EXHIBIT 10.3
AGREEMENT BETWEEN THE ATTORNEY GENERAL OF THE STATE OF NEW YORK AND
AMERICAN INTERNATIONAL GROUP, INC. AND ITS SUBSIDIARIES
(COLLECTIVELY "AIG") DATED JANUARY 18, 2006
WHEREAS, the New York Attorney General (the "Attorney General") and
the Superintendent of Insurance of the State of New York (the "Superintendent")
commenced an action against AIG pursuant to Executive Law Section 63 (12), the
Xxxxxx Act (Gen. Bus. Law Section 352-c), Insurance Law Sections 201, 327 and
the common law of the State of New York dated May 26, 2005 (the "Complaint");
WHEREAS, the Attorney General has conducted an investigation related
to AIG's practices in the marketing, sale, renewal, placement or servicing of
insurance for its policyholders and its accounting and public reporting
practices, including those relating to nontraditional and finite insurance (the
"Attorney General's Investigation") and the Superintendent, pursuant to
Insurance Law Section 310, has conducted an examination of AIG (the
"Superintendent's Examination");
WHEREAS, the Attorney General and the Superintendent have alleged
the following facts with respect to AIG's participation in schemes relating to
the rigging of bids for excess casualty insurance business and the use of
contingent commission agreements or placement service agreements to steer
business:
a. Since at least the mid-1990s AIG and other insurers have paid
hundreds of millions of dollars in so-called "contingent
commissions" to the world's largest insurance brokers, including
Xxxxx & McLennan Companies, Inc. or Xxxxx Inc. (collectively
"Marsh"), Aon Corporation ("Aon"), Xxxxxx Group Holding Ltd.
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("Willis") and Xxxxxx X. Xxxxxxxxx & Co. ("Gallagher"), as well as
tens of thousands of smaller brokers and independent agents.
b. AIG entered into a number of contingent commission agreements (also
known as "override" agreements) to pay compensation to Producers,(1)
such as Marsh, Aon, Xxxxxx and Gallagher as a result of which they
steered insurance policies to AIG to increase the volume of policies
written by AIG, to keep retention levels of existing AIG policies
above certain benchmarks, and to direct the most profitable policies
to AIG. In most cases, steering took the form of Producers
purporting to offer unbiased recommendations to their clients about
the selection of insurers when in fact, in many cases, the
Producers' recommendations were biased in favor of insurers who paid
contingent commissions.
c. Under these agreements, when Marsh, for example, helped AIG retain
its existing business at renewal time, AIG paid Marsh higher
contingent commissions. Thus, in the 2002 placement service
agreement between the two companies relating to excess casualty, AIG
agreed to pay Marsh an aggregate percentage of gross written premium
that varied from a minimum of 10% for one dollar of premium, to 15%
for four hundred million dollars, to 15.75% of one billion dollars.
d. Further, when Xxxxxx steered business to AIG's Hartford Steam Boiler
subsidiary, AIG, in turn, paid Xxxxxx higher contingent commissions.
When Gallagher gave
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(1) For purposes of this Agreement, "Producer" shall mean any insurance broker
as that term is defined in Section 2101(c) of the Insurance Law of the State of
New York or any independent insurance agent as that term is defined in
Section 2101(b) of the Insurance Law of the State of New York and who offers
insurance for a specific product or line from more than one insurer or
affiliated group of insurers.
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AIG first rights of refusal and made sure AIG got its fair share of
business, AIG reimbursed Gallagher for some of its employees'
salaries, another way to pay Gallagher higher fees.
e. In some cases AIG did not enter into formal contingent commission
agreements with Producers, but agreed instead to subsidize certain
of the Producers' expenses. For example, AIG rewarded Gallagher with
"hiring subsidies" of $2 million in 2002 and $2.5 million in 2003,
to pay for the salaries of certain Gallagher employees. In return,
Gallagher agreed to give AIG an exclusive "first right of refusal"
for prospective insurance business and to make sure that AIG was
successful on a fair share of this business.
f. In the area of excess casualty insurance, which covers losses above
the limits provided by policyholders' primary casualty insurance
policies, and in which AIG is a major provider, Marsh, AIG and other
insurers rigged the process of bidding for insurance policies and
actively deceived clients. AIG underwrote the vast majority of
umbrella excess casualty business that was placed through Xxxxx'x
Global Broking Excess Casualty Group, and was thus the "incumbent"
on most business that came up for renewal. The bid manipulation that
AIG and Marsh engaged in generally sought to protect AIG's
incumbency and gave AIG an unfair competitive advantage, to the
detriment of the insured, whose best interests Marsh was supposed to
be serving.
g. When AIG was the incumbent carrier, or was otherwise chosen by Marsh
to win a
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client's business, Marsh set a target for AIG which included
proposed premium and policy terms for AIG's bid as a part of the
renewal process. If AIG met this target, or even if it provided a
much less favorable bid from the client point of view, Marsh
generally arranged for AIG to win the business, regardless of
whether AIG, or any other insurance company, could have quoted
better terms for the client.
h. In order to ensure that AIG won business it wanted, Marsh instructed
other insurance companies to provide intentionally losing bids that
were inferior to those provided by AIG. These losers were known,
among other things, as "fake," "backup," "supportive," or
"protective quotes." They were also known as "B Quotes" or simply
"B's." Once it had secured such quotes, Marsh would present them to
clients as bids obtained through a competitive process. This
pretense of competition was intended to, and did, give clients the
impression that AIG's bid was the best available. It also had the
effect of throwing business to AIG, not at terms best for the
client, but rather at terms advantageous to AIG. Certain employees
of AIG were aware of this arrangement and of the "B Quotes" supplied
by other insurers. Set forth below are specific examples:
i. In March 2002, Marsh set a target price of $690,000 to provide
AIG the renewal business for AIG's insured, "Client A." The
Marsh employee coordinating the renewal instructed colleagues
that "B Quotes" be obtained from Munich and St. Xxxx insurance
companies to ensure that
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AIG would win this "[g]ood account." Despite the target price
established, toward the end of the month AIG quoted the
account at a price of $825,000, or approximately 20% higher
than the price at which Marsh had intended AIG to obtain the
business. Nonetheless, once AIG quoted higher than the target
price, thereby rendering its bid far less attractive and more
vulnerable to competition, the Marsh employee sought greater
protection for AIG. On March 25, the Marsh employee circulated
an email seeking intentionally losing "B quotes" from two
additional insurance companies, Zurich and Liberty. With
"competitors" submitting losing quotes that made AIG's
increased price seem competitive, AIG obtained the client's
business at exactly the price AIG quoted.
ii. AIG's client, "Xxxxxx X," had its insurance up for renewal in
October 2002. Xxxxx'x broking plan, prepared in August 2002
without specifying any target price, called for AIG to win the
business and for other insurance companies to submit
intentionally losing quotes in support of AIG's quote. After
the plan was issued, AIG quoted $475,000, a 111% increase in
price over the previous year's premium. The Marsh employee
overseeing the placement noted to his Marsh colleagues on
September 18, 2003 that "[t]he client is not happy with this
price and we have asked AIG for consideration on the premium
due to the long term relationship." Despite the client's
dissatisfaction, on the very same day the Marsh employee
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instructed one Marsh colleague that "[w]e need Zurich to quote
. . . for something higher." On September 23, 2003, the Marsh
employee further directed another Marsh colleague to "have ACE
send an email stating they would quote . . . for $500,000 or
higher with a professional liability exclusion and an aircraft
products and grounding exclusion." These exclusions were not
included in the AIG quote. Just a day later, increasingly
concerned about AIG's high bid and the client's unhappiness,
the Marsh employee sent an email to colleagues soliciting
intentionally losing quotes from two additional insurers to
further support AIG's price increase:
Guys,
AIG quoted [the layer] for $475,000. Premium increase is
111% due to 3MM auto loss AIG paid on this account
recently. This is going to be a tough sale so I need
some help. Emails would be fine.
St. Xxxx . . .$525,000
Liberty Decline Lead
ACE . . .$500,000
All of these options should have the following
exclusions:
aircraft products and grounding
failure to supply
professional responsibility
AIG thereafter received the protection of these fake quotes
and bound the business at its chosen price, terms and
conditions.
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iii. For the October 2002 policy renewal of "Client C," AIG
submitted a bid 65% higher than what it had charged the
previous year. A Marsh employee then informed colleagues that
"AIG quoted . . . for $1,300,000 which is in line with the
client's expectations," and instructed them "[w]e need email
indications as follows: Zurich - 20 x 5 $1,500,000[;] ACE - 5
x 5 $1,100,000." In the same month, when AIG raised its quote
by 65% for a different policy, the Marsh employee in charge of
getting a purportedly competitive quote from Zurich wrote "AIG
has quoted the lead on ["Client D"] @ $320,000 (I am shocked
it's only a 65% premium increase), we need Zurich to quote a
supportive lead at $365,000. I will fax you our quote
confirmation." And also in the same month, a Marsh underwriter
sent the following message to a purported competitor of AIG
regarding the ["Client E"] account:
AIG has quoted:
25 x p=$525,000
50 x p=$675,000
GL attachments 2/4/4
AL attachments 2mm
Please over price your indications for 25 [x p] or 50
[x p] or both if you can. THIS IS A FAKE QUOTE BOTH
OF THEM ARE FAKE.
