Talks to sell Zurich's Universal Underwriters Group to a private equity firm led by Hellman & Friedman were terminated when the two could not come to terms after it was revealed Zurich had had problems concerning customer overcharges.
Zurich announced the termination of the talks yesterday, saying negotiations that began in April were halted after both sides "agreed not to proceed with the sale."
In a statement, Zurich said the two ceased talks after they "were unable to complete the transaction at mutually agreeable terms."
The disagreement centered around a "routine market conduct examination performed by the Kansas Department of Insurance."
Keith Owens, public relations director for Zurich North America, explained that early last year the Kansas Department of Insurance identified problems with Universal Underwriter's uni-cover products involving a combination property and auto plan.
The department discovered the insurer was not charging policyholders according to rates filed with the department. Mr. Owens said some of the charges were above the filed rates, while others were below.
Overcharged policyholders, after an audit of the policies involved, were issued refunds, said Mr. Owens. No action was taken concerning policyholders who were undercharged, he said.
While remediation to policyholders in Kansas has been completed, the program is being audited nationally by Zurich, going back as far as three years, Mr. Owens continued. Where problems are discovered, the company will seek to resolve the issue as it did in Kansas, he said.
A spokeswoman with the Kansas Department of Insurance said the company has been very cooperative with resolving the issues the department uncovered and that the department is satisfied with the actions Universal Underwriters has taken to resolve them.
While a precise figure was not available, Mr. Owens said the company took a $100 million charge in the third quarter last year relating to Universal Underwriters' situation.
In light of the breakdown in talks, Zurich indicated it had switched strategies over the sale of Universal Underwriters, which had gross written premiums and fees of $1.5 billion for the fiscal year ending December 2004, and would look to further integrate the company into Zurich.
Universal Underwriters specializes in insurance and financial services to franchised auto, truck, equipment and motorcycle dealers and the automotive aftermarket in the United States.
Mr. Owens said the company was acquired by Zurich in 1982 and has acted as a free-standing operation until about six years ago when limited integration began. That would now change.
To push ahead with that integration, Thomas A. Bradley, chief financial officer of Zurich North America Commercial, interim head of Universal Underwriters, was named president of Universal Underwriters.
Axel P. Lehmann, chief executive officer of North America Commercial, said in a statement that within the past six months Mr. Bradley "has achieved much progress in further enforcing compliance with regulatory standards and providing value to our customers. I expect him to quickly align this profitable unit with our North America Commercial business division."
Taking over the CFO position will be Louis Manello, group comptroller at Zurich Financial Services, who will assume his new post in March, Mr. Owens said.
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