison-Sprenger, 651-296-7531

New York Insurance Department - Andrew Mais, 212- 480 5262

Rhode Island Division of Insurance Regulation - Elizabeth Dwyer, 401-462-9615

Media contacts: Rosanne Placey or Melissa Fox, Pennsylvania Insurance Department ; 717-787-3289

SOURCE Pennsylvania Insurance Department