NU Online News Service, April 1, 12:10 p.m. EDT

Regulators for 50 states investigating American International Group's (AIG) reporting of workers' compensation premiums between 1985 and 1996 will seek to reach an agreement with the insurer in June, an attorney for one of the lead states said.

Among the issues the probe is examining is the possibility that AIG charged improper workers' comp rates. AIG is under legal attack for allegedly underreporting premiums, a move which could artificially limit the amount of high-risk residual market pool business the company would have to assume.

The multistate investigation followed an agreement reached with then-New York Attorney General Eliot Spitzer in 2006 and has been disclosed by AIG in 10-Q and 10-K filings with the SEC.

According to AIG's Dec. 31, 2008 10-K filing, a National Association of Insurance Commissioners (NAIC) working group began looking into AIG's reporting of 1985-1996 workers' compensation premiums in 2006 and recommended in late 2007 that "a multistate, targeted market conduct examination focusing on workers' compensation insurance be commenced under the direction of the NAIC's Market Analysis Working Group."

AIG said in the filing it was informed of the multistate examination in Jan. 2008.

Beth Dwyer, general counsel for the Rhode Island Insurance Department, said the NAIC investigation began after AIG's agreement with Mr. Spitzer regarding bid-rigging and steering charges.

As a smaller part of that investigation, Mr. Spitzer also looked into whether AIG was writing workers' comp risks at rates not approved by the states, Ms. Dwyer said.

Since the workers' comp issue affected states outside of New York, she said, the NAIC formed a working group to examine that aspect of the charges.

All 50 states agreed to participate in the investigation.

At issue for regulators is the act of underreporting premiums, Ms. Dwyer said, regardless of how or if AIG profited from that action.

Ms. Dwyer said she is hoping the examination will finish in June. At that time, she said, the NAIC will look to come to an agreement with AIG.

If that cannot be done, she said the multistate examination will issue a report and each state will take separate actions.

The seven lead states in the investigation are Rhode Island, Indiana, Minnesota, New York, Pennsylvania, Delaware and Florida, Ms. Dwyer said. She said Rhode Island volunteered to be a lead state.

Christina Pretto, AIG spokesperson, issued a response by e-mail stating, "The 2006 settlement over workers' compensation determined a payment amount per state. AIG was prepared to execute the settlement immediately but to do so required a release from each state and its residual market pool. To this day, we have not received these releases."

She said the company began to work with the NAIC, the states and the pool in 2006 to complete the settlements. "The pool, which consists of the other carriers of workers' compensation insurance, opted to pursue litigation over their share of the settlement, and we have in turn countersued the pool," she added.

The pool contends that by underreporting premiums, residual market risks within the pool were shifted to other companies.

As the states have undertaken the examination, Ms. Pretto said AIG is working closely with the exam consultant and is "optimistic" that there will be a resolution soon.

Special Reports /

States, AIG May Reach WC Agreement In June

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