Spitzer target AIG faces grand jury inquiry

American International Group, the US insurer accused of participating in a scheme to rig insurance quotes, yesterday revealed it has also become the subject of a government investigation over separate allegations of improper practices.

American International Group, the US insurer accused of participating in a scheme to rig insurance quotes, yesterday revealed it has also become the subject of a government investigation over separate allegations of improper practices.

A federal grand jury has opened an inquiry into whether the company, the largest publicly quoted insurer in the world, helped Brightpoint, a mobile phone distributor, hide $12m (£6.6m) of losses.

The investigation follows a string of clashes AIG has had with regulators, with the Securities and Exchange Commission and the Justice Department also having looked into the unusual insurance contracts arranged with Brightpoint.

AIG shares have fallen almost 20 per cent in the past few days after Eliot Spitzer, New York's attorney general, named it in a lawsuit against Marsh & McLennan, alleging widespread manipulation of the insurance market to garner improper fees from customers.

While other insurers were also named in the case, attention has focused on the relationship between AIG, which is run by Maurice "Hank" Greenberg, and Marsh, which is run by his son, Jeffrey. Ace, another insurer named in the case, is headed by Jeffrey's brother, Evan.

The elder Mr Greenberg yesterday said the suggestion the three had colluded to rig insurance bids to force customers to take out more expensive cover than they could have found in the market was "outrageous". Mr Greenberg, one of America's corporate elder statesmen, declared himself "sickened" by Mr Spitzer's allegations and said he would "root out" any fraudulent behaviour surrounding manipulation of insurance bids.

Announcing quarterly results, the 79-year-old ardent George W Bush supporter railed against the high-profile nature of Mr Spitzer's investigation. He said the timing of the latest investigation into Brightpoint had been deliberate. He said: "We're not looking for a fight. We've never done that. But the timing of this last letter was certainly not by accident, given that we are putting out earnings today." Net income rose 8 per cent in the third quarter to $2.5bn, from $2.4bn a year ago.

AIG has resolved to stop paying fees known as contingent commissions to brokers, which are not illegal but frowned upon by Mr Spitzer on the grounds that they encourage brokers to direct business to underwriters paying the most generous commissions, rather than to those offering customers the best deal.

Willis, another major broker, also yesterday called an end to contingent commissions in the light of the light cast on them by Mr Spitzer. Joe Plumeri, the chief executive of Willis, said: "Our clients don't like contingency agreements ... they want contingencies to end. We intend to respond to that. It's over."