All material subject to strictly enforced copyright laws. © 2021 Insurance Insider is part of Euromoney Institutional Investor PLC.
Accessibility | Terms & Conditions | Privacy Policy | Modern Slavery Act | Cookies | Subscription Terms & Conditions

That was the week that was...

Thursday 14 October:
Spitzer drops a bomb-shell on the global insurance industry by revealing he is suing Marsh, the world’s largest insurance broker, for price-fixing. The civil complaint filed in the Supreme Court of the State of New York County of New York alleges Marsh, together with industry giants such as AIG and ACE (the insurance firms headed by MMC CEO Jeffrey Greenberg’s father and brother) engaged in creating cartels through the application of PSAs.

According to the complaint: "Marsh solicited - and obtained - fictitious high quotes from insurance companies in order to deceive its clients into believing that true competition had taken place. It promised to protect insurance companies from competition, and did so. And it threatened to hurt the business of those who thought of truly competing for particular pieces of business".

At a news conference, Spitzer hints at widespread corruption saying: "If the practices identified in our suit are as widespread as they appear to be, then the industry's fundamental business model needs major corrective action and reform."

He announces that two executives at AIG have pleaded guilty to criminal charges in connection with their dealings with Marsh.

Estimates of Marsh's PSA annual earnings are rife: Spitzer says $800mn (MMC later confirms them at $845mn in 2003). Spitzer demands a change in MMC’s management saying: “[We have been] misled at the very highest levels of that company… The leadership of that company is not a leadership I will talk to; it is not a leadership I will negotiate with.” MMC’s board of directors, however, say they have “full confidence in the company's leadership”.

AIG fires off a statement saying it is "saddened" by the investigation because it holds itself to "the highest ethical standards". Broker Aon, meanwhile, says that "to the best of [its] knowledge" its employees have not engaged in "soliciting 'fictitious quotes', bid-rigging, [or] accepting payments from insurers not to shop quotes".

The markets take fright, wiping around $20bn off AIG's market capitalisation in one day and knocking 25 percent off the value of MMC stock. Other insurance stocks fall.

Friday 15 October:
AIG's Hank Greenberg suggests kickbacks are now off the menu. "It's likely that AIG will no longer issue PSAs... we believe that is the way it should be done," he says at an analysts' conference. Hank's son, Jeff, is the next to eat humble pie, announcing that Marsh will "suspend [PSAs]". Marsh Inc CEO Ray J Groves is replaced by Michael G Cherkasky.

The Hartford releases a statement in which it acknowledges the Spitzer probe, adding that it has "operated with the highest standards of integrity and ethics".

Benfield and JLT distance themselves from the growing uproar by releasing statements noting they have either stopped using or have never used PSAs. Both firms, however, see their share prices fall as investors panic.

A fresh development comes with news that Patricia Abrams, an assistant vice-president at ACE, will join the two AIG employees in pleading guilty to criminal charges.

Despite the best efforts of brokers and insurers to spin themselves out of trouble, stocks continue to nosedive, with Marsh losing more than $9bn over the course of Thursday and Friday.

The first of what will become a stream of class action lawsuits is filed against MMC, alleging fraud and the prospect of "enormous fines and penalties totalling potentially hundreds of millions of dollars".

Sunday 17 October:
Frantic behind-the-scenes activity continues. ACE issues a statement saying it will halt the use of PSAs. Hints of panic as Marsh cancels a Monday conference call where it would reveal its reliance on PSAs.

Monday 18 October:
California's John Garamendi is the first of a number of US state insurance commissioners to announce plans to introduce full PSA disclosure regulations for the industry. He adds that he will file separate lawsuits against companies in the sector for their use of PSAs.

Hank Greenberg warns against "corporate McCarthyism" at a press conference.

Marsh finally releases estimates of its PSA earnings - 7 percent of total revenue, or $854mn, together with $420mn in 2003. Commentators note the figure represents 12 percent of MMC's risk and insurance services revenues.

Stocks continue to slide, Marsh losing a further 12 percent to close at $25.57.

Tuesday 19 October:
Connecticut attorney general Richard Blumenthal issues subpoenas as he launches a separate investigation into insurance bid-rigging and fraud in the state. MMC’s shares fall yet further to around $24. More class actions announced. Spitzer reveals that he is widening the scope of his investigations and his office reveals it has issued more subpoenas against various insurers and regional US brokers.

Wednesday 20 October:
MMC said it is being forced to renegotiate the terms of $2.8bn of bank financing because of clauses in its lending agreements relating to adverse litigation.

Separately, the broker reveals it has suspended four employees including the former head of marketing for Marsh Global Broking, Bill Gilman. Speculation grows that MMC chief executive Jeffrey Greenberg is set to resign.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree