AIG 2015 Annual Report Download - page 308

ITEM 8 / NOTE 15. CONTINGENCIES, COMMITMENTS AND GUARANTEES
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was denied on February 27, 2015. The matter has been remanded to the trial court for general discovery and adjudication of
the merits. On November 24, 2015, the trial court ruled that the defendants had a duty to disclose the amount of insurance
available at the settlement approval hearings and that the defendants breached that duty. AIG intends to appeal this ruling in
the event of an adverse judgment at trial. Trial is expected to commence on February 22, 2016. In 2015, we accrued our
current estimate of loss with respect to this litigation.
Regulatory and Related Matters
In April 2007, the National Association of Insurance Commissioners (NAIC) formed a Settlement Review Working Group,
directed by the State of Indiana, to review the Workers’ Compensation Residual Market Assessment portion of the settlement
between AIG, the Office of the New York Attorney General, and the New York State Department of Insurance. In late 2007,
the Settlement Review Working Group, under the direction of Indiana, Minnesota and Rhode Island, 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 were Delaware, Florida, Indiana, Massachusetts,
Minnesota, New York, Pennsylvania and Rhode Island. All other states (and the District of Columbia) agreed to participate in
the multi-state examination. The examination focused on legacy issues related to certain AIG entities’ writing and reporting of
workers compensation insurance between 1985 and 1996.
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. This regulatory settlement agreement, which was agreed to by all 50 states and the
District of Columbia, included, 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 and assessments; (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. In furtherance of the compliance plan, the agreement provided for a monitoring period from
May 29, 2012 to May 29, 2014 leading up to a compliance plan examination. After the close of the monitoring period, as part
of preparation for the actual conduct of the compliance plan examination, on or about October 1, 2014, AIG and the lead states
agreed upon corrective action plans to address particular issues identified during the monitoring period. The compliance plan
examination is ongoing. There can be no assurance that the result of the compliance plan examination will not result in a fine,
have a material adverse effect on AIG’s ongoing operations or lead to civil litigation.
In connection with a multi-state examination of certain accident and health products, including travel products, issued by
National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), AIG Property Casualty Inc. (formerly Chartis Inc.),
on behalf of itself, National Union, and certain of AIG Property Casualty Inc.’s insurance and non-insurance companies
(collectively, the AIG PC parties) entered into a Regulatory Settlement Agreement with regulators from 50 U.S. jurisdictions
effective November 29, 2012. Under the agreement, and without admitting any liability for the issues raised in the examination,
the AIG PC parties (i) paid a civil penalty of $50 million, (ii) entered into a corrective action plan describing agreed-upon
specific steps and standards for evaluating the AIG PC parties’ ongoing compliance with laws and regulations governing the
issues identified in the examination, and (iii) agreed to pay a contingent fine in the event that the AIG PC parties fail to satisfy
certain terms of the corrective action plan. National Union and other AIG companies are also currently subject to civil litigation
relating to the conduct of their accident and health business, and may be subject to additional litigation relating to the conduct
of such business from time to time in the ordinary course. There can be no assurance that any regulatory action resulting from
the issues identified will not have a material adverse effect on our ongoing operations of the business subject to the
agreement, or on similar business written by other AIG carriers.
Legal Reserves
We recorded increases in our legal reserve liability of $25 million and $507 million in the years ended December 31, 2015 and
2014, respectively.