(Emphasis added).
iv. On December 17, 2002, an ACE assistant vice president of
underwriting sent Marsh a fax quoting an annual premium of
$990,000 for an excess
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casualty insurance policy for one of AIG's insureds, "Client
F." Later that day, ACE revised its bid upward to $1,100,000.
On the fax cover sheet with the revised bid, ACE's assistant
vice president wrote: "Per our conversation attached is
revised confirmation. All terms & conditions remain
unchanged." An email the next day from the ACE assistant vice
president to a superior explained the revision as follows:
"Original quote $990,000.... We were more competitive than AIG
in price and terms. Marsh requested we increase premium to
$1.1M to be less competitive, so AIG does not loose [sic] the
business...."
v. When the time came for "Client G" to renew its excess casualty
insurance in April 2003, Marsh set a target price of $470,000
for a particular layer. The target also included the provision
that AIG's proposed policy would "maintain silence" on whether
its insurance would cover claims for injury resulting from
EMF, or electromagnetic fields. AIG chose to provide a less
attractive bid from the insured's point of view: not only did
it quote $550,000 for the policy, approximately 20% higher
than the target at which it was the designated winner, but
AIG's quote also included an EMF exclusion. To support AIG's
quote, the Marsh employee coordinating the placement
nevertheless instructed a colleague, on March 26, 2003, to (1)
"get a B quote from Zurich for [Client G] with the EMF
exclusion" and (2) "have Zurich provide an e-mail indication
in the area of
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$650,000." With this supportive bid rigging, AIG obtained the
business.
vi. For one account, "Client H," with a May 2003 renewal, a Marsh
employee instructed the underwriter at one of AIG's purported
competitors: "Can you email me a protective indication on
this. It is an AIG renewal and AIG already quoted it so just
give me a bad price with higher per occ. attachment and then
we can be done with this."
i. In some situations where another carrier was the incumbent, or was
chosen by Marsh to win a client's business, AIG provided Marsh with
intentionally losing bids to present to the clients. For example, in
October 2003, an underwriter at AIG described one such intentionally
losing bid that AIG provided as follows: "This was not a real
opportunity. Incumbent Zurich did what they needed to do at renewal.
We were just there in case they defaulted. Broker...said Zurich came
in around $750K & wanted us to quote around $900K."
WHEREAS, based on these allegations and those contained in the
Complaint, the Attorney General and the Superintendent allege that AIG
unlawfully deceived its policyholders, regulators and other authorities and
shareholders by: (a) participating in schemes to steer business; (b)
participating in rigging of bids for excess casualty insurance through Marsh;
(c) underreporting to state insurance departments, taxing authorities and other
entities the amount of workers compensation premium it collected; (d) providing
false and misleading information and responses to regulators, including
misrepresentations concerning certain reinsurance
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arrangements; and (e) using fraudulent insurance transactions and "topside"
accounting adjustments to bolster the quality, quantity and stability of its
earnings;
WHEREAS, AIG has been and is continuing to cooperate with the
Attorney General's Investigation and the Superintendent's Examination;
WHEREAS, in the wake of the Complaint, the Attorney General's
Investigation and the Superintendent's Examination, AIG has adopted and under
this Agreement (the "Agreement") will continue to implement a number of business
reforms;
WHEREAS, the Attorney General and AIG wish to enter into this
Agreement to resolve all issues related to AIG in the Complaint and the Attorney
General's Investigation (with the exceptions of any conduct or activity relating
to the Variable Annuity Life Insurance Company and any other AIG subsidiary
which sells variable annuities, and any conduct or activity relating to the
marketing, purchase, sale or negotiation of life settlements, including AIG's
dealings with life settlement brokers, agents, sellers and investors;
notwithstanding the above, this Agreement resolves the allegations relating to
the Coventry Life Settlement Trust contained in paragraphs 81-91 of the
Complaint);
WHEREAS, nothing herein shall be construed to apply to any business
or operations involving group and individual: (1) fixed and variable life
insurance, (2) fixed and variable, immediate and deferred annuities, (3)
accidental death and dismemberment insurance, (4) short and long term disability
insurance, (5) long term care insurance, (6) accident and health insurance,
including vision and dental insurance, (7) credit insurance, (8) involuntary
unemployment insurance, (9) guaranteed investment contracts, and (10) funding
agreements
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(collectively "AIG's Life Insurance Operations");
WHEREAS, the Superintendent and AIG simultaneously wish to enter
into a Stipulation to resolve all issues related to AIG in the Complaint and the
Superintendent's Examination (with the exception of any pending or future
examination of American International Group, Inc. and its insurer subsidiaries)
("the Stipulation");
WHEREAS, AIG is entering into an agreement with the United States
Securities and Exchange Commission ("SEC") to provide a fund to compensate
investors for alleged injuries related to AIG's accounting and public reporting
practices;
WHEREAS, the Attorney General finds the relief and agreements
contained in this Agreement appropriate and in the public interest, and is
willing to accept this Agreement as a settlement of the Complaint, and the
Attorney General's Investigation (with the exceptions noted above);
WHEREAS, this Agreement is entered into solely for the purpose of
resolving the Complaint and the Attorney General's Investigation (with the
exceptions noted above) and is not intended to be used for any other purpose;
and
WHEREAS, AIG neither admits nor denies the above allegations or the
allegations contained in the Complaint;
NOW THEREFORE, AIG and the Attorney General hereby enter into this
Agreement with a statement of apology attached as Exhibit 1, and agree as
follows:
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MONETARY RELIEF
A. WORKERS COMPENSATION
1. AIG shall pay a total of $343.5 million for alleged injury caused by
its underpayment of workers compensation premium taxes and all other related
fees and assessments including workers compensation residual market assessments
for and including tax years 1985 to 1996 but not including workers compensation
guaranty fund assessments and any monies owed relating to large deductible
policies and related taxes. The $343.5 million will be apportioned as detailed
in paragraphs 2, 3 and 4, below. The State of New York shall not consider any
portion of this amount to be a fine or penalty.
2. On or before March 1, 2006, AIG shall pay $87,801 to the State of New
York by wire transfer for alleged injury caused by AIG's underpayment of workers
compensation premium taxes and all other related fees and assessments including
workers compensation residual market assessments and guaranty fund assessments
for and including tax years 1985 to 1996.
3. On or before March 1, 2006, AIG shall pay to each of the other
forty-nine states and the District of Columbia ("State," or collectively
"States") the total listed for that State on Schedule WC-A to this Agreement for
alleged injury caused by AIG's underpayment of workers compensation premium
taxes and all other related fees and assessments for and including tax years
1985 to 1996 but not including workers compensation residual market assessments
and guaranty fund assessments. The total amount to be paid to the States
pursuant to this paragraph shall be $42,280,740.
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4. On or before March 1, 2006, AIG shall pay $301,216,234 into a fund
created by AIG for the settlement of claims with the States and workers
compensation residual market pools, including monopolistic or exclusive State
funds, competitive State funds, independent State assigned risk plans, the
National Workers' Compensation Reinsurance Pool administered by the National
Council on Compensation Insurance, Inc. ("NCCI"), State assigned risk plans
administered by the NCCI or another third-party administrator, or other workers
compensation residual market mechanisms in which one or more of the States
participates, for alleged injury caused by AIG's underpayment of workers
compensation residual market assessments for and including tax years 1985 to
1996, and additional amounts arising out of any claim for injury described in
paragraph 1, but not set forth in paragraphs 2 and 3 of this Agreement (the
"Workers Compensation Fund"). A calculation by State of such underpayments and
the interest thereon is attached as Schedule WC-B to this Agreement. In no event
shall any of the money in the Workers Compensation Fund be paid directly to an
insurance company.
5. On or before March 1, 2006, AIG shall send a notice to the Attorney
General and Insurance Commissioner of each State (the "Workers Compensation
Notice"). The Workers Compensation Notice shall be accompanied by: (a) payment
owing, if any, pursuant to paragraph 3 above; (b) a copy of this Agreement, its
Exhibits and Schedules (including Schedules WC-A and WC-B); (c) a copy of the
Stipulation and exhibits; and (d) a cover letter stating that the Workers
Compensation Fund described in paragraph 4 above has been created for the
settlement of claims arising from AIG's underpayment of workers compensation
residual market assessments for and including tax years 1985 to 1996 and setting
forth the amount apportioned to
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the noticed State on Schedule WC-B.
6. The form of the Workers Compensation Notice described in paragraph 5
above shall be subject to the prior approval of the Attorney General and the
Superintendent.
7. The Workers Compensation Fund shall be held by AIG and invested in a
designated money market fund subject to the prior approval of the Attorney
General and the Superintendent.
8. Each State which receives a Workers Compensation Notice and which
elects to receive a distribution from the Workers Compensation Fund in the
amount apportioned to it on Schedule WC-B (a "Participating State," or
collectively the "Participating States") shall tender a release in the form
attached to this Agreement as Exhibit WC-1 (the "Release") on or before March 1,
2007.
