In a settlement between all 50 states, the District of Columbia and AIG, payment of $100 million in fines will be paid to insurance regulators for the alleged premium under-reporting, and about $46.5 million in additional taxes and assessments will be paid to the eight states that led the examination, said the Pennsylvania Insurance Department.

The eight states are: Pennsylvania, Delaware, Florida, Indiana, Massachusetts, Minnesota, New York and Rhode Island.

Under the settlement, California will receive $15.6 million, followed by Texas with $12.8 million, and Pennsylvania $8.7 million.

The eight lead investigation states will receive close to $25 million from the fines alone.

According to acting Pennsylvania Insurance Commissioner Robert L. Pratter, “Accurate company financial data is an essential ingredient of proper insurance regulation."

Pratter expressed that AIG will pay the significant penalty of $100 million divided among the participating states in order to resolve violations of insurance laws reflecting the seriousness of the violations over a sustained period of time—primarily prior to 1996—by AIG’s prior senior management.

AIG responded by issuing a statement saying, “The NAIC multistate workers’ compensation examination focused on allegations of conduct taking place between 1975 and 1996, the same period that was the subject of the 2006 regulatory settlement between AIG and the State of New York. We are pleased that if this settlement becomes final, we will have resolved all remaining regulatory issues related to AIG’s workers’ compensation premium reporting for our stakeholders. The settlement represents AIG’s unwavering commitment to regulatory compliance and principled corporate governance.”

In order to make it a final agreement, 43 states will have to accept the agreement by March 1, 2011. So far, the eight lead investigative states have accepted the agreement.

Besides the fines and taxes AIG will:

• Enter into a compliance plan containing agreed upon specific steps and standards for evaluating AIG’s ongoing compliance with workers’ comp insurance rating and reporting requirements.

• Submit to periodic internal and state monitoring and a confirmatory examination at the end of 24 months.

• Agree to pay a contingent potential fine of up to $150 million if AIG fails to meet the terms of the compliance plan.

• AIG will file restated financial statements by March 1st reflecting the reallocation of approximately $2.1 billion in premium.

The Pennsylvania Insurance Department said the examination of the workers’ comp allegations found non-compliance with rating forms and financial reporting laws. The department said the most significant finding was that AIG misreported $2.12 billion of workers’ comp premium. The premium was reported as general or commercial automobile liability premiums.

The department’s acting commissioner said “AIG has undergone change in management. Its current chief executive officer and board of directors have pledged their commitment to the terms and principals expressed in the confidential compliance plan. The company has cooperated fully throughout the examination.”