AIG in $1.6bn settlement with regulators

American insurance giant AIG will today (9 February) announce a settlement of $1.6bn, resolving deception and accounting fraud charges with federal and state authorities. 
 
The regulatory settlement is the largest by a single company in US history and would settle investigations by the Securities and Exchange Commission (SEC), New York State attorney general Eliot Spitzer and the New York State Insurance Department. 
 
Spitzer's biggest settlement since he rocked the insurance world with a writ against MMC in October 2004 was $850mn from the broking firm. The SEC's previous biggest settlement from one firm was the $750mn paid by WorldCom in 2003. 
 
The AIG settlement includes an $800mn payment to the SEC, which includes a $100mn penalty with the remainder as compensation for investors deceived by a series of alleged accounting violations. 
 
A further $375mn is earmarked for compensating AIG's corporate clients while penalties from the state of New York will also be a $100mn. 
 
Workers' compensation funds in the US that were victims of non-payment from AIG are expected to receive $344mn, with funds in Rhode Island getting almost a third of that part of the settlement. 
 
A statement of regret from AIG is also expected as part of the deal with regulators. 
 
Although likely to set a record the settlement is still less than the $1.7bn in net income that AIG reported for the third quarter of last year. 
 
Since his initial writ against MMC, which alleged bid-rigging, price-fixing and forcing the end of contingent commissions from the broker, Spitzer has gone onto probe many other established insurance practices including the widespread use of finite reinsurance as an accounting smoothing technique. 
 
In May, Spitzer's office filed a civil suit against the company and Greenberg alleging deception and fraud at the organisation. AIG admitted that it had falsely boosted its reserves with a $500mn finite reinsurance contact with General Re and has subsequently restated its accounts and published mea culpa statements. 
 
As a consequence of Spitzer's actions, both Hank Greenberg - the patriarchal head of AIG for almost 40 years - and his son Jeffrey Greenberg - the former MMC chief executive - were forced to resign from their posts. 
 
The former AIG CEO denies committing any offence and has pledged to clear his name. 
 
At least 15 executives from MMC, AIG and other US P&C insurers have also pleaded guilty to charges relating to the attorney general's investigations into MMC's past remuneration practices. 
 
AIG shares closed up 58 cents, or 1 percent on the New York Stock Exchange yesterday after news of the settlement began to filter out.

Published on February 9, 2006