Giant insurer American International Group Inc. will pay a fine of $35 million to settle with New York's top financial regulator over allegations that international businesses (which the insurer has since sold) had marketed insurance to multinational companies without having the correct state licenses to do so. The dispute centered on American Life Insurance, better known as ALICO, and another former AIG unit known as DelAm. A spokesperson for AIG said the insurer "has agreed to resolve this dispute in order to avoid the distraction and expense of ongoing litigation."The AIG settlement comes seven months after MetLife Inc., which bought the business in 2010, was hit with the largest New York state fine against an insurer-$50 million-to settle allegations in the matter. In the March settlement, MetLife said it would work with New York investigators regarding its conduct of inquiry into its business practices, agreeing to provide documents and sworn testimony about the units' activities before MetLife acquired them for about $16 billion. MetLife bought the businesses as AIG was at the time paying off one of the government's biggest single financial-crisis bailouts.
In settling with MetLife, New York had said its investigation found sales representatives of MetLife, AIG and the international businesses involved "engaged in direct selling in New York to multinational companies" on behalf of the overseas units including through sales meetings, competitions, phone calls, emails, visits to clients and entertaining.
The former AIG subsidiary Alico has insurance units in more than 50 countries. Its multinational clients typically are employers purchasing medical, life and disability-income insurance, as well as pension plans for workers in various countries.
Benjamin M. Lawsky, Superintendent of Financial Services, said that AIG was paying the $35 million penalty for insurance-law and other violations after his department's investigation uncovered that its former subsidiaries solicited insurance business in New York without a license and made intentional misrepresentations and omissions to the department about those activities.
"No company has a right to ignore the laws that every other insurer has to follow," Mr. Lawsky said. "This type of misconduct is unfair to its competitors and puts consumers at risk."
AIG and the New York department have been at odds over the matter in federal court in Manhattan, where AIG in April sought a ruling that the department was wrongly interpreting New York insurance-licensing requirements in an "unprecedented attempt to expand its regulatory reach." The federal-court litigation is being dismissed as part of the agreement.
‘No company has a right to ignore the laws that every other insurer has to follow.'
In its federal-court filings, AIG maintained that New York law doesn't require licensing for activity involving residents or companies outside New York.
In addition to the fine, MetLife had agreed to pay $10 million to avoid possible prosecution by the New York County District Attorney.
The New York regulators said Alico, while operating as an AIG subsidiary in 2009, had made a presentation to the department's predecessor agency that specifically stated: "No Insurance Operations Conducted in New York."
The New York department also cited a November 2009 letter in which it said Alico represented to the department that its activities in New York were primarily back office functions.
However, the department's investigation uncovered that Alico's activities in New York included roadshows in New York to solicit and sell group insurance products, the state said. The sales representatives, for example, conducted a roadshow at an AIG corporate dining room for multinational companies with operations in Brazil, the state said.
The executives in New York organized sales competitions among the sales representatives in order to increase sales productivity, according to the state.