NEW YORK (Bloomberg)— Allied World Assurance Company Holdings Ltd., an insurer co-founded by American International Group Inc., will pay $2.1 million to settle with Texas officials who alleged the company colluded with AIG to avoid competition.The agreement, which ends an 17-month investigation by Texas Attorney General Greg Abbott, prohibits Bermuda-based Allied World from coordinating the pricing, selling or marketing of insurance with AIG or another founder, insurer Chubb Corp., Abbott said yesterday in a statement. Allied World denies Abbott’s allegations and doesn’t admit liability, it said in a separate statement.

Allied World was created in November 2001 to help fill a void in the industry after the September 11 terrorist attacks. It was conceived of by Maurice (Hank) Greenberg, who was chief executive officer of AIG, the world’s largest insurer, for 38 years.

Allied World violated antitrust laws between 2001 and 2004 by sharing information about clients and coordinating bids with New York-based AIG, according to a lawsuit Abbott filed in district court in Travis County. The $2.1 million reimburses the legal costs of the investigation, said Tom Kelley, Abbott’s spokesman.

“We believe our evidence clearly showed they violated the law,” Kelley said. “We certainly disagree with the characterisation they made.”

In 2001, Allied World’s biggest owners were AIG, with a 24-percent stake, Chubb, with a 19-percent stake, and Goldman Sachs Group Inc., with a 16-percent stake, Abbott’s suit said.

Susan Burns, a spokeswoman for Allied World, declined to comment, as did AIG spokesman Chris Winans. Jodi Dorman, a spokewoman for Warren, New Jersey-based Chubb, didn’t immediately return a call seeking comment.

Shares of Allied World fell 2 cents to close at $43 in New York Stock Exchange composite trading on Friday. The stock has gained 27 percent since its initial public stock sale in July 2006.