Patrick-Murray Administration's Division of Insurance Leads Multi-State Agreement with AIG; Massachusetts to Receive $3.4 Million
Examination of company's rating and financial reporting deficiencies in workers' compensation leads to $100 million agreement
Massachusetts has been one of eight states leading the two-year, national examination of AIG's practices in the writing and financial reporting of workers' compensation insurance.
The settlement agreement calls for AIG to pay $100 million in fines, which will be shared by the states entering into the agreement based on the workers' compensation premium reallocated to each state by the agreement. Also, approximately $46.5 million will be paid in additional taxes and assessments.
The AIG insurance companies will be filing restated financial statements by March 1, 2011 reflecting the reallocation of approximately $2.12 billion of premium. As part of the agreement, AIG has adopted a compliance plan to address the premium rating and financial reporting deficiencies identified by the examination. That plan will be closely monitored during the next 24 months by Massachusetts regulators and the seven other states that conducted the examination. Another examination will occur at the end of that period.
"This settlement further shows that state regulation of insurance best protects consumers while maintaining a level playing field for insurers," said Joseph G. Murphy, the Commissioner of the Massachusetts Division of Insurance. "Most importantly, this settlement includes a comprehensive compliance plan to ensure that these issues are corrected as we move forward."
This settlement is conditioned upon adoption by at least 43 states and the District of Columbia by March 31, 2011, and settlements of the pending litigation with insurer members of the workers' compensation residual market and separate claims by insurance guaranty funds. Payments to individual states are based on the proportion of workers' compensation premium being reallocated to each state. Massachusetts receives an additional $1 million for its role as a lead state. The $3.4 million received by Massachusetts will be placed in the General Fund.
The residual market and guaranty fund claims arise from the underreporting of workers' compensation insurance premium by AIG and its impact on the assessments charged others for the operation of the residual market and guaranty fund systems.
AIG's chief executive officer and its Board of Directors have pledged their commitment to the terms and principles expressed in the Compliance Plan arising from the Settlement Agreement.
Copies of the Settlement Agreement and Examination Report are available on the Division of Insurance website at www.mass.gov/doi.The Massachusetts Division of Insurance is an agency within the Office of Consumer Affairs and Business Regulation. Follow the Office at www.mass.gov/consumer, its Consumer Connections Blog and at its Twitter feed, @Mass_Consumer.