Texas Attorney General Greg Abbott announced yesterday that Bermuda-based insurance carrier Allied World Assurance Company Holdings Ltd. would pay the state $2.1 million to settle charges that it fixed commercial insurance prices with American International Group.
According to a civil action filed by Mr. Abbott's office yesterday along with the agreement to settle it, AWAC “was the brainchild of [then] AIG Chairman Maurice ('Hank') Greenberg.”
Mr. Greenberg–who was forced out of his AIG posts in 2005, and who is currently chairman and chief executive officer of C.V. Starr & Company–is facing civil fraud charges brought by the New York Attorney General's Office.
As a result of the same investigation that led to charges against Mr. Greenberg, AIG last year agreed to pay $1.64 billion to settle state and federal charges of securities fraud, bid-rigging and failure to pay proper contributions to various state workers' compensation funds.
Texas, in its lawsuit, said AWAC founding investors were AIG (with approximately 24 percent ownership), Chubb (19 percent) and Goldman Sachs (16 percent), with an affiliate of Swiss Reinsurance Company and over 250 other non-principal shareholders capitalizing the company with $1.5 billion in equity to meet the post-9/11 demand for insurance.
AWAC was structured as an independent company and potential competitor of its founding investors, but in practice, “AWAC and AIG informally agreed not to compete against one another,” the Texas suit alleged.
AWAC and AIG frequently refused brokers' requests for quotes when one learned that the other was the incumbent carrier, or was intending to quote the same piece of business, and “for at least four years AIG and AWAC unlawfully allocated customers between themselves,” the suit charged.
The Texas lawsuit stated that AIG attempted to exert an upward influence on AWAC pricing, and on at least one occasion AWAC supplied a false bid at the request of a broker in order to make another insurer's bid appear more competitive.
In its settlement, AWAC–which admitted no guilt–agreed to abstain from coordinating with its founding companies on the pricing, marketing, underwriting or quoting of its insurance policies. It also cannot use the policyholder databases maintained by the founding companies.
BankAmerica securities analyst Kevin O'Donoghue wrote that if the investigation of the company was “ever an overhang on the stock, we believe it was largely removed with the company's announcement in February that it expected a settlement and had set aside a $2.1 million reserve.” The final amount of the settlement was charged against 2006 earnings.
One of the fallouts of the probe was the resignation of AWAC's former chief underwriting officer, Jordan M. Gantz.
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