NEW YORK (Reuters) ? American International Group Inc., the world?s largest insurer by market value, on Thursday agreed to pay $1.64 billion to settle federal and state charges of fraud, bid-rigging and improper accounting.

AIG said it will take a fourth-quarter after-tax charge of about $1.15 billion for the settlement.

The widely anticipated agreement ends a long-running investigation of the company by New York Attorney General Eliot Spitzer and State Insurance Superintendent Howard Mills, along with federal authorities led by the US Securities and Exchange Commission.

But it does not resolve pending cases against former AIG chief executive Maurice (Hank) Greenberg and former chief financial officer Howard Smith, who were forced out last Spring two months before charges were announced against the company.

In settling, Spitzer pointed the finger directly at Greenberg and Smith, who have denied they did anything wrong.

?There are some who continue to deny there was any wrongdoing at the company,? said Spitzer in an interview in New York City. ?I think the facts laid out today are overwhelming in establishing that from the highest levels of AIG there was an intent to misrepresent the financial condition of the company.?

Spitzer said ?transactions were entered into that were false, and there were flagrant violations of state and federal law designed to misrepresent the financial condition of the company.?

However, the attorney general made a point of saying new management at AIG has done a ?spectacular? job, cooperating with the investigation and putting in reforms. ?We are happy about the resolution of the case,? he said.

Spokespersons for Greenberg and Smith could not be reached for comment immediately.

AIG?s fines and penalties will take less than two percent from its book value, less some items, according to Andrew Kligerman, an insurance analyst with UBS AG.

?This settlement removes the largest cloud overhanging the company,? said Rob Haines, an analyst with CreditSights.

Under the terms of the settlement, AIG will pay $700 million into a fund to aid investors deceived by its false financial statements.

An SEC penalty of $100 million will also go into that fund. AIG policyholders harmed by bid-rigging will receive $375 million.

Another $344 million will go to states harmed by AIG?s practices of understating workers? compensation premiums. A final $100 million will go to the state of New York, whose insurance department filed the original suit against AIG in May. The US Department of Justice will also get $25 million.

AIG issued a statement saying it ?regrets and apologises? for its conduct, and agreed not to pay contingent commissions for certain types of insurance, as well as to support legislation to end these commissions.

Contingent commissions are a well-established compensation arrangement in which brokers and insurers reward each other for steering business to each other.

Insurance brokers Marsh & McClennan Companies Inc., Aon Corp., and Willis Group Holdings Ltd. have previously agreed to more than $1 billion in penalties.

?The three largest insurance brokers ? Marsh, AON and Willis and AIG as well ? are companies we are dealing with in what has been a very successful investigation into wrongdoing in the insurance sector,? said Spitzer, who indicated the investigation is continuing.

AIG said that in addition to penalties, it had agreed to retain an independent consultant for three years to review its internal controls.

Separately, AIG said it will take a $1.1 billion fourth-quarter charge to increase its loss reserves, and expects $550 million of charges and insurance losses for various catastrophes, including Hurricanes Katrina and Wilma.