The office of New York Attorney General Eliot Spitzer–which is negotiating the settlement with AIG after bringing legal action against the company in May 2005–said last month it was nearly ready to settle the case. Attorneys were reportedly making progress and had “anticipate[d] something happening before the end of [2005],” a representative for the AG's office said.

Last week, however, spokesman Brad Maione reported that while discussions are still “progressing,” there is no agreement and there should be no speculation about possible outcomes.

The purported $1.5 billion agreement surprised Mr. Meredith, who wrote that Bank America was “expecting a much lower figure.” However, he noted that AIG clients were not damaged in the accounting scandal, and any restitution would likely go to AIG shareholders.

The settlement reportedly could be parceled out among fines, restitution and payments to state workers' compensation funds–which AIG, according to New York Insurance Superintendent Howard Mills, was suspected of shortchanging.

The biggest reported sticking point in settlement negotiations is said to be restrictions on, or disclosure of contingent commissions, which AIG is reportedly resisting unless regulators put similar restrictions on its competitors.

Mr. Meredith wrote that by going after AIG on contingent commissions, it might have the effect of leveling the playing field. To date, only the largest insurance brokers have agreed to stop accepting contingency fees, which puts them at a competitive disadvantage vis-?-vis small and midsized brokers that still collect them. “Changes at insurers would likely impact all insurance brokers,” Mr. Meredith wrote.

Any settlement would not include Maurice Greenberg, AIG's former chairman and chief executive officer, whom Mr. Spitzer accused of personally approving accounting misdeeds. However, Mr. Spitzer's office has said the attorney general does not intend to proceed against Mr. Greenberg with criminal charges.

In the past, when questioned by state and federal investigators, Mr. Greenberg has not answered, invoking his Fifth Amendment right against self-incrimination. He has also issued statements vigorously denying any impropriety and challenging AIG's admissions that some accounting activity involving finite reinsurance deals was “improper.”

In the wake of the Journal story, Mr. Greenberg's spokesman, Howard Opinsky, issued a statement concerning the reported settlement that included a slap at Mr. Spitzer, who is campaigning to become governor of New York.

“Regardless of AIG's decision, Mr. Greenberg intends to challenge allegations of misconduct at trial and is confident he will prevail,” according to Mr. Opinsky.

“Shareholders lose when companies choose to settle investigations motivated by political ambition, fueled by threats and settled out of fear,” he added. “Even if all the allegations were to be believed, a settlement of this magnitude is merely a political trophy for the attorney general and totally disproportionate to the impact of the alleged misconduct.”

Meanwhile AIG's continuing effort to provide a financial restatement for state regulators should finally be complete by month's end, according to a Pennsylvania official. The company anticipates filing a 2004 combined statutory report “no later than Jan. 31, 2006, with me,” said Steve Johnson, Pennsylvania's deputy insurance commissioner.

After the combined filing has been submitted, Mr. Johnson said that it is the company's intention that all its subsequent filings “will be timely in 2006.”

He explained that Pennsylvania was the lead regulatory agency overseeing the restatement because the department is the lead regulator for the commercial property-casualty pool that includes AIG's Pittsburgh-based National Union Fire Company.