American International Group will pay a record $1.64 billion to settle state and federal charges of securities fraud, bid-rigging and failure to pay proper contributions to various state workers' compensation funds, state and federal regulators announced last week. The settlement also calls for changes in business practices by the nation's largest insurer.

In its agreement with New York Attorney General Eliot Spitzer, New York Insurance Superintendent Howard Mills and the U.S. Securities and Exchange Commission, AIG agreed to cut back on the use of contingent commissions and will not pay them on excess casualty lines through 2008. Mr. Spitzer has charged that hidden, volume-based bonus commissions to brokers essentially served as insurer kickbacks for steering business and incentives for rigging bids.

AIG also agreed to refrain from paying contingency fees in any line of business where competing companies with 65 percent of gross written premiums do not pay them. AIG said it will support legislation to eliminate contingent commissions.