Spitzer Settles With ACE Over Bid-Rigging Claims

by Glen Shapiro, LawAndTax-News.com, New York

28 April 2006

New York's Attorney General Eliot Spitzer and State Insurance Superintendent Howard Mills on Wednesday announced that an agreement had been reached with ACE, Ltd, a Bermuda-based holding company that trades on the New York Stock Exchange, and its United States subsidiaries, to resolve allegations of bid-rigging and improper "finite reinsurance" transactions.

Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan also joined settlement.

Under the agreement, ACE will pay $80 million in restitution and penalties and adopt a series of sweeping reforms of its business practices. In addition, ACE has issued an apology acknowledging its improper conduct.

"We continue to clean up the insurance industry," announced Attorney General Spitzer, adding that:

"ACE has acknowledged its problems and cooperated fully in our investigation. ACE is also adopting reforms designed to address the problems created by the use of contingent commissions and finite reinsurance."

The settlement agreement, called an Assurance of Discontinuance and Voluntary Compliance, alleges that ACE was a full participant in a scheme to fix insurance prices in the excess casualty area.

The assurance also details ACE’s use of improper "finite reinsurance" to bolster both its own financial results and those of its clients.

In a statement released this week, ACE apologized for its actions, stating that:

"As part of today’s settlement with the Attorneys General and the Superintendent, ACE acknowledges that certain of its employees violated both acceptable business practices and ACE’s own standards of conduct by engaging in behavior that included improper bidding practices and certain ‘finite reinsurance’ transactions. ACE apologizes for this conduct. It has reformed its business practices and is satisfied that this behavior will not be repeated. In order to promote transparency and reduce the potential for conflicts of interest, ACE has supported legislation in the US to eliminate contingent compensation and through this agreement pledges to continue to do so."

Under the terms of the agreements, $40 million will be paid to ACE’s policyholders harmed by bid-rigging activities. In addition, ACE will pay penalties of $24 million to New York and $8 million each to Connecticut and Illinois.

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