The Connecticut Attorney General's Office filed an antitrust action today against Guy Carpenter & Company, the reinsurance brokerage unit of Marsh & McLennan Companies.
In response, the company said it would defend itself vigorously against the charges.
State Attorney General Richard Blumenthal said in a statement that the firm had acted as ringleader “in choreographing the reinsurance market to fix prices, stifle competitors and collect excessive profits at the expense of the entire industry.”
The company said the attorney general's action–filed in State Superior Court in Hartford, Conn.–is “based on a fundamental misunderstanding of reinsurance facilities that have been in operation for the benefit of small- and mid-sized clients for as long as 50 years.”
Guy Carpenter added that, “As many of our clients have confirmed during this investigation, these facilities result in improved availability and terms of reinsurance, and ultimately benefit insurance buyers. Simply put, there is no basis for the attorney general's lawsuit, and we intend to defend ourselves vigorously.”
In 2005, the firm's parent–MMC–settled a price-fixing suit brought by New York State for $850 million over the actions of its brokerage subsidiary, Marsh Inc.
According to the Connecticut complaint, “Guy Carpenter conspired with numerous reinsurers to exploit its position as a well-known and dominant reinsurance broker in order to fix prices and output, foreclose competitors from access, allocate markets, eliminate competition and substantially increase profits in the extremely lucrative market for reinsurance.”
The suit accused the company of trading exclusive access to a lucrative book of business in exchange for “excessive fees and other benefits by creating a series of reinsurance 'facilities' aimed at a large block of its smallest clients.”
Guy Carpenter, it was charged, created what was essentially a closed market for certain categories of business and then, rather than seeking competitive quotes on behalf of its clients, funneled business to the reinsurers participating in the facilities.
Reinsurers, according to the Connecticut authorities, in order to gain access to this closed market, agreed not to compete on the prices and terms set by either Guy Carpenter or another “lead” reinsurer and instead agreed to be bound by the same prices and terms as the other reinsurer participants.
According to the complaint the result was a market “that was, as Guy Carpenter acknowledged, totally 'insulated from competition' or any competitive market forces.”
Insurers that didn't play ball it was alleged were essentially shut out of the marketplace.
This conspiracy, the complaint charged went on for about 50 years and exploited a group of approximately 170 insurance companies “by withholding critical information and leading them to believe that Guy Carpenter was acting in their best interests.”
This article updated Oct.9, 9:25 a.m.
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