9. For each Participating State that has tendered a Release pursuant to
the preceding paragraph, AIG shall pay the Participating State an amount equal
to the amount apportioned to the State on Schedule WC-B plus all investment or
interest income earned thereon, within ten business days of receiving the
Release.
10. In the event that any State elects not to participate and does not
tender a Release as provided in paragraph 8 above, AIG may use the money
remaining in the Workers Compensation Fund as of but not before March 2, 2007 to
satisfy any claim for injury caused by AIG's underpayment of workers
compensation residual market assessments or workers compensation premium taxes
or any other related fees or assessments by a State, a monopolistic or exclusive
State fund, a competitive State fund, an independent State assigned risk plan,
the
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National Workers' Compensation Reinsurance Pool administered by the NCCI, a
State assigned risk plan administered by the NCCI or other third-party
administrator, or other workers compensation residual market mechanism in which
one or more of the States participates. In no event shall any money in the
Workers Compensation Fund be used to settle other claims before all
Participating States have been paid their full distribution from the Fund
pursuant to paragraph 9. In no event shall any of the money in the Workers
Compensation Fund be paid directly to an insurance company.
11. If any money remains in the Workers Compensation Fund as of December
31, 2008, it shall be distributed on or before January 31, 2009 on a pro rata
basis to the Participating States pursuant to the Participating States'
apportioned shares on Schedule WC-B.
12. The Attorney General shall not seek to impose on AIG any other
financial obligation or liability related to any injury caused by AIG's
underpayment of workers compensation premium taxes and all other related fees
and assessments including residual market assessments for and including tax
years 1985 to 1996, but not including any monies owed relating to large
deductible policies and related taxes.
13. In no event shall any of the money in the Workers Compensation Fund,
or the investment or interest income earned thereon be used to pay or considered
in the calculation of attorneys fees.
14. In no event shall any of the money in the Workers Compensation Fund,
or the investment or interest income earned thereon, be used to pay or
considered in the calculation of commissions, administrative or other fees to
XXX.
00
00. On or before March 20, 2007, AIG shall file an interim report with the
Attorney General and the Superintendent, certified by an officer of AIG, listing
all amounts paid from the Workers Compensation Fund to date.
16. On or before March 1, 2009, AIG shall file a report with the Attorney
General and the Superintendent, certified by an officer of AIG, listing all
amounts paid from the Workers Compensation Fund including any amounts paid
pursuant to paragraph 11.
B. BID RIGGING - EXCESS CASUALTY POLICYHOLDERS
17. On or before March 1, 2006, AIG shall pay $375 Million into a fund
(the "Excess Casualty Fund") created and held by AIG to be paid to AIG's
policyholders who purchased or renewed AIG Excess Casualty policies, excluding
Excess Workers Compensation policies) through Marsh during the period from
January 1, 2000 through September 30, 2004 (the "Eligible Policyholders"). All
of the money paid into the Excess Casualty Fund and any investment or interest
income earned thereon shall be paid to Eligible Policyholders pursuant to this
Agreement. No portion of the Excess Casualty Fund shall be considered a fine or
a penalty.
18. The Excess Casualty Fund shall be invested in a designated money
market fund subject to the prior approval of the Attorney General and the
Superintendent.
19. AIG shall (a) by May 1, 2006 calculate the amount of money each of the
Eligible Policyholders paid for excess casualty insurance placed through Marsh
with inception or renewal dates during the period from January 1, 2000 through
September 30, 2004 (the "Eligible Policies"); (b) within ten days of completing
these calculations, file a report with the Attorney General and the
Superintendent, certified by an officer of AIG, setting forth: (i) each Eligible
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Policyholder's name and address; (ii) the Eligible Policyholder's Eligible
Policy(ies) purchased or renewed and policy number(s); (iii) the amount the
Eligible Policyholder paid in premiums for each such policy; and (iv) the amount
each policyholder is eligible to receive which shall equal each policyholder's
pro rata share of the Excess Casualty Fund as calculated by multiplying the
amount in the Excess Casualty Fund by the ratio of the policyholder's gross
written premium for Eligible Policies for the period from January 1, 2000
through September 30, 2004, divided by the total gross written premium for all
Eligible Policies; and (c) by May 22, 2006, send a notice to each Eligible
Policyholder, setting forth items (ii) through (iv), above, and stating that the
amount paid may increase if there is less than full participation by Eligible
Policyholders in the Excess Casualty Fund (the "Excess Notice"). The form of the
Excess Notice shall be subject to the prior approval of the Attorney General and
Superintendent.
20. Eligible Policyholders who receive an Excess Notice and who
voluntarily elect to receive a cash distribution (the "Participating
Policyholders") shall tender a release in the form attached hereto as Exhibit 2
on or before October 23, 2006.
21. On or before November 30, 2006, AIG shall pay each Participating
Policyholder the amount that that Participating Policyholder is eligible to
receive from the Excess Casualty Fund as set forth in paragraph 19(b)(iv) above,
and any interest or investment income earned thereon.
22. On or before December 27, 2006, AIG shall file an interim report with
the Attorney General and the Superintendent, certified by an officer of AIG,
listing all amounts paid from the Excess Casualty Fund.
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23. In the event that any Eligible Policyholder elects not to participate
or otherwise does not respond to the Excess Notice (the "Non-Participating
Policyholders"), the amount that such policyholder was eligible to receive from
the Excess Casualty Fund as set forth in paragraph 19(b)(iv) may be used by AIG
to satisfy any pending or other claims asserted by policyholders relating to the
excess casualty bid rigging or excess casualty steering allegations set forth in
this Agreement, provided that in no event shall a distribution be made from the
Excess Casualty Fund to any other policyholder until all Participating
Policyholders have been paid the full aggregate amount set forth in paragraph
19(b)(iv) above, and any interest or investment income earned thereon; nor shall
the total payments from the Excess Casualty Fund to any Non-Participating
Policyholder exceed 80% of the amount that Non-Participating Policyholder was
originally eligible to receive as set forth in paragraph 19(b)(iv).
24. If any money remains in the Excess Casualty Fund as of October 1,
2007, any such funds shall be distributed by November 1, 2007 on a pro rata
basis to the Participating Policyholders.
25. In no event shall any of the money in the Excess Casualty Fund or the
investment or interest income earned thereon be used to pay or considered in the
calculation of attorneys fees.
26. In no event shall any of the money in the Excess Casualty Fund or the
investment or interest income earned thereon be used to pay or considered in the
calculation of commissions, administrative or other fees to AIG.
27. On or before November 15, 2007, AIG shall file a report with the
Attorney
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General and the Superintendent, certified by an officer of AIG, listing all
amounts paid from the Excess Casualty Fund, including any payments subsequent to
the payments described in paragraph 22.
C. FINE
28. On or before March 1, 2006, AIG shall pay $100 million as a fine, by
wire transfer to the State of New York.
BUSINESS REFORMS
29. Within 60 days of the date of this Agreement, AIG shall undertake the
following business reforms. AIG will not undertake any transaction for the
purpose of circumventing the prohibitions contained in this Agreement.
30. For purposes of this Agreement, Compensation shall mean anything of
material value given to a Producer including, but not limited to, money,
credits, loans, forgiveness of principal or interest, vacations, prizes, gifts
or the payment of employee salaries or expenses, provided that Compensation
shall not mean customary, non-excessive meals and entertainment expenses. AIG
shall develop and implement policies for its employees explaining the provisions
of this paragraph as part of the Company-wide written standards described in
paragraph 42 below. Prior to June 30, 2006, AIG shall submit to the New York
Attorney General and the Superintendent a draft of the intended policies.
31. For purposes of this Agreement, Contingent Compensation is any
Compensation contingent upon any Producer: (a) placing a particular number of
policies or dollar value of premium with AIG; (b) achieving a particular level
of growth in the number of policies placed or
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dollar value of premium with AIG; (c) meeting a particular rate of retention or
renewal of policies in force with AIG; (d) placing or keeping sufficient
insurance business with AIG to achieve a particular loss ratio or any other
measure of profitability; (e) providing preferential treatment to AIG in the
placement process, including but not limited to giving AIG last looks, first
looks, rights of first refusal, or limiting the number of quotes sought from
insurers for insurance placements; or (f) obtaining anything else of material
value for AIG. This definition does not include Compensation paid to employees
of AIG or to AIG's Producers that are captive or are exclusive to AIG with
respect to a specific line or product that is clearly and conspicuously
identified in marketing materials as AIG's line or product.
32. COMPENSATION DISCLOSURE. Beginning six months from the date of this
Agreement, AIG offices, situated and issuing insurance policies in the United
States, shall send a notice accompanying the insured's policy, stating that the
insured can review and obtain information relating to AIG's practices and
policies regarding Compensation on either a website or from a toll-free
telephone number. The information on the website or available through the
toll-free number shall be sufficient to inform insureds of the nature and range
of Compensation, by insurance product, paid by AIG. No later than four months
from the date of this Agreement, AIG shall submit to the Attorney General the
proposed format and content of the notice, website and the information available
via the toll-free telephone number described in this paragraph. The form and
content of the notice, website and information available via the toll-free
telephone number shall be subject to the prior approval of the Attorney General.
AIG shall commence posting the website and operation of the toll-free telephone
number no later than six months after
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the date of this Agreement.
