For Immediate Release: Thursday, December 23, 2010
Minnesota's cut is more than $2 million
Minnesota Department of Commerce part of $100 million settlement with AIG over misreporting of workers' comp premiums
(ST. PAUL, MN) St. Paul— American International Group Inc., AIG, and its workers compensation insurance affiliates have agreed to pay $100 million in fines to insurance regulators in all 50 states and the District of Columbia for alleged premium under-reporting, the Minnesota Department of Commerce, one of the eight lead state regulators on the case, announced today. Minnesota's share of the settlement would be a little more than $2 million.
The settlement stems from a two-year market-conduct examination of the company, which found
non-compliance with rating, forms and financial reporting laws. Most significantly, it found that AIG misreported $2.12 billion of workers compensation premium that was reported instead as general or commercial automobile liability premium. By misreporting these premiums and not paying its fair share, the company caused the cost of workers' compensation insurance for all parties to go up.
"We expect insurance companies to be honest and forthright in their handling of premiums. For many years, AIG was misstating its financials to states, including Minnesota. That has given them an unfair competitive advantage and has damaged the integrity of the financial information all state regulators rely on," said Commerce Commissioner Glenn Wilson. "We are glad that AIG has accepted the findings and has agreed to implement a rigorous compliance plan."
The Settlement Agreement calls for:
A fine of $100 million to be shared by each state adopting the settlement agreement;
Payment of an additional $46.5 million in premium taxes and assessments;
Adoption of a compliance plan ensuring the company's compliance with workers compensation rates, forms and financial reporting requirements;
Monitoring by the lead states of the company's compliance with that plan for a 24-month period; and
An additional fine of up to $150 million if an examination at the end of the 24-month period demonstrates non-compliance by AIG.
In addition to its role as a lead state in the multi-state examination, in 2008, the department was instrumental in brokering a similar settlement between AIG and the Minnesota Workers' Compensation Reinsurance Association, the Minnesota Workers' Compensation Insurers Association, the Minnesota Insurance Guaranty Association, and the Minnesota Workers' Compensation Assigned Risk Plan. This settlement was related to similar charges of misstating workers' compensation premiums.
Following that 2008 settlement, the department continued on as one of the lead states in the most recent multi-state market conduct examination that led to the action against AIG announced today. The Minnesota Department of Commerce joined insurance departments in Delaware, Florida, Indiana, Massachusetts, New York, Pennsylvania and Rhode Island in the market-conduct examination.
AIG has pledged its commitment to the terms and principles of the compliance plan based on the settlement agreement.