HARRISBURG, Pa.—American International Group Inc. will pay state regulators $146.5 million by the end of this month to settle long-running allegations that it underreported workers compensation premiums for decades.

The $146.5 million “global resolution” includes $100 million in penalties and $46.5 million in additional premium taxes and assessments that New York-based AIG will pay all 50 states and the District of Columbia, Pennsylvania Insurance Commissioner Michael Consedine announced last week.

Pennsylvania helped devise a settlement in 2010 on behalf of all states.

“This culminates an effort among all of the nation's state insurance regulators to investigate and resolve complex issues occurring over an extensive period of time,” Mr. Consedine said in a statement.

The settlement stems from 2006 allegations that surfaced when then-New York Attorney General Eliot Spitzer accused AIG of underreporting workers comp premiums over several decades to avoid paying its fair share of state residual market assessments.

AIG's workers comp competitors then sued, alleging that they paid states more than their fair share of residual market assessments because AIG was assigned an improperly small share of high-risk workers comp policies as a result of the underreporting.

AIG's payout of the $146 million to the states reportedly depended on the insurer first resolving the litigation with its rivals.

This year, a Chicago federal judge formally approved a $450 million settlement of a class action suit brought against AIG by its competitors.

“The (National Assn. of Insurance Commissioners) multistate workers compensation examination focused on allegations of conduct taking place between 1975 and 1996, the same period that was the subject of the 2006 regulatory settlement between AIG and the state of New York,” an AIG spokesman said in a statement. “We are pleased that if this settlement becomes final, we will have resolved all remaining regulatory issues related to AIG's workers compensation premium reporting for our stakeholders. The settlement represents AIG's unwavering commitment to regulatory compliance and principled corporate governance.”