33. PROHIBITION ON CONTINGENT COMPENSATION FOR EXCESS CASUALTY. During the
period of 2006 through and including 2008, AIG offices situated and issuing
policies in the United States shall not pay any Producer Contingent Compensation
relating to the placement of any excess casualty insurance policy. In addition,
AIG offices situated and issuing policies outside the United States shall not
pay any Producer Contingent Compensation relating to the placement of any excess
casualty insurance policy issued or renewed to any insured domiciled in the
United States, which policy is principally associated with covering property or
operations situated in the United States. Subsequent to 2008, excess casualty
insurance shall be subject to the provisions of paragraph 39.
34. AIG shall undertake the business reforms set forth in paragraphs 35-41
for AIG's offices situated and issuing policies in the United States.
35. Except as set forth in paragraphs 39-41 below, in connection with its
issuance, renewal or servicing of insurance policies through a Producer, AIG
shall pay as Compensation only a specific dollar amount or percentage commission
on the premium set at the time of each purchase, renewal, placement or servicing
of a particular insurance policy.
36. PROHIBITION ON PAY-TO-PLAY. AIG shall not offer to pay or pay,
directly or indirectly, any Producer any Compensation in connection with the
Producer's solicitation of bids for the Producer's clients.
37. PROHIBITION ON BID RIGGING. AIG shall not directly or indirectly
knowingly offer or provide to any Producer any false, fictitious, artificial,
`B' or "throw away" quote or
21
indication. Nothing herein shall preclude AIG from offering to provide or
providing any bona fide quote or indication.
38. PROHIBITION ON LEVERAGING. AIG shall not make any promise or
commitment to use any Producer's brokerage, agency, producing or consulting
services, including reinsurance brokerage, agency or producing services,
contingent upon any of the factors listed in paragraph 31 (a)-(f) above.
39. ADDITIONAL LIMITATIONS ON CONTINGENT COMPENSATION. Within 30 days of
receipt of a notice from the Attorney General that the Attorney General has made
a determination, based on market share information available from the National
Association of Insurance Commissioners ("NAIC") or A.M. Best Company (or another
agreed upon third-party source of market share data if such data is not
available from NAIC or A.M. Best for a given insurance line (or
product/segment)), that(a) insurers who do not pay Contingent Compensation in a
given insurance line (or product/segment) including but not limited to direct
writers and insurers that employ only captive agents in the given insurance line
(or product/segment) and (b) insurers who have signed agreements with the
Attorney General containing this paragraph as applied to them, together
represent more than 65% of the national gross written premiums in the given
insurance line (or product/segment) in the calendar year for which market share
data is most recently available (the "Notice"), AIG shall stop paying Contingent
Compensation for such insurance line (or product/segment) beginning on January 1
of the next calendar year following the date of the Notice. If, in any given
calendar year after the date of the Notice described above, the market share
used in the Notice falls below 60%, AIG shall notify the Attorney General of
22
the change. If, within 60 days, the Attorney General does not object to AIG's
determination that the market share used in the Notice is below 60%, any
prohibition on Contingent Compensation described in the Notice shall cease. If
the Attorney General does object to AIG's determination, the Attorney General
shall set forth the reasons for such objections in a written notice to AIG
within 60 days of AIG's notification to the Attorney General. Resort to court
action to resolve a dispute related to the determination of market share or the
determination that a given insurer does not pay Contingent Compensation under
this paragraph shall not be deemed a violation of this Agreement.
40. Except as provided in paragraph 33, in any insurance line or product
in which AIG paid Contingent Compensation for the 2004 calendar year or any part
thereof, AIG may continue to pay Contingent Compensation until the receipt of a
Notice from the Attorney General that the conditions described in paragraph 39
above have been met. Following receipt of a Notice, AIG may continue to pay any
Contingent Compensation accrued or accruing until the end of the calendar year.
In no event shall any provisions in paragraphs 39, 40 and 41 be construed to
require AIG to take any action that would cause AIG to be in breach of an
agreement that is in force as of the date of this Agreement.
41. AIG agrees not to commence the paying of Contingent Compensation in
any insurance line (or product/segment) in which it did not pay Contingent
Compensation for the 2004 calendar year or any part thereof and where the
Attorney General has sent a Notice pursuant to paragraph 39 above. In the event
that AIG intends to enter into any agreement potentially obligating it to make
Contingent Compensation payments for any insurance line (or product/segment) in
which it did not pay Contingent Compensation for the 2004 calendar or any
23
part thereof, AIG agrees to give the Attorney General written notice and a copy
of the intended agreement at least 60 days prior to the execution of any such
agreement.
42. STANDARDS OF CONDUCT AND TRAINING. AIG shall implement Company-wide
written standards of conduct regarding Compensation paid to Producers,
consistent with the terms of this Agreement, subject to approval of the Attorney
General and Superintendent, which implementation shall include, inter alia,
appropriate training of relevant employees, including but not limited to
training in business ethics, professional obligations, conflicts of interest,
antitrust and trade practices compliance, and record keeping.
43. AIG agrees to support legislation and regulations to abolish
Contingent Compensation for insurance products or lines. AIG further agrees to
support legislation and regulations requiring greater disclosure of
Compensation.
44. AIG shall not engage or attempt to engage in violations of Executive
Law Section 63 (12), the Xxxxxxxx Act (Gen. Bus. Law Section 340 et seq.), the
Xxxxxx Act (Gen. Bus. Law Section 352-c) and New York Insurance Law.
45. This Agreement is contingent upon AIG reaching agreement with the SEC
to resolve the SEC's investigation of AIG's accounting and public reporting
practices. This Agreement will not be binding and will not go into effect unless
and until AIG reaches such agreement with the SEC. In any event, if AIG does not
reach such agreement with the SEC by February 24, 2006, this Agreement will be
null and void.
46. RETENTION OF A CONSULTANT. Pursuant to the agreement with the SEC,
American International Group, Inc. will retain, pay for, and enter into an
agreement with a consultant, not
24
unacceptable to the SEC, in consultation with the Attorney General and
Superintendent, to conduct a comprehensive examination and review of the areas
specified below and to make recommendations to the Board of Directors of
American International Group, Inc., SEC, Attorney General and Superintendent
(the "Consultant"). The Consultant's compensation and expenses shall be borne
exclusively by American International Group, Inc. The agreement shall provide
that the Consultant examine:
a. American International Group, Inc.'s internal controls over
financial reporting (the Consultant may, if appropriate, rely
on American International Group, Inc.'s independent
accountant's attestation and report on management's assessment
of the effectiveness of American International Group, Inc.'s
internal control structure and procedures pursuant to Section
404 of the Xxxxxxxx-Xxxxx Act);
b. The organization and reporting structure of American
International Group, Inc.'s internal audit department and
American International Group, Inc.'s disclosure committee
(which is described in Exhibit A to American International
Group, Inc.'s Consent and Undertakings to be entered with the
SEC);
c. The policies, procedures and effectiveness of American
International Group, Inc.'s regulatory, compliance and legal
functions, including the operations of any committees
established to review and approve transactions or for the
purpose of preventing the recording of transactions or
financial reporting results in a manner inconsistent with
Generally
25
Accepted Accounting Principles ("GAAP") and Statements of
Statutory Accounting Principles ("SSAP");
d. American International Group, Inc.'s records management and
retention policies and procedures;
e. The adequacy of whistleblower procedures designed to allow
employees and others to report confidentially matters that may
have bearing on the company's financial reporting obligations;
f. American International Group, Inc.'s training and education
program described below;
g. The reforms that American International Group, Inc. has
implemented that are set forth in Exhibit A to American
International Group, Inc.'s Consent to be entered into with
the SEC; and
h. The adequacy and effectiveness of the remediation plan
described below.
47. CONSULTANT'S REPORTING OBLIGATIONS. The Consultant shall issue a
report to the SEC, Attorney General, Superintendent and American International
Group, Inc.'s Board of Directors within three months of appointment, provided,
however, that the Consultant may seek to extend the period of review for one or
more additional three-month terms by requesting such an extension from the SEC.
The SEC shall have discretion, after consultation with the Attorney General and
Superintendent, to grant such extensions as it deems reasonable and warranted.
a. The Consultant's report shall set forth the Consultant's
recommendations regarding best practices in the areas
specified in paragraph 46 (a)-(h)
26
above, including the Consultant's recommendations for any
changes in or improvements to American International Group,
Inc.'s policies and procedures that the Consultant reasonably
deems necessary to conform to the law and best practices, and
a procedure for implementing the recommended changes in or
improvements to American International Group, Inc.'s policies
and procedures.
b. American International Group, Inc. shall adopt all
recommendations contained in the report of the Consultant,
referred to in paragraph 47(a) above, provided, however, that
within forty-five days of receipt of the report, American
International Group, Inc. shall in writing advise the
Consultant, the SEC, the Attorney General and Superintendent
of any recommendations that it considers to be unnecessary or
inappropriate. With respect to any recommendation that
American International Group, Inc. considers unnecessary or
inappropriate, American International Group, Inc. need not
adopt that recommendation at that time but shall propose in
writing an alternative policy, procedure or system designed to
achieve the same objective or purpose.
c. As to any recommendation with respect to American
International Group, Inc.'s policies and procedures on which
American International Group, Inc. and the Consultant do not
agree, such parties shall attempt in good faith to reach an
agreement within ninety days of the issuance of the
Consultant's report. In the event American International
Group, Inc. and
27
the Consultant are unable to agree on an alternative proposal
acceptable to the SEC, after consultation with the Attorney
General and Superintendent, American International Group, Inc.
will abide by the determinations of the Consultant.
d. American International Group, Inc. shall retain the Consultant
for a period of three years from the date of appointment in
accordance with the provisions of paragraph 48 below. Once the
Consultant's recommendations become final, the Consultant
shall oversee the implementation of such recommendations and
provide a report to the SEC, Attorney General and
Superintendent and to American International Group, Inc.'s
Board of Directors every three months concerning the progress
of such implementation. If, at the conclusion of this
three-year period, less than all recommended reforms have been
substantially implemented for at least two successive
quarters, the SEC may, in its discretion, after consultation
with the Attorney General and Superintendent, direct American
International Group, Inc. to extend the Consultant's term of
appointment until such time as all recommended reforms have
been substantially implemented for at least two successive
quarters.
