US regulators probe AIG workers' compensation

American International Group (AIG), the company rescued four times by the US government, is being probed by all 50 state insurance regulators in the US, examining whether the firm violated rules governing workers’ compensation sales.

The watchdogs may decide to fine the New York-based AIG or impose other penalties after the investigation is finished in June, said Beth Dwyer, general counsel for the Rhode Island Insurance regulator, a lead state in the examination.

“The state actually decides what amount you can charge as an insurer,” Dwyer said in an interview yesterday. “The question here is, ‘did AIG follow those approved ratings, or did they do something else?’” The probe may distract AIG as the firm wrestles with repaying a federal loan and separate reviews into employee compensation. The unit that sells US workers’ compensation coverage may become part of AIU Holdings, the company said it would create to insulate businesses from the AIG name.

The probe expanded last year when a group of 18 regulators, convened to take a preliminary look, determined that all 50 states should examine the insurer’s conduct, Dwyer said.

The probe is an offshoot of a 2005 lawsuit from then-New York Attorney General Eliot Spitzer, who said AIG shortchanged premiums used in calculating its obligations.