In order to reach a settlement for the shortchanging of workers'
American International Group Inc.
) has agreed to pay over $16.8 million to the supervisory body in
the Pennsylvania probe. The company was accused of underreporting
its liabilities under the inter-company policyholder
The penalty is touted to be the largest amount paid by any
insurance company to the Pennsylvania Insurance Department. This
sum is inclusive of an amount of $3.6 million owed to the Workers'
Compensation Security Fund, $4.6 million in premium taxes and
assessments and $8.6 million in fines.
The penalty amount is part of a $146.5 million settlement
reached with the U.S. regulators two years back wherein AIG was
accused of understating the premium amount and thereby affecting
its obligations towards the state pools. The amount is inclusive of
$46.5 million in taxes and assessments and the balance in
Resolving such issues is a welcome as they lessen the company's
litigation overhang. Last year, the company proposed a payment of
$450 million in order to settle the charge of underestimating the
premium amount for workers compensation by almost 300%. Yet, the
impact on its financials cannot be ignored either.
In fact, over the years, the company has been affected by ample
lingering issues due to the disposing of its bad assets,
litigations, judicial probes and regulatory limitations on its
business. The reputation of the company has also been marred by
such issues substantially.
Moreover, these issues are leading to an escalation in expenses
and weighing on the proceeds from asset sales, which otherwise,
could have been used for growth and debt repayment purposes.
AIG currently retains a Zacks #2 Rank, which translates into a
short-term Buy rating. We also maintain our long term Neutral
recommendation on its shares. The company's closest peer
Eastern Insurance Holdings, Inc.
) has a Zacks #1 Rank, which translates into a short-term Strong
AMER INTL GRP (AIG): Free Stock Analysis Report
EASTERN INSURNC (EIHI): Free Stock Analysis
To read this article on Zacks.com click here.