US insurance giant American International Group (AIG) has settled with US federal and state regulators for charges relating to fraud amounting to $US1.64 billion ($2.2 billion).

The settlement with Eliot Spitzer and New York State Insurance Superintendent Howard Mills, as well as the US Securities and Exchange Commission and the Justice Department, ends a long-running investigation of the company.

Under the deal, the investigators will end inquiries into the company’s speculated bid-rigging, improper accounting and skipped payments of workers’ compensation.

The money will be split among several parties, with $US800 million ($1 billion) used to pay restitution to misled shareholders.

A further $US375 million ($508.9 million) will compensate AIG policyholder clients and $US344 million ($466.8 million) is to be deposited into several state workers’ compensation funds.

AIG has agreed to stop paying contingent commissions on excess casualty insurance business until 2008 and has also agreed to stop paying the profit and volume-based commissions in any line of insurance where 65% of overall gross written premiums are written by insurers not paying commissions.