Sources in the US believe that the insurance giant AIG is set to settle with investigators to resolve the long-running probe led by New York Attorney General Eliot Spitzer into accounting malpractice at the firm.

The reports suggest that settling with federal and state regulators on a variety of compliance issues will cost AIG in the region of $1.6 billion. At the heart of the issues are allegations of bid-rigging, missed payments to state compensation funds and improper accounting.

However the unidentified sources close to the negotiations suggest that the settlement will not lead to the banning of contingent commissions – the practice of pointing insurance contracts towards certain insurers, highlighted by Mr Spitzer.

The settlement would potentially be the largest in financial services history, but would at least enable AIG to draw a line under a troubled recent past. The firm has been under investigation for four years, and the revelations of questionable practice cost long-standing CEO Maurice Greenberg his job in 2005.