NEW YORK (Bloomberg) ? American International Group Inc. will be the first insurer to settle an inquiry into bid-rigging when it pays about $1.6 billion to resolve state and federal probes of accounting and sales practices, said a person familiar with the negotiations.

AIG, the world?s largest insurer, will compensate victims of price fixing as part of an accord with the Securities and Exchange Commission and New York Attorney General Eliot Spitzer, said the person, who declined to be identified because the talks aren?t completed. The accord also will resolve allegations the company manipulated earnings with improper reinsurance contracts.

Investigations of AIG led to last year?s ouster of chief executive officer Maurice (Hank) Greenberg, who ran the New York-based company for 38 years. An agreement, which the person said may be announced as early as this week, may be the largest in financial-services history. It will include payments to shareholders, policyholders and state worker compensation funds.

?The finalisation of a settlement would clear away many of the uncertainties surrounding AIG,? said Fox-Pitt, Kelton Inc. analyst Gary Ransom, who has an ?outperform? rating on the stock. The payment would cost AIG between 37 cents and 57 cents a share, depending on how much is tax deductible, he said.

Spitzer spokesman Marc Violette and SEC spokesman John Nester declined to comment, as did AIG spokesman Chris Winans. Terms of the planned settlement were reported earlier yesterday by the Wall Street Journal and the New York Times.

The settlement will resolve a 15-month inquiry into price-fixing with insurance brokers including Marsh & McLennan Cos., formerly run by Hank?s son, Jeffrey Greenberg. Spitzer wrested $850 million from Marsh & McLennan after accusing it in an October 2004 lawsuit of rigging bids with AIG and other insurers that paid hidden fees.

Spitzer said Marsh & McLennan solicited fake bids from AIG to make sure certain insurers won business. At least 17 people, including four AIG employees, have pleaded guilty in the probe of bid-rigging and kickbacks. AIG itself hasn?t addressed the probe.

The accord will also cover alleged accounting improprieties. Spitzer sued AIG and Greenberg last May, accusing them of understating liabilities from claims and cheating state workers compensation programmes. After removing Greenberg in March, the company restated $3.9 billion of past earnings and corrected a reinsurance transaction with Berkshire Hathaway Inc.?s General Re that inflated AIG?s reported reserves for claims.

The SEC?s investigation of the company began in 2001 with a probe of policies that cellular phone distributor Brightpoint Inc. allegedly used to manipulate earnings. That led to a broader examination of a type of reinsurance that may be abused to hide losses.