Hartford Hires Connecticut Prosecutor In Growing Trend Among Insurers

December 28, 2004

HARTFORD, Conn. (BestWire) - At a time when the insurance industry is facing a slew of state and federal investigations into its practices, Hartford Financial Services Group Inc. -- among many insurers targeted, has hired a leading federal prosecutor from Connecticut who will come on board with the company in January.

And industry analysts say hiring "outsiders" -- particularly attorneys with government and/or investigative backgrounds, is a trend that is likely to continue during this era of increased regulatory scrutiny.

Ronald Apter, who was a prosecutor for the past 13 years with the U.S. Attorney's Office for the District of Connecticut, will start Jan 3 with Hartford Financial, said Sue Honeyman, a spokeswoman for Hartford Financial. (NYSE: HIG). Apter will serve as Hartford's vice president, assistant general counsel and deputy director of compliance, she said. Apter, 43, successfully prosecuted Joseph Ganim, mayor of Bridgeport, Connecticut's largest city, on corruption charges, the Associated Press reported. Apter was well known for his detailed knowledge of the Ganim case. The investigation took several years and involved nearly two years of wiretaps and many interviews with cooperating witnesses. Ganim was convicted last year of steering city contracts in exchange for cash, investment quality wine and other expensive gifts.

"He will be overseeing a wide variety of activities on the property/casualty side of the company," said Honeyman.

Hartford's hiring of Apter has "nothing to do with" and "predates" the various investigations the company is facing, Honeyman said. "This is not a reaction to any of the allegations this year," she said. "This is part of a long-term systematic approach of handling compliance."

"Like any other insurance company, we are subject to (regulations) from every state," Honeyman said. "So compliance is very complicated and you really need good people."

In mid-October, New York state Attorney General Eliot Spitzer opened the floodgates of the various investigations into the insurance industry by filing a lawsuit against Marsh & McLennan Cos. (NYSE: MMC), alleging that the worlds largest broker steered unsuspecting clients to insurers with which it had lucrative payoff agreements. Spitzer further alleged that Marsh had participated with major insurers in steering and rigging bids for insurance contracts. Spitzer's suit against Marsh mentioned, but did not name as defendants, some of the industry's biggest insurers, including Hartford Financial.

In addition to the Spitzer probe, Hartford disclosed subpoenas it has received in connection with investigations into agent and broker compensation practices launched by the attorneys general of Connecticut, Massachusetts and Ohio, and the Minnesota Department of Commerce.

In November, Hartford Financial confirmed that it took disciplinary action against two employees as a result of the investigations into the insurance industry's compensation practices. Hartford dismissed two employees who worked in the Los Angeles office of Hartford's property/casualty operations after concluding that they weren't fully cooperating with the investigation (BestWire, Nov. 12, 2004).

Also in November, Hartford disclosed in a U.S. Securities and Exchange Commission filing a new investigation by Spitzer into whether the head of its life operations sold off shares of Hartford based on insider knowledge (BestWire, Nov. 5, 2004).

Industry analysts say Hartford is not alone, with several other insurers and brokers also recently hiring attorneys with government and or investigative experience.

"Insurers are facing ever more increasing litigation, both directly and indirectly, and I think they are trying to respond to that," said Paul Newsome, an insurance analyst with A.G. Edwards in St. Louis. "They have all the attorneys' general investigating them, and many companies are being investigated where there doesn't seem to be any really direct reason; it's just heightened regulatory scrutiny, in general."

As a result, insurers "are hiring a lot of people with expertise in dealing with the government," Newsome said.

Insurers "are trying to establish that they've acted appropriately and I think you don't know that until you've brought someone in to take a look," noted Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

Ace Ltd. (NYSE: ACE), another insurer mentioned in Spitzer's suit against Marsh & McLennan, reportedly has hired the law firm of Mary Jo White, the former U.S. Attorney for the Southern District of New York, to oversee an independent team to investigate the matter. In early November, an internal probe by Ace resulted in Ace terminating two employees implicated in the alleged wrongdoing. At the time, Ace said its probe was being conducted by the law firm of Debevoise & Plimpton LLP, under the direction of White (BestWire, Nov. 4, 2004).

American International Group Inc. has named Mari Maloney, a former assistant district attorney in Manhattan, its chief compliance officer, the AP reported. Recently, AIG said that federal probes of financial reinsurance agreements the company entered with third parties have been resolved, as AIG said a proposed $126 million settlement that includes appointment of an independent consultant to examine four years of AIG transactions earned approval from securities regulators and prosecutors (BestWire, Dec. 1, 2004).

Under terms of the settlements reached by AIG and subsidiary AIG Financial Products Corp. with the U.S. Securities and Exchange Commission, the fraud section of the U.S. Department of Justice and the U.S. Attorney for the Southern District of Indiana, the company will pay $46 million in fees and interest to settle complaints about three transactions between AIGFP and PNC Financial Services Group Inc. in 2001. The SEC said the transactions "were designed to enable the buyer to remove troubled or other potentially volatile assets from its balance sheet."

And soon after Spitzer's suit was filed against Marsh & McLennan, Marsh hired Michael G. Cherkasky, formerly chief executive officer of Marsh Kroll, MMC's risk consulting subsidiary, to succeed Ray J. Groves as Marsh Inc.'s chairman and chief executive officer. Cherkasky is a former chief of the investigations division for the New York County District Attorney's Office (BestWire, Nov. 4, 2005).

The University of Delaware's Elson noted that some companies will bring in their outside law firms to handle audits or compliance issues. But Hartford, as one example, has chosen to bring in someone "from the outside," in-house, full time, he said.

Apter "has not been part of the company...and I think that makes a lot of sense," Elson said. "Anytime you are attempting to do something like this, you want somebody who is neutral." For example, "You may have friends who may have been part of a problem and it's hard to critique a friend," he said. "Someone from the outside doesn't have those same constraints.

"The key is to get the facts out, and this is someone who has experience in getting the facts in an investigatorial setting," Elson said. " It's totally appropriate."

On the afternoon of Dec. 28, Hartford's stock was trading at $68.57 a share, up 0.91% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek, A.M. Best Co.)

Copyright 2005 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.

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