ACE Paying $80 M To Settle Bid Rig Charges

The settlement is the latest multi-million-dollar agreement which New York authorities have arranged involving big name insurers and brokers, after investigations turned up evidence they had engaged in extensive price fixing schemes that involved payment of hidden contingent commissions to brokers in the scheme.

Mr. Spitzer said in a statement 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."

Mr. Mills added that his department was "pleased that Ace has agreed to compensate policyholders who were harmed by the company's actions and reform the way in which they conduct their business."

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.

Included in the settlement document are quotes from an e-mail from an unnamed senior ACE executive detailing a scheme in which ACE would knowingly provide a losing bid to provide insurance coverage to create the illusion of a competitive bidding process.

The e-mail, according to the attorney general's office stated, "Marsh [brokerage] is consistently asking us to provide what they refer to as 'B' quotes for a risk. They openly acknowledge we will not bind these 'B' quotes . . . but that they 'will work us into the program' at another attachment point . . . . It has been inferred that the 'pricing targets' provided are designed to ensure underwriters 'do not do anything stupid' as respects pricing."

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

According to the authorities, in 2000 ACE entered into a sham "reinsurance" agreement with privately held American Capital Access (ACA).

Under the terms of the deal, it was explained, ACE and ACA entered into a series of written reinsurance contracts that appeared to contain sufficient risk to qualify as reinsurance. In reality, according to investigators, the two parties entered into secret side agreements that capped and guaranteed the profits Ace could make from the deal, thereby eliminating any risk for either party.

The New York Attorney General's Office quoted ACE as stating that the company "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 U.S. to eliminate contingent compensation and through this agreement pledges to continue to do so."

Under 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.

Since the New York Attorney General's Office and Insurance Department announced a joint probe of misconduct in the insurance industry in 2004, there have been settlements with six companies, guilty pleas from 20 insurance company executives and officers, and the recovery of approximately $3 billion in restitution and penalties.