American International Group Inc. (AIG) will pay $146.5 million in penalties to settle allegations that the company underreported workers' compensation premiums for decades. AIG reached the settlement with insurance regulators from each of the 50 states and District of Columbia in 2010; the agreement became effective on May 29, 2012.

"This important settlement is a significant win for California businesses and consumers and is the culmination of an extensive effort by insurance regulators across the country to investigate and ultimately correct serious issues of non-compliance by a major national commercial insurer,” said Dave Jones, California Insurance Commissioner. Under California law, the $15.6 million payment to settle with the state will be paid directly to the State's General Fund.

Under former CEO Maurice “Hank” Greenberg, AIG allegedly underreported workers' compensation premiums in an effort to avoid paying state residual market assessments and taxes.

According to a statement from the California Insurance Commissioner’s office, companies that sell work comp insurance in most states pool funds that serve as insurers of last resort, covering injuries at businesses with high risks. AIG’s competitors also have sued the company, alleging that as a result, they paid higher assessments to the states.

In December of 2011, a federal judge approved a $450 million settlement between AIG and those competitors. For the next two years, the company will be monitored by the National Association of Insurance Commissioners multi-state working group to assure compliance.

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