The courts dealt the insurance industry two huge blows in the past few days, with brokers and top carrier executives convicted in separate trials–one having to do with bid-rigging, the other with cooking the books via a sham finite reinsurance deal. Any way you look at it, the reputation of the business for honesty and integrity took a real beating, and the feds might yet have bigger fish to fry.
On Friday, as reported by Phil Gusman, two former Marsh executives were found guilty in New York State Supreme Court of a felony monopoly charge for bid-rigging. (Click here for the full story.)
While the two defendants were acquitted of 15 other charges, including grand larceny and fraud, it's not good to have players at a major brokerage convicted of swindling their clients by deceiving them into thinking their risks were placed through the free market, when in fact a back room deal with carriers had been struck.
Then today, up in Connecticut, as reported by our correspondent, "five former insurance executives with General Reinsurance and American International Group were found guilty by a federal jury of all charges stemming from an alleged bogus reinsurance deal that helped AIG artificially improve its financial picture." (For the complete story, click here.)
This time, the damage that was done was to the credibility of carriers within the investment community, with analysts testifying that they spoke more highly of AIG's stock than they would have had they known that the carrier's reserves were inflated by a phony transaction.
Those convicted were major players–including Ron Ferguson, the former CEO of General Reinsurance, along with Gen Re's former CFO, Elizabeth Monrad, two former senior vice presidents and AIG's former vice president for reinsurance, Christian Milton.
Once again, the insurance industry's reputation has been further muddied in the minds of the consumer press and the general business sector, making it that much harder for the overwhelming majority of honest brokers and underwriters of integrity to do their jobs.
The big question now, at least with the AIG/Gen Re trial, is whether we've heard the last of this scandal. I fear not. In fact, I can't help but wonder if the Moby Dick of state and federal prosecutors–former AIG chairman and CEO Hank Greenberg–isn't the next target. Mr. Greenberg, now head of C.V. Starr, was an unindicted co-conspirator in the Connecticut case.
Was this case merely a preliminary bout before the main event?
Some of those involved in the reinsurance scam pled guilty and agreed to testify against those who were convicted today. Could one or more of those who now face jail time be convinced to testify against others–Mr. Greenberg, perhaps?–in return for leniency in sentencing? Or is Mr. G in the clear? Stay tuned!
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