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May 31 (Bloomberg) -- American International Group Inc., the bailed-out insurer, will pay more than $16.8 million to resolve a Pennsylvania regulator’s probe into the shortchanging of workers’ compensation pools.

The penalty for the New York-based company is the largest in the history of the Pennsylvania Insurance Department, which led a multistate probe, the regulator said today in a statement.

The sum is part of a $146.5 million settlement AIG reached with watchdogs across the U.S. in 2010. The probe was an offshoot of a 2005 lawsuit from then-New York Attorney General Eliot Spitzer, who said AIG, under former Chief Executive Officer Maurice “Hank” Greenberg, underreported premiums in calculating its obligations to state pools.

AIG “underestimated their liabilities under inter-company policyholder guarantees,” Pennsylvania Insurance Commissioner Michael Consedine said in the statement. “At this time, AIG’s current management has shown its commitment to a culture of regulatory compliance.”

In most states, companies that sell workers’ compensation must fund pools that serve as insurers of last resort to cover injuries at employers that pose unattractive risks.

The payment to Pennsylvania includes $8.6 million in fines, $3.6 million to the Workers’ Compensation Security Fund, and $4.6 million in premium taxes and assessments. The $146.5 million total is composed of $100 million in fines and $46.5 million in taxes and assessments. AIG has been led by CEO Robert Benmosche since 2009.

Final Resolution

The accord focuses on conduct from 1975 and 1996, “the same period that was the subject of the 2006 regulatory settlement between AIG and the State of New York,” the insurer said in an e-mailed statement. “We are pleased that with this settlement now becoming final this week, we have resolved all remaining regulatory issues related to AIG’s workers compensation premium reporting.”

The insurer agreed last year to pay $450 million to rivals who sued the company and said they were stuck with excessive workers’ compensation obligations when AIG shirked its responsibilities to the pools

To contact the reporter on this story: Zachary Tracer in New York at

To contact the editor responsible for this story: Dan Kraut at

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