AIG 2009 Annual Report Download - page 306

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2006 Regulatory Settlements and Related Matters
2006 Regulatory Settlements. In February 2006, AIG reached a resolution of claims and matters under investigation
with the DOJ, the SEC, the Office of the New York Attorney General (NYAG) and the New York State Department
of Insurance (DOI). AIG recorded an after-tax charge of $1.15 billion relating to these settlements in the fourth
quarter of 2005. The settlements resolved investigations conducted by the SEC, NYAG and DOI in connection with
the accounting, financial reporting and insurance brokerage practices of AIG and its subsidiaries, as well as claims
relating to the underpayment of certain workers’ compensation premium taxes and other assessments. These
settlements did not, however, resolve investigations by regulators from other states into insurance brokerage practices
related to contingent commissions and other broker-related conduct, such as alleged bid rigging. Nor did the
settlements resolve any obligations that AIG may have to state guarantee funds in connection with any of these
matters.
As a result of these settlements, AIG made payments or placed amounts in escrow in 2006 totaling approximately
$1.64 billion, $225 million of which represented fines and penalties. Amounts held in escrow totaling approximately
$338 million, including interest thereon, are included in Other assets at December 31, 2009. At that date, all of the
funds were escrowed for settlement of claims resulting from the underpayment by AIG of its residual market
assessments for workers’ compensation.
In addition to the escrowed funds, $800 million was deposited into a fund under the supervision of the SEC as part
of the settlements to be available to resolve claims asserted against AIG by investors, including the securities class
action shareholder lawsuits described below. On April 14, 2008, the Court overseeing the Fair Fund approved a plan
for distribution of monies in the fund, and on May 18, 2009 ordered that the Distribution Agent was authorized to
commence distribution of Fair Fund monies to approved eligible claimants.
Also, as part of the settlements, AIG agreed to retain, for a period of three years, an independent consultant to
conduct a review that included, among other things, the adequacy of AIG’s internal control over financial reporting,
the policies, procedures and effectiveness of AIG’s regulatory, compliance and legal functions and the remediation
plan that AIG has implemented as a result of its own internal review.
Other Regulatory Settlements. AIG’s 2006 regulatory settlements with the SEC, DOJ, NYAG and DOI did not
resolve investigations by regulators from other states into insurance brokerage practices. AIG entered into
agreements effective January 29, 2008 with the Attorneys General of the States of Florida, Hawaii, Maryland,
Michigan, Oregon, Texas and West Virginia; the Commonwealths of Massachusetts and Pennsylvania; and the District
of Columbia; as well as the Florida Department of Financial Services and the Florida Office of Insurance Regulation,
relating to their respective industry-wide investigations into producer compensation and insurance placement
practices. The settlements call for total payments of $12.5 million to be allocated among the ten jurisdictions
representing restitution to state agencies and reimbursement of the costs of the investigation. During the term of the
settlement agreements, which run through early 2018, AIG will continue to maintain certain producer compensation
disclosure and ongoing compliance initiatives. AIG will also continue to cooperate with the industry-wide
investigations. The agreement with the Texas Attorney General also settles allegations of anticompetitive conduct
relating to AIG’s relationship with Allied World Assurance Company and includes an additional settlement payment
of $500,000 related thereto.
AIG entered into an agreement effective March 13, 2008 with the Pennsylvania Insurance Department relating to
the Department’s investigation into the affairs of AIG and certain of its Pennsylvania-domiciled insurance company
subsidiaries. The settlement calls for total payments of approximately $13.5 million, of which approximately
$4.4 million was paid under previous settlement agreements. During the term of the settlement agreement, which runs
for a period of three years from May 1, 2008, AIG will provide annual reinsurance reports, as well as maintain certain
producer compensation disclosure and ongoing compliance initiatives.
NAIC Examination of Workers’ Compensation Premium Reporting. During 2006, the Settlement Review Working
Group of the National Association of Insurance Commissioners (NAIC), under the direction of the states of Indiana,
AIG 2009 Form 10-K 298