Under the settlement, AIG also agreed to change the way it carries out its business to ensure proper accounting practices in the future.

The deal settles a civil suit brought against AIG last May by New York Attorney General Eliot Spitzer.

Investigators claimed AIG had attempted to deceive regulators and investors.

‘Financial ‘

AIG finds itself in this position solely because some senior managers thought it was acceptable to deceive the investing public and regulators New York Attorney General Eliot Spitzer

The settlement, announced on Thursday, does not resolve current lawsuits against former AIG chief executive Maurice Greenberg and former chief financial officer Howard Smith.

A criminal case against Mr Greenberg, accusing him of the firm’s finances to boost its share price, was dropped by New York authorities in November last year.

Both men have denied any wrongdoing.

“AIG finds itself in this position solely because some senior managers thought it was acceptable to deceive the investing public and regulators,” Mr Spitzer said.

“This is a company that didn’t have to cheat. But once they began, they found it hard to stop. And like an addict, they grew dependent on financial gamesmanship that could ultimately destroy the company,” he told the Associated Press news agency.

Mr Spitzer said AIG’s promise to adopt new practices would improve the US market for property and casualty insurance.

The company is currently the world’s largest insurer by market value.