48. TERMS OF RETENTION. American International Group, Inc. will submit to
the SEC a proposal setting forth the identity, qualifications, and proposed
terms of retention of the
28
Consultant. The SEC, within thirty days of such notice will either (1) deem
American International Group, Inc.'s choice of Consultant and proposed terms of
retention acceptable or (2) require American International Group, Inc. to
propose an alternative Consultant and/or revised proposed terms of retention
within fifteen days. This process will continue, as necessary, until American
International Group, Inc. has selected a Consultant and retention terms that are
not unacceptable to the SEC. American International Group, Inc. shall enter into
an agreement with the Consultant that shall contain the following terms:
a. The Consultant shall provide the SEC, Attorney General,
Superintendent and American International Group, Inc.'s Board
of Directors with such documents or other information
concerning the areas identified in paragraph 46 above, as any
of them may request during the pendency or at the conclusion
of the review.
b. The Consultant shall have reasonable access to all of the
books and records of American International Group, Inc. and
its subsidiaries and the ability to meet privately with
personnel of American International Group, Inc. and its
subsidiaries. American International Group, Inc. may not
assert the attorney-client privilege, the protection of the
work-product doctrine, or any privilege as a ground for not
providing the Consultant with contemporaneous documents or
other information related to the matters that are the subject
of the review. American International Group, Inc. shall
instruct and otherwise encourage its officers, directors, and
employees to cooperate fully with the review conducted by the
Consultant,
29
and inform its officers, directors, and employees that failure
to cooperate with the review will be grounds for dismissal,
other disciplinary actions, or other appropriate actions.
c. The Consultant shall have the right, as reasonable and
necessary in his or her judgment, to retain, at American
International Group, Inc.'s expense, attorneys, accountants,
and other persons or firms, other than officers, directors, or
employees of American International Group, Inc., to assist in
the discharge of his or her obligations under the
undertakings. American International Group, Inc. shall pay all
reasonable fees and expenses of any persons or firms retained
by the Consultant. To the extent the Consultant seeks to
retain an accounting firm, he or she shall choose an
accounting firm in consultation with the SEC.
d. The Consultant shall make and keep notes of interviews
conducted, and keep a copy of documents gathered, in
connection with the performance of his or her
responsibilities, and require all persons and firms retained
to assist the Consultant to do so as well.
e. The Consultant's relationship with American International
Group, Inc. shall not be treated as one between an attorney
and client. The Consultant will not assert the attorney-client
privilege, the protection of the work-product doctrine, or
any privilege as a ground for not providing any information
obtained in the review sought by the SEC, Attorney General or
Superintendent.
30
f. If the Consultant determines that he or she has a conflict
with respect to one or more of the areas described in
paragraph 46 or otherwise, he or she shall delegate his or her
responsibilities with respect to that subject to a person who
is chosen by the Consultant and who is not unacceptable to the
SEC.
g. For the period of engagement and for a period of two years
from completion of the engagement, the Consultant shall not
enter into any employment, consulting, attorney-client,
auditing or other professional relationship with American
International Group, Inc., or any of its present or former
subsidiaries or affiliates, directors, officers, employees, or
agents acting in their capacity as such; and shall require
that any firm with which the Consultant is affiliated or of
which the Consultant is a member, or any person engaged to
assist the Consultant in performance of the Consultant's
duties, without prior written consent of the SEC, not enter
into any employment, consulting, attorney-client, auditing or
other professional relationship with American International
Group, Inc., or any of its present or former subsidiaries or
affiliates, directors, officers, employees, or agents acting
in their capacity as such for the period of the engagement and
for a period of two years after the engagement. For the
purposes of this section, representation of a person or firm
insured by American International Group, Inc. shall not be
deemed a professional relationship with American International
Group, Inc.
31
h. American International Group, Inc., including the Board of
Directors and committees of the Board of Directors of American
International Group, Inc., shall not assert, or permit its
subsidiaries to assert, the attorney-client privilege, the
protection of the work-product doctrine, or any privilege as a
ground for not providing to the Consultant any documents,
information, or testimony that American International Group,
Inc. provided to the SEC, Attorney General or Superintendent
which the Consultant has deemed necessary for his or her
review.
i. The Consultant shall treat and maintain information of
American International Group, Inc. and its subsidiaries as
strictly confidential and shall not disclose such information
other than to the SEC, Attorney General, and Superintendent
and to the Consultant's personnel, agents or representatives
who need to know such information for the purpose of the
review contemplated herein, or as otherwise required by law.
j. At the conclusion of the Consultant's engagement, subject to
the approval of the SEC, after consultation with the Attorney
General and Superintendent, the Consultant shall return to
American International Group, Inc. all documents reflecting or
referring to non-public business and financial information of
American International Group, Inc. and its subsidiaries.
32
49. ADDITIONAL UNDERTAKINGS.
a. American International Group, Inc. will draft a remediation plan
consisting of (i) steps to address and correct the causes of the
material weaknesses in internal controls over financial reporting as
identified in the 2004 Form 10-K; (ii) a program to test the
operational effectiveness of new or enhanced controls; and (iii)
completion of management's testing of the relevant significant
controls.
b. American International Group, Inc. agrees that it will establish and
maintain a training and education program, completion of which will
be required for (i) officers, executives, and employees of American
International Group, Inc. and its subsidiaries who are involved in
the oversight of accounting and financial reporting functions; (ii)
all employees in American International Group, Inc.'s legal division
with responsibility for or oversight of American International
Group, Inc.'s accounting, financial reporting or disclosure
obligations; and (iii) other senior officers and executives of
American International Group, Inc. and its subsidiaries, as proposed
by American International Group, Inc. and approved by the Consultant
(collectively, the "Mandatory Participants").
c. The structure and operation of the training and education program
shall be reviewed and approved by the Consultant. The training and
education program shall be designed to cover, at a minimum, the
following: (i) the
33
obligations imposed on American International Group, Inc. by federal
and state securities law, including American International Group,
Inc.'s financial reporting and disclosure obligations; (ii) the
financial reporting and disclosure obligations imposed on American
International Group, Inc. and its subsidiaries by New York state
insurance law; (iii) proper internal accounting controls and
procedures; (iv) discovering and recognizing accounting practices
that do not conform to GAAP or SSAP or that are otherwise improper;
and (v) the obligations assumed by, and responses expected of the
Mandatory Participants upon learning of improper, illegal or
potentially illegal acts relating to American International Group,
Inc.'s accounting and financial reporting. The Board of Directors
shall communicate to Mandatory Participants, in writing or by video,
its endorsement of the training and education program.
50. To the extent that any of the provisions of the SEC agreement
described in paragraph 45 conflict with the provisions in paragraphs 46 through
49 of this Agreement, the provisions of the SEC agreement will replace such
provisions in paragraphs 46 through 49 of this Agreement.
REINSURANCE REPORTING OBLIGATIONS
51. For a period of five years beginning May 1, 2006, AIG will provide
annually by May 1 of each year to the Superintendent a report, in a format
approved by the Superintendent, that includes:
a. A review of ceded and assumed reinsurance of AIG's property/casualty
34
insurers required to file statutory financial statements on the NAIC
blanks (the "Property/Casualty Insurers") verifying that all
contracts comply with SSAP 62 and 75 and the new NAIC disclosure and
attestation requirements including the attestation that with respect
to all reinsurance contracts for which the reporting entity is
taking credit on its current financial statements, to the best of
AIG's knowledge and belief, after diligent inquiry and unless noted
as an exception under the attestation requirement:
i. Consistent with SSAP 62, there are no separate written or oral
agreements between the reporting entity (or its affiliates or
companies it controls) and the assuming reinsurer that would
under any circumstances, reduce, limit, mitigate or otherwise
affect any actual or potential loss to the parties under the
reinsurance contract, other than inuring contracts that are
explicitly defined in the reinsurance contract except as
disclosed;
ii. For each such reinsurance contract entered into, renewed or
amended on or after January 1, 1994, for which risk transfer
is not reasonably considered to be self-evident, documentation
concerning the economic intent of the transaction and the risk
transfer analysis evidencing the proper accounting treatment,
as required by SSAP 62 and 75, is available for review;
iii. The reporting entity complies with all the requirements set
forth in
35
SSAP 62 and 75, and any supporting documentation is available
for review;
iv. The reporting entity has appropriate controls in place to
monitor the use of reinsurance and adhere to the provisions of
SSAP 62 and 75.
b. A list of all its affiliated insurers, categorized by domicile,
whether controlled through ownership or otherwise under the
Insurance Law. The list shall include the percentage of ownership or
other means by which AIG controls the affiliated insurer.
c. A list of its ownership of five percent or more of the voting shares
of any non-affiliated insurer entities.
d. A list of non-affiliated insurers to whom AIG's Property/Casualty
Insurers have ceded business during the preceding calendar year
either directly, or through retrocession agreements if known,
excluding those captive reinsurance entities that do not accept
third party business, where the business ceded represents fifty
percent or more of the entire direct and assumed premium written by
the insurer, based upon such insurer's most recent publicly
available financial statements.
e. A list disclosing any letter of credit for which an AIG insurer is
the beneficiary and AIG or an AIG subsidiary is directly or
indirectly guaranteeing or providing collateral for the letter of
credit or incurring the cost, except for parental letters of credit
in accordance with New York
36
State Insurance Department ("Department") Regulation 20.
