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

Maine’s Insurance Superintendent says State will receive $500,000

AUGUSTA, MAINE – Insurance Superintendent Mila Kofman announced Thursday that American International Group Inc., AIG, and its workers compensation insurance affiliates have agreed to pay a total of $100 million in fines to insurance regulators in all 50 states and the District of Columbia. Under the settlement, Maine will receive $500,000.

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.

“AIG violated insurance laws, and this penalty reflects the seriousness of those violations,” Superintendent Kofman stated. “We expect that they will fully comply with this settlement, and they will be monitored over the next 24 months to ensure they are implementing necessary changes.”

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

Kofman said 35 states and the District of Columbia need to sign on to the settlement by March 1, 2011. Maine will receive its portion of the settlement in the spring. In addition to the other states signing on, AIG’s pending litigation with insurer members of the workers compensation residual market and separate claims by insurance guaranty funds must be settled. 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 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 multi-state examination was led by the states of Delaware, Florida, Indiana, Massachusetts, Minnesota, New York, Pennsylvania and Rhode Island. All 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 Bureau of Insurance is part of the Department of Professional and Financial Regulation, which encourages sound ethical business practices through regulation of insurers, financial institutions, creditors, investment providers, and numerous professions and occupations for the purpose of protecting the citizens of Maine. Consumers can reach the Bureau through its web site at http://www.maine.gov/insurance; by calling 800-300-5000 in state; or by writing to Bureau of Insurance, 34 State House Station, Augusta, ME 04333.

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