Zurich Subpoenaed In Products Probe

Speaking at an analyst conference call this morning, Zurich Chief Executive Officer James Schiro said that investigators are looking more closely now at the industry's "nontraditional" or loss mitigation insurance products and that Zurich has been asked to cooperate in regulators' probe into this issue.

He said, "Zurich has been subpoenaed by the Securities and Exchange Commission and the New York Attorney General requesting information regarding nontraditional products."

St. Paul Travelers and Ace Ltd. also have received similar subpoenas in an inquiry into insurance products that are used to disguise losses or otherwise provide a distorted picture of company income.

Mr. Schiro also acknowledged that two employees at one of the Zurich North America units had pled guilty to charges brought by New York Attorney General Eliot Spitzer that they violated New York antitrust law.

The pair, John Keenan and Edward Coughlin, admitted to being part of a bid-rigging scheme with insurance broker Marsh Inc. Mr. Schiro said, "They have since left the company." They face up to a year in prison on misdemeanor charges.

Mr. Schiro said Zurich continues to cooperate fully with industrywide investigations conducted by various authorities but cautioned that he cannot predict what the eventual outcome of these probes will mean for his company.

Mr. Schiro told analysts an internal review had led to suspension of several employees from Zurich's Excess Casualty Unit in the Specialties Business of North America Commercial where Mr. Keenan and Mr. Coughlin worked. He did not say how many were suspended.

Mr. Schiro also reiterated that during the past month, Zurich has received a number of subpoenas and information requests from the New York Attorney General as well as from other U.S.-based attorneys general and insurance regulators in connection with business relationships between insurance brokers and insurance companies.

"We continue to cooperate with these investigations," Mr. Schiro said, but he added that the outcome of these investigations "cannot be predicted at this time."

Mr. Schiro, commenting on the unprecedented number of storms this year, said Zurich took a $400 million loss from Florida hurricane damages.

For its general insurance, Zurich posted higher net written premiums and policy fees for the third quarter, up to $6.917 billion, from $6.524 billion during the year-earlier quarter. Net investment income also rose, to $593 million for the third quarter compared to $469 million one year ago.

But, Zurich's loss and loss-adjustment expenses rose significantly, to $5.957 billion for the quarter, worsening from $4.867 billion during the year-earlier quarter.

Mr. Schiro emphasized that for the first nine-month period of 2004, Zurich has posted net profit of $1.9 billion, a 35 percent increase compared to $1.41 billion during the same period of 2003, thanks to "sound underwriting and claims management."

"Our underlying earnings are strong," Mr. Schiro said, "and the quality of our balance sheet continues to improve." He also noted that over the last several quarters, Zurich has strengthened reserves by $2.8 billion, while at the same time adding $3.9 billion to shareholders' equity and improving the return on equity to 13.9 percent during the first nine months of 2004.