Such report shall be certified by the Chief Reinsurance Officer and the Chief
Executive Officer of American International Group, Inc. and a copy of such
report shall be submitted to the Audit Committee of AIG.
52. The Chief Reinsurance Officer will maintain approved lists of
reinsurers. AIG will not cede insurance to any reinsurer not set forth on those
lists. Such lists will be available to the Superintendent upon examination. All
approved reinsurance relationships will be reviewed by the Chief Reinsurance
Officer and such review will include a written determination of whether the
reinsurance entity is affiliated or controlled (by ownership, by contract or
otherwise) by AIG.
53. AIG agrees not to enter into any arrangement, transaction or
relationship with a reinsurer that has characteristics similar to those of Coral
Re, Union Excess or Richmond.
COOPERATION WITH THE SUPERINTENDENT
54. AIG will maintain and provide to the Superintendent, upon the
Superintendent's request, complete underwriting files, including correspondence
and e-mails, and risk transfer analysis to the extent required by SSAP 62
relating to all reinsurance ceded or assumed by AIG. AIG will authorize its
independent auditors and direct its internal auditors to make available to the
Superintendent upon request all workpapers of its auditors, including but not
limited to all Schedules of Unadjusted Differences.
55. AIG will file all holding company transactions in a timely manner in
compliance with Article 15 of the New York Insurance Law and Department
Regulation 52. The
37
Superintendent and AIG will agree upon a filing methodology that will recognize
efficiencies in such compliance.
56. The Chairs of the Audit Committee and the Regulatory, Compliance and
Legal Committee of the Board will meet with the Superintendent and/or a
designated official of the Department on an annual basis or more frequently as
deemed necessary by the Department. The Chair of the Regulatory Compliance and
Legal Committee will serve as the Department's contact for all AIG examinations
and such meetings.
57. AIG will cooperate fully on all examinations and on all other
regulatory requests and will respond to all Department inquiries in a prompt,
timely and complete manner. AIG will provide appropriate staff during
examinations in order to provide timely responses. Failure to respond to the
Department in a timely manner will constitute violations of this Agreement and
the Insurance Law. Any issues that relate to the timeliness of the responses
shall be reported to the Chief Financial Officer.
58. AIG will provide the Superintendent with all copies of its remediation
plans and regular progress reports relating to its remediation plans to address
significant deficiencies in internal controls over financial reporting.
59. AIG has taken appropriate remedial actions with respect to certain
employees in management and in the underwriting, accounting, auditing, actuarial
and financial reporting functions who were involved in the allegations of the
Complaint and has reviewed such actions with the Superintendent.
COOPERATION WITH THE ATTORNEY GENERAL
60. AIG shall fully and promptly cooperate with the Attorney General with
regard to
38
his Investigation, and related proceedings and actions, of any other person,
corporation or entity, including but not limited to AIG's current and former
employees, concerning the insurance industry. AIG shall use its best efforts to
ensure that all its officers, directors, employees, and agents also fully and
promptly cooperate with the Attorney General in this Investigation and related
proceedings and actions. Cooperation shall include without limitation: (a)
production voluntarily and without service of subpoena of any information and
all documents or other tangible evidence reasonably requested by the Attorney
General, and any compilations or summaries of information or data that the
Attorney General reasonably requests be prepared; (b) without the necessity of a
subpoena, having AIG's officers, directors, employees and agents attend any
proceedings at which the presence of any such persons is requested by the
Attorney General and having such persons answer any and all inquiries that may
be put by the Attorney General (or any of the Attorney General's deputies,
assistants or agents) to any of them at any proceedings or otherwise
("proceedings" include but are not limited to any meetings, interviews,
depositions, hearings, grand jury hearing, trial or other proceedings); (c)
fully, fairly and truthfully disclosing all information and producing all
records and other evidence in its possession relevant to all inquiries
reasonably made by the Attorney General concerning any fraudulent or criminal
conduct whatsoever about which it has any knowledge or information; (d) in the
event any document is withheld or redacted on grounds of privilege, work-product
or other legal doctrine, a statement shall be submitted in writing by AIG
indicating: (i) the type of document; (ii) the date of the document; (iii) the
author and recipient of the document; (iv) the general subject matter of the
document; (v) the reason for withholding the document; and (vi) the Xxxxx number
or range of the withheld document. The Attorney General may challenge such
39
claim in any forum of its choice and may, without limitation, rely on all
documents or communications theretofore produced or the contents of which have
been described by AIG, its officers, directors, employees, or agents; and (e)
AIG shall not jeopardize the safety of any investigator or the confidentiality
of any aspect of the Attorney General's Investigation, including sharing or
disclosing evidence, documents, or other information with others during the
course of the investigation, without the consent of the Attorney General.
Nothing herein shall prevent AIG from providing such evidence to other
regulators, or as otherwise required by law.
61. AIG shall comply fully with the terms of this Agreement. If AIG
violates the terms of paragraph 60 in any material respect, as determined solely
by the Attorney General: (a) the Attorney General may pursue any action,
criminal or civil, against any entity for any crime it has committed, as
authorized by law, without limitation; (b) as to any criminal prosecution
brought by the Attorney General for violation of law committed within six years
prior to the date of this Agreement or for any violation committed on or after
the date of this Agreement, AIG shall waive any claim that such prosecution is
time barred on grounds of speedy trial or speedy arraignment or the statute of
limitations.
OTHER PROVISIONS
62. AIG, the Board of Directors of AIG, and the Audit Committee will
review its relationship with AIG's independent outside auditors on a yearly
basis and will conduct a Request For Proposal procedure for its independent
auditors in connection with its 2008 fiscal year. Such review shall be made
available to the Superintendent.
63. AIG will review its holding company structure with the goal to
reducing and simplifying the structure. A report detailing this review and its
conclusions shall be provided to
40
the Superintendent by June 1, 2006.
64. AIG has agreed to restate its 2004 statutory financial statements to
properly account for the Union Excess and Richmond transactions identified in
the Complaint as well as additional transactions pursuant to its agreement with
the Superintendent and other state insurance regulators.
65. AIG agrees to review all of its communications with state insurance
regulators to ensure full and complete disclosure.
66. AIG shall not seek or accept, directly or indirectly, indemnification
pursuant to any insurance policy, with regard to any or all of the amounts
payable pursuant to this Agreement.
67. None of the provisions of this Agreement shall apply to AIG's Life
Insurance Operations.
68. None of the provisions of this Agreement shall apply to 21st Century
Insurance Group or Transatlantic Holdings Inc. AIG shall not enter into any
transaction with either of these entities, or engage in any conduct by virtue of
its ownership interests therein for the purpose of circumventing any provision
of this Agreement.
69. The Attorney General will promptly file a Stipulation Discontinuing
Action with Prejudice, in the form attached hereto as Exhibit 3, voluntarily
dismissing the Complaint with prejudice as to American International Group,
Inc., and will not initiate a new case against AIG related to the matters set
forth in the Complaint and this Agreement or uncovered to date by the Attorney
General's Investigation, provided, however, that this Paragraph shall not be
construed to include any conduct or activity relating to the Variable Annuity
Life Insurance Company and
41
any other AIG subsidiary which sells variable annuities and any conduct or
activity relating to the marketing, purchase, sale or negotiation of life
settlements, including AIG's dealings with life settlement brokers, agents,
sellers and investors or any conduct or activity relating to AIG's Life
Insurance Operations. Notwithstanding the above, this Agreement resolves the
allegations relating to the Coventry Life Settlement Trust contained in
paragraphs 81-91 of the Complaint. The Attorney General shall not seek to impose
on AIG any other financial obligation or liability related to the allegations of
excess casualty bid rigging or steering contained in this Agreement.
70. The Attorney General agrees that any prior approval required under the
terms of this Agreement shall not be unreasonably withheld.
71. This Agreement is not intended to disqualify AIG, or any current
employees of AIG, from engaging in any business in New York or in any other
jurisdiction. Nothing in this Agreement shall relieve AIG's obligations imposed
by any applicable state insurance law or regulations or other applicable law.
