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Implicated insurers distance themselves from discredited PSA practices

Fresh from Marsh’s announcement on 15 October that it would suspend all its PSA style arrangements, the insurance companies named in Eliot Spitzer’s complaint against the world’s largest broker were also quickly distancing themselves from the practice.

On 17 October ACE chief executive Evan Greenberg – brother of MMC’s chief executive Jeffrey Greenberg – wrote to all ACE employees reassuring them that the company has a “very bright future” despite the Spitzer investigation.

Greenberg observed: “The New York attorney general’s lawsuit raised the question of the continuing appropriateness of placement service agreements (PSAs). Therefore, effective immediately, we will discontinue all PSAs throughout our organisation”.

Greenberg revealed that ACE has been “co-operating with the New York attorney general’s office since its investigation began several months ago”.

He added: “At the time the attorney general began his investigation, we hired an outside law firm, Debevoise & Plimpton, with a team headed by former US attorney Mary Jo White, to conduct an independent internal investigation.

In the complaint, Spitzer uses Marsh Global Broking’s relationship with ACE as an example of alleged bid-rigging, referring to an e-mail where an ACE underwriter is prompted to increase his quote from $990,000 to $1.1mn so the insurer is “less competitive”.

Greenberg’s letter also confirmed that an ACE employee had pleaded guilty to a criminal misdemeanour charge “relating to the sales practices addressed in the Marsh & McLennan suit”. The employee, added the note, has been “suspended and placed on paid leave”.

Greenberg also warned staff that ACE is a “disciplined organisation that neither tolerates nor condones unethical behaviour. Where the investigation shows that there have been lapses, they will be fixed – quickly and permanently”.

Greenberg acted after AIG – the world’s largest insurer headed by his father Maurice “Hank” Greenberg – said on 15 October that it would consider scrapping the arrangements. It confirmed today (18 October) that it would no longer pay incentive fees.

Last week, the insurance giant said it was “saddened by the news because we hold ourselves to the highest ethical standards”. AIG noted that two employees of the Excess Casualty unit of American Home Assurance Company, a subsidiary of AIG, which provides excess liability insurance to businesses, have pleaded guilty to charges in connection with their dealings with Marsh.

American Home was thought to be one of Marsh’s oldest – and most valuable - PSA arrangements – known in Marsh Global Broking as The Quarter Club. AIG added that it takes “these charges seriously and will continue to cooperate with the attorney general's office."

The firm also noted that in July 2002 and October 2003 it asked the advice of the New York Insurance Department over a Placement Service Agreement to ensure it complied with New York law.

Zurich Financial Services Group – another insurer implicated by Spitzer in the complaint – also said that it was co-operating with the enquiry. The complaint alleges that Marsh held out a potentially lucrative contract to ZFS if it would agree to signing a PSA.

US Insurer The Hartford Group added that it was “thoroughly reviewing, together with outside counsel, whether any Hartford employee engaged in bid-rigging or otherwise violated any law or breached any of our corporate ethics standards in connection with the matters that are the subject of this investigation. Improper or illegal activity will result in swift corrective and disciplinary action”.

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