Zurich Financial Services said today it will book a $325 million first-quarter charge to cover the cost of settling allegations of bid-rigging and other broker compensation wrongdoing with 13 states.

The company also this morning announced an agreement with New York, Connecticut and Illinois state officials that will see it pay $153 million for restitution to excess casualty policyholders as well as penalties.

In addition, the agreement prohibits Zurich from paying contingent commissions on excess casualty business in the U.S. through 2008 and establishes a mechanism whereby the company would stop paying contingent commissions on other lines of business if 65 percent of the U.S. market for a particular line of business is not paying such commissions.

In addition, Zurich issued an apology acknowledging its improper conduct.

Authorities have charged that undisclosed contingent commissions by insurers have served as kickbacks to brokers that rigged bids and steered clients to insurers.

New York Attorney General Eliot Spitzer, who began investigating such activity in 2004, said Zurich's willingness to adopt reforms and provide restitution will go a long way toward promoting fair competition in the insurance industry.

Zurich Chief Executive Officer James Schiro said the company's "significantly enhanced compliance structure" will provide safeguards against future such incidents.

"Last week, the company settled with the states of Texas, California, Massachusetts, Pennsylvania, Hawaii, West Virginia, Maryland, Oregon and lead state Florida for a total of $171.7 million that included fines and restitution.

Zurich now joins American International Group in having settled with state officials allegations of wrongdoing regarding broker compensation practices. In addition, the three major insurance brokers have also reached agreements with states for restitution and to stop the practices in question.

In announcing the nine-state settlement last week, Florida Attorney General Charlie Crist said that Zurich's American subsidiary conspired with certain insurance brokers in a "pay-to-play" scheme which resulted in higher insurance premiums being paid by commercial customers and governmental entities.

As part of the scheme, Zurich submitted fake bids to create the illusion of a competitive bidding process, even though the broker had predetermined the winner, Mr. Crist said.

The carrier was rewarded by having other lucrative business steered to it and in turn paid contingent commissions to the brokers, who did not disclose them to customers, Mr. Crist said.

Special Reports /

Zurich: Bid-Rig Pacts Cost $325M

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