AIG Settles Bid-Rigging, Fraud Claims In Pennsylvania For $13M

American International Group reached a $13.5 million settlement with the Pennsylvania Insurance Department last week over allegations of bid-rigging and filing false financial information.

The New York-based insurer said it has already paid approximately $4.4 million to the state. AIG said it will provide annual reinsurance reports and maintain "certain producer compensation disclosure and ongoing compliance initiatives."

The insurer said it neither admitted nor denied the allegations made by the department.

Pennsylvania's acting insurance commissioner, Joel Ario, in a statement said the company would pay $9 million in penalties and investigative costs over the filing allegations.

The agreement also resolves bid-rigging allegations against AIG and requires the insurer to implement new compliance measures to ensure accurate reporting and increase the transparency of commission payments to agents and brokers.

"Financial reporting must be accurate for us to protect insurance consumers and be certain that companies are solvent," said Mr. Ario. "When there is any indication of problems with a company's financial reporting, we investigate, take action and hold insurers accountable."

He said that "our ability to fairly regulate the business of insurance requires that we must be able to rely upon the truthfulness of financial reports filed by companies doing business here."

Mr. Ario noted that the company is paying the largest penalty in the department's history, reflecting the seriousness of the violations.

The action stems in part from allegations that AIG and General Reinsurance engaged in a loan deal in 2000 disguised as a finite reinsurance contract meant to artificially boost AIG's reserves.

For their participation in that transaction, a former AIG executive and four former Gen Re executives were convicted on Feb. 25 in U.S. District Court in Hartford, Conn., on charges of conspiracy, securities fraud, making false statements to the Securities and Exchange Commission, and mail fraud.

The department said it is working with other states to "conduct a comprehensive examination of a third area of AIG's misconduct related to the underreporting of worker' compensation premiums."

The department added that it has already settled bid-rigging allegations against insurance broker Marsh Inc. and insurers Zurich Insurance Company and ACE INA Holdings Inc.