72. This Agreement shall not confer any rights upon any persons or
entities besides the Attorney General and AIG.
73. AIG shall maintain custody of, or make arrangements to have
maintained, all documents and records of AIG related to this matter for a period
of not less than six years.
74. The Attorney General of the State of New York may make such
application as appropriate to enforce or interpret the provisions of this
Agreement, or in the alternative, maintain any action, either civil or criminal,
for such other and further relief as the Attorney General may determine is
proper and necessary for the enforcement of this Agreement. If compliance with
any aspect of this Agreement proves impracticable, AIG reserves the right to
42
request that the parties modify the Agreement accordingly.
75. In any application or in any such action, facsimile transmission of a
copy of any papers to current counsel for AIG shall be good and sufficient
service on AIG unless AIG designates, in a writing to the Attorney General,
another person to receive service by facsimile transmission.
76. Facsimile transmission of a copy of this Agreement to counsel for AIG
shall be good and sufficient service on AIG.
77. This Agreement shall be governed by the laws of the State of New York
without regard to conflict of laws principles.
78. This Agreement may be executed in counterparts.
WHEREFORE, the following signatures are affixed hereto on this 18th day
of January, 2006.
XXXXX XXXXXXX
Attorney General of the State of New York
/s/ Xxxxx Xxxxxxx
_____________________________________________
Office of the New York State Attorney General
000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
________________________________________
Xxxxxx X. Xxxxxxxx
President and Chief Executive Officer
American International Group, Inc.
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
43
XXXX, WEISS, RIFKIND, XXXXXXX & XXXXXXXX LLP
By: /s/ Xxxxxx Xxxxxxxxxx
-------------------------------
Xxxxxx Xxxxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attorneys for AIG
44
EXHIBIT 1
"AIG regrets and apologizes for the conduct that led to the action brought
by the New York Attorney General and the New York Superintendent of Insurance
and to today's settlement. Providing incorrect information to the investing
public and to regulators was wrong and is against the values of our current
leadership and employees.
In response to these events, and to the guilty pleas of our own employees
and others, as part of today's settlement, we have and are continuing to
aggressively implement business reforms to prevent this conduct from recurring.
We are committed to business practices that provide transparency and fairness in
the insurance markets. As part of our commitment, among other things, we have
agreed not to pay contingent commissions for excess casualty insurance and will
support legislation to eliminate contingent commission payments."
45
EXHIBIT W C-1
RELEASE
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, [the undersigned] for [State], and on behalf of
[Workers Compensation Residual Market Pool(s)] and administrators thereof
("Releasors"), hereby releases and discharges American International Group, Inc.
("AIG") and its subsidiaries, agents, representatives, officers, predecessors
and each of its present and former officers, directors, and employees, and
attorneys, except for those individuals named as defendants in THE PEOPLE OF THE
STATE OF NEW YORK, by XXXXX XXXXXXX, Attorney General of the State of New York,
and XXXXXX XXXXX, Superintendent of Insurance of the State of New York v.
American International Group, Inc. et al., Index No. 05-401720 ("Releasees")
from and against any claims, liabilities, actions, causes of action whether
asserted or unasserted, suits, debts, dues, sums of money, accounting,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, damages, judgments, penalties, claims and demands of any
and every character, kind and nature whatsoever in law, admiralty, or equity,
whether known or unknown, pending or not pending, and whether or not concealed
or hidden which against the Releasees the Releasors ever had, now have, or
hereafter can, shall, or may have with respect to:
(1) Alleged injury caused by AIG's underpayment of workers
compensation premium taxes and all other related fees and
assessments including workers compensation residual market
assessments for and including tax years 1985 to 1996 but not
including workers compensation guaranty fund assessments and
any monies owed relating to large deductible policies and
related taxes;
(2) Any breach or violation of any provision of any agreement,
including any reinsurance agreement, entered into between AIG
and [Workers Compensation Residual Market Pool(s)] or the
administrators thereof, relating to paragraph (1) above; and
(3) Any other claim relating to Releasee's participation in
[Workers Compensation Residual Market Pool(s)] relating to
paragraph (1) above.
[The undersigned] hereby represents and warrants that s/he has all
requisite authority to execute this Release on behalf of [State] and [Workers
Compensation Residual Market Pool(s)] and the administrators thereof, and that
[Workers Compensation Residual Market Pool(s)] shall be deemed to have given
the release provided for herein to the same extent as if it was a signatory to
this agreement.
Dated:__________________________________
RELEASOR:_______________________________
By:_____________________________________
Print Name:_____________________________
Title:__________________________________
46
SCHEDULE WC-A
WORKERS COMPENSATION PREMIUM TAX
STATE UNDER (OVER) PAYMENT INTEREST(1) STATE TOTAL
----- -------------------- ----------- -----------
Alabama ($ 962,800) $ 0 $ 0
Alaska ($ 17,595) $ 0 $ 0
Arizona $ 976,663 $ 1,603,986 $ 2,580,649
Arkansas $ 262,797 $ 457,323 $ 720,120
California $ 3,084,036 $ 4,784,811 $ 7,868,847
Colorado $ 430,211 $ 758,146 $ 1,188,357
Connecticut ($ 135,790) $ 0 $ 0
Delaware $ 63,223 $ 81,734 $ 000,000
Xxxxxxxx xx Xxxxxxxx ($ 17,971) $ 0 $ 0
Florida $ 1,722,927 $ 3,234,446 $ 4,957,373
Georgia $ 632,367 $ 1,271,093 $ 1,903,460
Hawaii $ 99,176 $ 272,458 $ 371,634
Idaho $ 13,911 $ 86,693 $ 100,604
Illinois ($ 394,200) $ 0 $ 0
Indiana ($ 399,366) $ 0 $ 0
Iowa $ 18,869 $ 31,767 $ 50,636
Kansas $ 143,304 $ 267,294 $ 410,598
Kentucky ($ 5,386) $ 19,104(2) $ 13,718
Louisiana $ 357,044 $ 732,476 $ 1,089,520
Maine $ 42,823 $ 93,828 $ 136,651
Maryland $ 617,300 $ 1,162,300 $ 1,779,600
Massachusetts $ 283,678 $ 572,275 $ 855,953
Michigan $ 1,854,325 $ 3,425,159 $ 5,279,484
Minnesota $ 201,118 $ 401,773 $ 602,891
Mississippi $ 33,196 $ 61,917 $ 95,113
Missouri ($ 1,500) $ 21,635(2) $ 20,135
Montana $ 9,318 $ 18,741 $ 28,059
47
Nebraska $ 72,748 $ 115,655 $ 188,403
Nevada ($ 50,476) $ 0 $ 0
New Hampshire $ 65,374 $ 120,117 $ 185,491
New Jersey ($ 262,559) $ 0 $ 0
New Mexico ($ 61,215) $ 0 $ 0
New York $ 20,219 $ 67,582 $ 87,801
North Carolina $ 119,537 $ 336,764 $ 456,301
North Dakota ($ 5,541) $ 0 $ 0
Ohio ($ 730,792) $ 0 $ 0
Oklahoma $ 379,230 $ 535,686 $ 914,916
Oregon $ 100,050 $ 261,851 $ 361,901
Pennsylvania $ 700,445 $ 1,113,168 $ 1,813,613
Rhode Island $ 1,013,556 $ 1,950,194 $ 2,963,750
South Carolina $ 47,750 $ 96,067 $ 143,817
South Dakota ($ 63,019) $ 0 $ 0
Tennessee ($ 58,574) $ 0 $ 0
Texas $ 1,399,131 $ 2,135,832 $ 3,534,963
US ($ 5,520,088) $ 0 $ 0
Utah $ 327,625 $ 628,903 $ 956,528
Vermont $ 188,176 $ 332,375 $ 520,551
Virginia ($ 877,159) $ 0 $ 0
Washington ($ 18,573) $ 0 $ 0
West Virginia $ 12,191 $ 14,335 $ 26,526
Wisconsin $ 5,334 $ 10,287 $ 15,621
Wyoming ($ 15,773) $ 0 $ 0
TOTAL: $42,368,541
(1) Interest applied at the average of the historical 30-Year Treasury Note,
10-Year Treasury Note and Prime rates; interest begins 18 months after the
first-year mid-point and was compounded.
(2) Overall, AIG overpaid premium taxes in this State for the relevant period.
However, interest on earlier underpayments is greater than the
overpayment.
