AG walks away from AIG.

After looking at the February settlement on AIG's failure to pay its full state workers' compensation assessments in years past, I come away with the feeling that New York Attorney General Eliot Spitzer may have left a very large sum of money on the table. So much, in fact, that perhaps he engineered down the amount due states for workers' comp abuses to shift settlement dollars to other recipients.

AIG not only cheated in workers' compensation assessments. It also searched out some plum benefits. It was like a condo owner who shortchanges his tees and then grabs the best lounge chair beside the swimming pool.

In April 2005, Spitzer announced he would appoint a consultant to account for "alleged improper booking of workers' compensation premiums" at AIG. A former general counsel of AIG had reportedly come forward with internal memos. Reportedly they show senior level awareness that the insurer understated in state filings its workers' comp premiums. From the memos one could adduce that AIG cut its assessments by millions each year, but this prong of the investigation fell out of the limelight. Then Spitzer and AIG separately announced in February that as part of a global settlement AIG was to pay $343.5 million, divided among the states, for premium tax and residual market assessment underpayments between 1985 and 1996. The amounts appear to not to include fines or penalties. The statement reads: "The State of New York shall not consider any portion of this amount to be a fine or penalty."

Since then, Michigan has induced AIG to pay about double the $2.6 million specified in the settlement. Minnesota's AG expects that AIG may pay up to five times the Spitzer/AIG amount. How much more of this will we see?

Spitzer's office declined to respond to my inquiries so I have to resort to guesswork. There are four ways in which AIG's ultimate liability may be much larger than $343.5 million.

* Correcting computational mistakes by Spitzer's consultant. Of course, a correction could be in AIG's favor.

* Using of a more realistic interest rate. The Spitzer/AIG settlement uses a very low blend of Treasury note and prime rates. This rewards AIG for not having come forward on its own, earlier. That could add tens of millions of dollars.

* Adding fines and penalties. That could also add tens of millions of dollars.

* Forcing AIG to disgorge some of its second injury fund gains. That could be huge.

Does AIG have a right to all of its awards from second injury funds, where and when they exist? A second injury fund relieves an insurer for the cost of claims arising out of a prior work injury. Roughly one out of every five permanent award claims has a plausible link to a prior injury. New York's "SIF" annual payouts are over a half billion dollars.

What was the full benefit to AIG from lower exposure to residual markets? Insurers are to make up for excessive residual market losses in proportion to their share of the competitive market. This exposure in the late 1980s and early 1990s was hugely worrisome.

AIG's top communications exec told me that residual markets and second injury funds were part of the review leading to settlement. But Spitzer's office is tight lipped. Do the settlement working papers quantify all the economic benefits enjoyed by AIG?

And what about other multiline national insurers who may have played copy-cat to AIG? These state regulators say they are checking the figures of other insurers.

PETER ROUSMANIERE is a Vermont-based writer and columnist for Risk & Insurance[R]. He can be reached at [e-mail].