New York Ends Probe of AIG Unit

By Daniel Hays

NU Online News Service, Oct. 10, 4 :15 p.m.EDT?An investigation of an American International Groupsubsidiary concerning a questionable charge for terrorismprotection has been concluded without a finding of illegality, theNew York Insurance regulator said today

In July, the New York Insurance Department had issued astatement that it later backtracked from. The original statementsaid that AIG's New Hampshire Insurance Company, as a result of aninvestigation, had returned $500,000 in "illegal" premium chargesfor terrorism protection. A spokesman for AIG said the refund was"voluntary" and occurred prior to any investigation.

Some 600 homeowners received a refund, which InsuranceSuperintendent Gregory V. Serio today said "is going to stick." ButMr. Serio also said today that "it's not clear whether they [NewHampshire] were or were not violating any law." The legal situationregarding application of the Terrorism Risk Insurance Act was"clear as mud," he said.

The superintendent said the department's legal staff hadnumerous meetings with AIG attorneys and "I think there was alegitimate difference of opinion between the regulator and thecompany about this."

Mr. Serio said the terrorism charges that were at issue involvedone-to-four unit dwellings that were generating income where anowner occupied one of the living units in the building.

TRIA, he said applied to commercial buildings. But "if the owneroccupies a unit that may be considered exempt from TRIA," hesaid.

In a four-unit building, he explained, the terrorism protectioncharge would only apply to 75 percent of the risk on thebuilding.

Mr. Serio said after a homeowner's complaint led to aninvestigation and immediate refunds by the company, there was"something up front in the way of an immediate satisfactoryresolution."

However, he said, the case raised a "question as to how were weto enforce this going forward. We went back to review how theTreasury guidance and regulations apply to the program NewHampshire was writing."

As a result he said "AIG will supply a notice to insureds tocertify that they live in owner-occupied units and a form will besupplied."

Mr. Serio said the term "illegal" had been used in the originaldepartment announcement concerning New Hampshire's refund becauseof "confusion" over the regulations.

AIG in the past had not commented on the case. A spokespersontoday had no initial reaction, but said there would be onelater.

Mr. Serio said that he expected to put out some form of circularletter to clarify the issues involved.