American International Group (AIG) may pay as much as $1.5 billion (€1.2 billion) to settle civil investigations by state and federal authorities into an accounting scandal, according to US media reports yesterday.

New York attorney general Eliot Spitzer and the New York State Insurance Department filed a civil suit against the largest US insurance company and its former chief executive, Maurice "Hank" Greenberg, last May, charging them with misleading investors by using improper accounting.

A settlement is likely in two or three weeks and would include a deal with the Securities and Exchange Commission, a source familiar with the matter said. The agency declined to comment.

AIG spokesman Chris Winans declined to comment on the report other than to say: "We continue to co-operate with all our regulators."

Talks are ongoing, a spokesman for Mr Spitzer said, but it is too early to speculate on the terms of any settlement. "We're in no position to comment," he said.

A settlement of $1.5 billion would nearly equal the $1.57 billion in losses from Hurricanes Katrina and Rita that AIG suffered in the third quarter.

A settlement would put an end to the lawsuit against AIG but would not include a deal with Greenberg or former AIG chief financial officer Howard Smith.

Mr Greenberg and Mr Smith have denied any wrongdoing.

Settling for $1 billion would represent about 25 cents per AIG share after taxes, Wachovia Securities analyst John Hall said in a research note yesterday, and 1 per cent of AIG's book value. The cost rises to 38 cents a share if the settlement is not deductible.

Any SEC settlement would have to be reviewed by the agency's five commissioners later this month.

The SEC has not brought a lawsuit against AIG, but the federal regulatory agency is expected to file and settle civil charges on the same day, if a deal can be reached.

The civil suit against AIG and Mr Greenberg by Mr Spitzer and the New York State Insurance Department accused them of fraud and cooking the company's books. Mr Smith was also named as a defendant.

In addition to a fine, a settlement is likely to make formal a number of corporate governance reforms, some of which AIG has already put in place, the newspaper report said.