AIG 2010 Annual Report Download - page 333

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Attorney General’s claim concerning producer compensation and insurance placement practices. AIG paid the
Ohio Attorney General $9 million as part of that settlement.
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, Minnesota and Rhode Island, began an investigation into AIG’s reporting of workers’ compensation
premiums. In late 2007, the Settlement Review Working Group recommended that a multi-state targeted market
conduct examination focusing on workers’ compensation insurance be commenced under the direction of the
NAIC’s Market Analysis Working Group. AIG was informed of the multi-state targeted market conduct
examination in January 2008. The lead states in the multi-state examination are Delaware, Florida, Indiana,
Massachusetts, Minnesota, New York, Pennsylvania, and Rhode Island. All other states (and the District of
Columbia) have agreed to participate in the multi-state examination. The examination focused on legacy issues
related to AIG’s writing and reporting of workers’ compensation insurance prior to 1996 and current compliance
with legal requirements applicable to such business.
On December 17, 2010, AIG and the lead states reached an agreement to settle all regulatory liabilities arising
out of the subjects of the multistate examination. The regulatory settlement agreement includes, among other
terms, (i) AIG’s payment of $100 million in regulatory fines and penalties; (ii) AIG’s payment of $46.5 million in
outstanding premium taxes; (iii) AIG’s agreement to enter into a compliance plan describing agreed-upon specific
steps and standards for evaluating AIG’s ongoing compliance with state regulations governing the setting of
workers’ compensation insurance premium rates and the reporting of workers’ compensation premiums; and
(iv) AIG’s agreement to pay up to $150 million in contingent fines in the event that AIG fails to comply
substantially with the compliance plan requirements. The $146.5 million in fines, penalties and premium taxes can
be funded out of the $338 million held in the Workers’ Compensation Fund to the extent that such monies have
not already been used to fund the class action settlement discussed below. The regulatory settlement is contingent
upon and will not become effective until, among other events: (i) at least 43 states sign on to the regulatory
settlement agreement; (ii) a final, court-approved settlement is reached in all the lawsuits that comprise the
Workers’ Compensation Premium Reporting Litigation, discussed below, including the putative class action, except
that such settlement need not resolve claims between AIG and the Liberty Mutual Group in order for the
regulatory settlement to become effective, and (iii) a settlement is reached and consummated between AIG and
certain state insurance guaranty funds that may assert claims against AIG for underpayment of guaranty-fund
assessments.
AIG has established a reserve equal to the amounts payable under the proposed settlement.
Litigation Related to the Matters Underlying the 2006 Regulatory Settlements
AIG and certain present and former directors and officers of AIG have been named in various actions related
to the matters underlying the 2006 Regulatory Settlements. These actions are described below.
The Consolidated 2004 Securities Litigation. Beginning in October 2004, a number of putative securities fraud
class action suits were filed in the Southern District of New York against AIG and consolidated as In re American
International Group, Inc. Securities Litigation (the Consolidated 2004 Securities Litigation). Subsequently, a
separate, though similar, securities fraud action was also brought against AIG by certain Florida pension funds.
The lead plaintiff in the Consolidated 2004 Securities Litigation is a group of public retirement systems and
pension funds benefiting Ohio state employees, suing on behalf of themselves and all purchasers of AIG’s publicly
traded securities between October 28, 1999 and April 1, 2005. The named defendants are AIG and a number of
present and former AIG officers and directors, as well as Starr, SICO, General Reinsurance Corporation (General
Re), and PricewaterhouseCoopers LLP (PwC), among others. The lead plaintiff alleges, among other things, that
AIG: (1) concealed that it engaged in anti-competitive conduct through alleged payment of contingent
commissions to brokers and participation in illegal bid-rigging; (2) concealed that it used ‘‘income smoothing’’
products and other techniques to inflate its earnings; (3) concealed that it marketed and sold ‘‘income smoothing’’
insurance products to other companies; and (4) misled investors about the scope of government investigations. In
addition, the lead plaintiff alleges that Greenberg manipulated AIG’s stock price. The lead plaintiff asserts claims
AIG 2010 Form 10-K 317