Zurich Settles Bid-rigging Probe

Attorney General Spitzer and State Insurance Department Superintendent Howard Mills today announced an agreement with one of the world's largest insurance companies to resolve allegations of bid-rigging and improper "finite reinsurance" transactions.

Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan also joined in today's settlement.

Under the agreement, certain subsidiaries of Zurich Financial Services ("Zurich") will pay $153 million in restitution and penalties and adopt a series of sweeping reforms. In addition, Zurich has issued an apology acknowledging its improper conduct.

"Zurich's willingness to acknowledge problems, adopt reforms and provide appropriate compensation to customers will help the company move forward and will help promote full and fair competition in the insurance industry," Spitzer said.

State Insurance Superintendent Howard Mills said: "The Zurich policyholders who were adversely affected by Zurich's conduct will now be able to receive their rightful restitution. New York will continue to insist that insurers operating within our jurisdiction conduct their business in a way that is transparent to policyholders and accurately reported to regulators."

An Assurance of Discontinuance filed with the agreement alleges that Zurich was a full participant in a scheme to fix insurance prices in the excess casualty area.

For example, the assurance cites an e-mail from a Marsh & McLennan Company broker to a Zurich underwriter seeking a phony bid for an insurance contract that was being steered to one of Zurich's competitors, AIG: "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."

Zurich complied with the request and sent Marsh a non-competitive bid to be used to deceive Marsh's client.

The assurance also details Zurich's use of improper "finite reinsurance" to bolster both its own financial results and those of its clients. For example, Zurich entered into a 1998 agreement with insurer MBIA, Inc. to provide risk-free "reinsurance" for a known $70 million loss. In exchange, Zurich received a separate risk-free insurance contract that returned the "reinsurance" payment to Zurich with a profit.

In a statement today, Zurich apologized for its actions and acknowledged that "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 described in the Assurance of Discontinuance."

Under today's agreements, $88 million will be paid to Zurich policyholders harmed by bid-rigging activities. In addition, Zurich will pay penalties of $39 million to New York and $13 million each to Connecticut and Illinois. Today's settlement will also have the effect of increasing by $29.9 million the recovery consumers will receive as part of a separate multi-state settlement, announced last week, which arose out of New York's insurance probe.

In the fall of 2004, the New York Attorney General's office and the New York Insurance Department announced a joint probe of misconduct in the insurance industry. This investigation has resulted to date in guilty pleas from 20 insurance company executives and officers, and the recovery of over $2.6 billion for consumers and workers compensation plans.

The investigation underlying today's Assurance of Discontinuance was conducted by Assistant Attorneys General Michael Berlin, Maria Filipakis, Matthew Gaul, and Mel Goldberg under the direction of David D. Brown IV, Chief of the Attorney General's Investment Protection Bureau.

Audrey Samers, Deputy Superintendent and General Counsel of the New York State Department of Insurance, Susan Donnellan, Deputy General Counsel of the Insurance Department, and Jon Rothblatt, a principal attorney, led the Insurance Department’s investigation.

Attachments:

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