Zurich Financial Agrees To Settle Bid-Rigging Charges

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

30 March 2006

It emerged on Monday that insurer Zurich Financial has reached a settlement agreement with authorities in New York, Illinois and Connecticut regarding allegations of bid-rigging and improper "finite reinsurance" transactions.

Under the agreement reached with New York Attorney General Eliot Spitzer, Connecticut Attorney General Richard Blumenthal, and Illinois Attorney General Lisa Madigan, certain subsidiaries of Zurich Financial Services 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 announced this week.

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, which asked: "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 released on Monday, 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".

The settlement agreement provides for $88 million to 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.

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