AIG Deconstructed: AIG Rules Iraq

AIG Iraq is also the sole provider of workers' compensation insurance to the largest private contractor in Iraq and Afghanistan, KBR(KBR Quote), which has 50,000 U.S. and foreign workers.

Today the U.S. Army is investigating that deal, arguing that KBR paid "unreasonably high" premiums to AIG. KBR paid about $284 million to AIG between 2003 and 2006, but the payout from AIG is estimated to be less than $73 million, with $114 million in expenses. According to congressional investigators, that means AIG walked away with about $100 million in profits.

Indeed, AIG makes substantially more money on war zone workers' compensation insurance than it does from stateside workers' compensation policies. According to the investigation, the insurer has retained underwriting gains of just 1% since 2002 from its workers compensation insurance. In comparison, it reported underwriting gains under the DBA of 38% during the same time period.

Last week, insurance executives, injured civilians and Obama administration officials testified before a panel of the House Committee on Oversight and Government Reform about the inadequacy of the overall DBA program.

Meanwhile, the investigation into AIG's fees has been ongoing since 2007.

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