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.