AIG is the latest insurer to settle state probes over its use of the Social Security "death master" file, joining companies like MetLife and Prudential.
State regulators have alleged that insurers used the list of recently deceased people to stop making annuity payments to dead customers, but, at the same time, did not use the list to check whether any life insurance policy holders had passed away.
In a statement, Pennsylvania authorities said AIG had agreed to use the death master file "on a uniform basis" to find dead policyholders and pay beneficiaries.
The company said in a statement it began a process of matching policyholder records against the death master database last year to find accounts where no claim had been made yet.
AIG also said it would increase reserves by $55 million in the third quarter to cover potentially accelerated benefit payments under the settlement.
In addition to Pennsylvania, the other states listed on the agreement were Florida, North Dakota, California, Illinois, New Hampshire and Texas.
AIG shares fell 1.3 percent to $35.22 in afternoon trading on the New York Stock Exchange.