48
SCHEDULE WC-B
WORKERS COMPENSATION RESIDUAL MARKET ASSESSMENTS
STATE UNDER (OVER) PAYMENT INTEREST(1) STATE TOTAL
----- -------------------- ----------- -----------
Alabama $ 4,001,141 $ 7,375,728 $ 11,376,869
Alaska $ 86,828 $ 136,648 $ 223,476
Arizona $ 387,245 $ 810,904 $ 1,198,149
Arkansas $ 70,642 $ 103,275 $ 173,917
California $ 427,511 $ 866,356 $ 1,293,867
Colorado $ 4,912 $ 21,703 $ 26,615
Connecticut $ 925,405 $ 1,833,038 $ 2,758,443
Delaware $ 112,621 $ 200,426 $ 000,000
Xxxxxxxx xx Xxxxxxxx $ 39,313 $ 79,683 $ 118,996
Florida $ 17,772,164 $ 35,067,156 $ 52,839,320
Georgia $ 1,641,480 $ 3,192,461 $ 4,833,941
Hawaii $ 126,836 $ 354,919 $ 481,755
Idaho $ 45,319 $ 99,698 $ 145,017
Illinois $ 632,228 $ 1,255,314 $ 1,887,542
Indiana $ 268,868 $ 508,904 $ 777,772
Iowa $ 136,591 $ 261,937 $ 398,528
Kansas $ 1,006,145 $ 1,883,683 $ 2,889,828
Kentucky $ 1,651,591 $ 3,050,282 $ 4,701,873
Louisiana $ 10,623,535 $ 23,210,037 $ 33,833,572
Maine $ 2,642,572 $ 5,829,104 $ 8,471,676
Maryland $ 175,903 $ 354,474 $ 530,377
Massachusetts $ 10,841,027 $ 22,749,474 $ 33,590,501
Michigan $ 824,755 $ 1,796,118 $ 2,620,873
Minnesota $ 228,707 $ 410,218 $ 638,925
Mississippi $ 577,545 $ 1,164,253 $ 1,741,798
Missouri $ 754,892 $ 1,463,353 $ 2,218,245
Montana $ 180 $ 614 $ 794
49
Nebraska $ 234,816 $ 420,273 $ 655,089
Nevada $ 29,332 $ 66,812 $ 96,144
New Hampshire $ 600,781 $ 1,138,476 $ 1,739,257
New Jersey $ 4,201,737 $ 7,809,105 $ 12,010,842
New Mexico $ 295,156 $ 705,331 $ 1,000,487
New York ($ 225,250) $ 0 $ 0
North Carolina $ 1,502,567 $ 2,687,353 $ 4,189,920
North Dakota $ 535 $ 1,013 $ 1,548
Ohio ($ 66,801) $ 0 $ 0
Oklahoma $ 13,699 $ 24,008 $ 37,707
Oregon $ 98,575 $ 184,569 $ 283,144
Pennsylvania $ 532,452 $ 1,056,135 $ 1,588,587
Rhode Island $ 33,718,852 $ 63,992,772 $ 97,711,624
South Carolina $ 241,465 $ 485,009 $ 726,474
South Dakota $ 21,159 $ 48,000 $ 69,159
Tennessee $ 2,114,618 $ 3,589,079 $ 5,703,697
Texas ($ 393,790) $ 0 $ 0
US $ 467,709 $ 656,462 $ 1,124,171
Utah $ 13,917 $ 33,769 $ 47,686
Vermont $ 1,453,174 $ 2,599,420 $ 4,052,594
Virginia ($ 1,719,903) $ 0 $ 0
Washington $ 18,125 $ 45,429 $ 63,554
West Virginia $ 9,991 $ 13,924 $ 23,915
Wisconsin ($ 4,095) $ 0 $ 0
Wyoming $ 1,564 $ 3,355 $ 4,919
TOTAL: $301,216,234
(1) Interest applied at the average of the historical 30-Year Treasury Note,
10-Year Treasury Note and Prime rates; interest begins 18 months after
the first-year mid-point and was compounded.
50
EXHIBIT 2
RELEASE
This RELEASE (the "Release") is executed this ___ day of _______,
2006 by RELEASOR (defined below) in favor of RELEASEE (defined below).
DEFINITIONS
"RELEASOR" refers to [FILL IN NAME ___________] and any of its
affiliates, subsidiaries, associates, general or limited partners or
partnerships, predecessors, successors, or assigns, including, without
limitation, any of their respective present or former officers, directors,
trustees, employees, agents, attorneys, representatives and shareholders,
affiliates, associates, general or limited partners or partnerships, heirs,
executors, administrators, predecessors, successors, assigns or insurers acting
on behalf of RELEASOR.
"RELEASEE" refers to American International Group, Inc. and any of
its subsidiaries, associates, general or limited partners or partnerships,
predecessors, successors, or assigns, including, without limitation, any of
their respective present or former officers, directors, trustees, employees,
agents, attorneys, representatives and shareholders, affiliates, associates,
general or limited partners or partnerships, heirs, executors, administrators,
predecessors, successors, assigns or insurers (collectively, "AIG").
"AGREEMENT" refers to a certain agreement between AIG and the
Attorney General of the State of New York ("NYAG") dated January 18, 2006 and an
accompanying stipulation between AIG and the Superintendent of Insurance of the
State of New York ("NYSI") dated January 18, 2006, relating to (i) an action
commenced against AIG by the NYAG and NYSI dated May 26, 2005, captioned The
People of the State of New York v. American International Group, Inc., Xxxxxxx
X. Xxxxxxxxx and Xxxxxx X. Xxxxx, Index No. 401720/2005, and an investigation by
the NYAG and NYSI relating to same (the "COMPLAINT"), (ii) an investigation by
the NYAG and NYSI related to AIG's alleged use of contingent commission
agreements or placement service agreements to steer business; and (iii) an
investigation by the NYAG and NYSI related to AIG's alleged participation in bid
rigging schemes.
RELEASE
1. In consideration for the total payment of $___________ in
accordance with the terms of the AGREEMENT, RELEASOR does hereby fully release,
waive and forever discharge RELEASEE from any and all claims, demands, debts,
rights, causes of action or liabilities whatsoever, including known and unknown
claims, now existing or hereafter arising, in law, equity or otherwise, whether
under state, federal or foreign statutory or common law, and whether possessed
or asserted directly, indirectly, derivatively, representatively or in
51
any other capacity (collectively, "claims"), to the extent any such claims are
based upon, arise out of or relate to, in whole or in part, (i) any of the
allegations, acts, omissions, transactions, events, types of conduct or matters
that are the subject of the COMPLAINT, described in the AGREEMENT, or were
subject to investigation by NYAG and NYSI as referenced in the AGREEMENT;(ii)
any allegations, acts, omissions, transactions, events, types of conduct or
matters that are the subject of In re Insurance Brokerage Antitrust Litigation,
MDL No. 1663, or the actions pending in the United States District Court for the
District of New Jersey captioned In re: Insurance Brokerage Antitrust
Litigation, Civ. No. 04-5184 (FSH), and In re Employee Benefit Insurance
Brokerage Antitrust Litigation, Civ. No. 05-1079 (FSH) or any related actions
filed or transferred to the United States District Court for the District of New
Jersey that are consolidated into either of the preceding Civil Action dockets;
or (iii) any allegations of bid-rigging or of the use of contingent commission
agreements or placement service agreements to steer business; provided, however,
that RELEASOR does not hereby release, waive, or discharge RELEASEE from any
claims that are based upon, arise out of or relate to (a) the purchase or sale
of AIG securities; and (b) AIG's Life Insurance Operations (as defined by the
Agreement to which this Release is an exhibit).
2. In the event that the total payment referred to in paragraph 1 is
not made for any reason, then this RELEASE shall be deemed null and void,
provided that any payments received by RELEASOR shall be credited to AIG in
connection with any claims that RELEASOR may assert against AIG, or that are
asserted on behalf of RELEASOR or by a class of which RELEASOR is a member,
against AIG.
3. This RELEASE may not be changed orally and shall be governed by
and interpreted in accordance with the internal laws of the State of New York,
without giving effect to choice of law principles, except to the extent that
federal law requires that federal law governs. Any disputes arising out of or
related to this RELEASE shall be subject to the exclusive jurisdiction of the
Supreme Court of the State of New York or, to the extent federal jurisdiction
exists, the United States District Court for the Southern District of New York.
4. Releasor represents and warrants that the claims have not been
sold, assigned or hypothecated in whole or in part.
Dated:___
RELEASOR:_____
By:_____
Print Name:_____
Title:
52
EXHIBIT 3
SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY
THE PEOPLE OF THE STATE OF NEW YORK by
XXXXX XXXXXXX, Attorney General of the
State of New York, and XXXXXX XXXXX,
Superintendent of Insurance of the State
of New York,
Index No. 401720/05
Plaintiffs, (Xxxxx, J.)
v. STIPULATION DISCONTINUING ACTION
WITH PREJUDICE
AMERICAN INTERNATIONAL GROUP, INC.,
XXXXXXX X. XXXXXXXXX and XXXXXX X.
XXXXX,
Defendants.
IT IS HEREBY STIPULATED AND AGREED, by and between plaintiffs and
defendant American International Group, Inc. that, pursuant to CPLR Section
3217(a) and the agreement annexed hereto, this action is hereby discontinued
with prejudice as to American International Group, Inc., as of this date without
costs to either party against the other.
Dated: New York, New York
January __, 2006
XXXXX XXXXXXX,
Attorney General of the State of New York
By:_______________________________
Xxxxx X. Xxxxx, XX
Assistant Attorney General
000 Xxxxxxxx
Xxx Xxxx, XX 00000
53
(000) 000-0000
Attorney for Plaintiffs
XXXX, WEISS, RIFKIND, XXXXXXX
& XXXXXXXX LLP
By:__________________________
Xxxxxx Xxxxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
(000) 000-0000
Attorneys for American International
Group, Inc.
54
