underwriting violations alleged by the California Department of Insurance (CDI).

CDI commissioner Mr. John Garamendi said: "To their credit, AIG has fully co-operated with our investigation, initiating action to rectify the violations and ensure that their future practices comply with the law.

"However, this penalty should send a strong message to the insurance industry that we will come down hard on rating and underwriting violations.'' Violations uncovered by the CDI included the use of expired or unfiled rates in place of those approved by the department, failure to maintain adequate documentary support for rates, inconsistent application of rating plans and failure to consistently make written offers of uninsured motorist coverage.

The CDI's agreement with AIG stipulated that, to verify compliance, the department would, within the next three years, re-examine AIG's rating and underwriting practices.

Should the department find that violations are continuing, an additional penalty of $250,000 may be levied against AIG.

The $750,000 settlement is the second largest such payment ever made to the CDI.

Only the one million dollar assessment which Mr. Garamendi made against Allstate Insurance Company in connection with underwriting and claims handling violations related to the 1991 Oakland Hills Firestorm is larger.

Mr. Garamendi has a reputation in the insurance industry for coming down hard on companies which violate his department's regulations.

Last December, Bermuda-based captive Dual-Plus Insurance, which was managed on the Island by Jardine Pinehurst Management Company, was put into liquidation by a court in California.

Mr. Garamendi had taken action against the firm for conducting business in the state without a licence and for operating in a "financially hazardous'' condition.