Zurich Settles Insurance Probe With Spitzer For $153 Million
By MICHAEL GORMLEY, Associated Press Writer
March 27, 2006
ALBANY, NY - Zurich American Insurance Co. on Monday settled an investigation into bid-rigging and will pay $153 million in restitution and penalties under a settlement with New York, Connecticut and Illinois, according to the company and New York Attorney General Eliot Spitzer.
Under the settlement, $88 million will go to Zurich policy holders harmed by the bid-rigging Spitzer claimed, $39 million in penalties will go to New York state while Connecticut and Illinois will each get $13 million.
The settlement is part of Spitzer's investigation of Marsh & McClennan Companies Inc. Marsh, the nation's largest property and casualty brokerage, settled with Spitzer last year for $850 million over allegations of bid rigging and price fixing as well as hidden commissions.
Zurich was one of the companies Spitzer and state Insurance Superintendent Howard Mills accused of participating in insurance bid-rigging.
"Zurich's willingness to acknowledge problems, adopt reforms and provide appropriate compensation to customers will help the company move forward to help promote full and fair competition in the insurance industry," Spitzer said.
"Our investigation revealed that Zurich schemed with insurance brokers and other insurers to rig bids, behavior that led policyholders to pay more for insurance," said Illinois Attorney General Lisa Madigan said. "Zurich also secretly paid contingent commissions to brokers in exchange for the brokers steering business to Zurich."
"The agreements concluded within the last two weeks represent significant progress in Zurich's efforts to resolve the uncertainty associated with certain industrywide practices," said James Schiro, Zurich's CEO. "This industry, like others before it, is undergoing a transformation, and these agreements will bring greater clarity to how Zurich will move forward to serve producers and customers in this new era of transparency."
Earlier this month, Zurich agreed to pay nearly $172 million in a deal with nine states to settle allegations of bid-rigging and price-fixing in the commercial insurance market. Policyholders in 50 states will receive $151.7 million in refunds in the settlement with California, Florida, Hawaii, Maryland, Massachusetts, Oregon, Pennsylvania, Texas and West Virginia. Those nine states will get an additional $20 million for investigative and attorney costs.
Monday's settlement concerned Zurich's "finite reinsurance" transactions. Spitzer cited an e-mail from a Marsh broker to a Zurich underwriter seeking a phony bid for an insurance contract that Spitzer said was being steered to American International Group Inc. The e-mail included: "Can you give me a protective indication on this. It is an AIG renewal and AIG already quoted it so just give me a bad price with higher per occ. attachment and then we can be done with this."
Spitzer said Zurich provided the phony quote in the deception of a Marsh customer.
AIG was among the companies that allegedly participated in the bid-rigging scheme, and four former AIG executives were among 20 insurance executives and officers who have pleaded guilty to charges, Spitzer's office said.
In February, AIG, one of the world's largest insurance companies, agreed to pay $1.64 billion to resolve allegations that it used deceptive accounting practices to mislead investors and regulatory agencies.
Zurich, in a statement quoted by Spitzer, acknowledged "certain of its employees violated both acceptable business practices and Zurich's own standards of conduct by engaging in improper bidding practices and the `finite reinsurance' transactions."
Spitzer's said Zurich improperly used "finite reinsurance" to make its finances look better. In 1998, Zurich took out insurance with another firm that would cover a $70 million loss. In the deal, the reinsurance payment was returned to Zurich and counted as a profit, Spitzer said.
Spitzer is seeking the Democratic nomination for governor this year against Nassau County Executive Tom Suozzi.
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