Ace Up The Sleeve
Dirty Dealing By The Insurance Companies
Sightings from The Catbird Seat
~ o ~
May 3, 2010
Ace believes forecast
already covers oil disaster
By The Associated Press
Property and casualty insurer Ace Ltd. said Monday it does not expect to change its accident loss estimates for this year due to the Gulf Coast oil spill off the Louisiana coast.
Ace said it "believes this event is contained within the current accident year loss ratios for 2010 as contemplated in its annual guidance." Ace cautioned that there is still some uncertainty, since the disaster is still playing out.
In January, Ace forecast full-year operating income of $6.25 to $6.75 per share, including estimated catastrophe after-tax losses of $317 million.
The Deepwater Horizon oil spill was caused by an April 20 oil rig explosion and sinking of an offshore platform that killed 11 people. An oil slick is lapping at southeastern Louisiana's ecologically sensitive coast. On Monday, oil producer BP PLC said it will pay for all the cleanup costs from the spill.
Ace is a unit of ACE Group, based in Zurich, Switzerland. Shares of Ace fell 20 cents to $52.99 in morning trading.
Last week, reinsurer PartnerRe Ltd. estimated that pretax insured losses from the explosion have the potential to exceed $1 billion. The Bermuda-based company forecast that its second-quarter results would include explosion-related claims of $60 million to $70 million.
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THE CATBIRD’S NEW NEST
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SWITZERLAND: THE BEAUTIFUL COUNTRY WHERE THE U.S. TAXPAYER BAILOUT DOLLARS FLOW...
May 20, 2009
ACE Limited raises quarterly
dividend by 7 percent
By The Associated Press
Property and casualty insurance company ACE Limited said Wednesday shareholders at the company's annual meeting in Switzerland have approved an increase in its quarterly dividend by 7 percent to 31 cents.
The annual dividend works out to $1.24 and is payable in four installments - one per quarter. To make the dollar value of the company's dividend distribution more consistent, the company will adjust the amount up or down to equal 31 cents near the time of payment.
The company's headquarters are in Switzerland.
Shares rose 11 cents to $43.54 in afternoon trading.
May 19, 2009
RE: CV05-00030 - U.S. Dept of Justice, David C. Farmer, Trustee vs. Bobby N. Harmon - New Exhibit: "Marsh & McLennan & AON have participated for decades in fraud and bid rigging..."
Bobby N. Harmon, CPCU
"President Barack Obama" <firstname.lastname@example.org>, "U.S. Attorney General Eric Holder" <AskDOJ@usdoj.gov>, "David Farmer" <email@example.com>, "Steven Guttman" <firstname.lastname@example.org>, "Carol K. Muranaka" <email@example.com>, "Judge David A. Ezra" <firstname.lastname@example.org>, "Judge Kevin S.C. Chang" <email@example.com>, "Judge Barry M. Kurren" <firstname.lastname@example.org>, "Securities & Exchange Commission Enforcement Division" <email@example.com>, "U.S. Treasury Dept. Office of Inspector General" <firstname.lastname@example.org>, "Office of Inspector General US Dept of Justice" <email@example.com>, "Executive Office for U.S. Trustees" <firstname.lastname@example.org>, "Judge Robert Faris" <email@example.com>, "SEC Office of The Inspector General" <firstname.lastname@example.org>, "Hawaii State Bar Association" <email@example.com>, "Charles Goodwin" <HONOLULU@FBI.GOV>, "Hugh Jones" <firstname.lastname@example.org>, "Insurance Division Fraud Branch" <email@example.com>, "Lawrence Reifurth" <firstname.lastname@example.org>, "Linda Lingle" <email@example.com>, "Jo Ann Uchida" <firstname.lastname@example.org>
"ACLU Hawaii" <email@example.com>, "All Representatives" <reps@Capitol.hawaii.gov>, "All Senators" <sens@Capitol.hawaii.gov>, "Andrew Walden" <firstname.lastname@example.org>, "Aon Insurance Managers" <email@example.com>, "Arthur Rath" <firstname.lastname@example.org>, "Benjamin Kudo" <email@example.com>, "Bradley Tamm" <firstname.lastname@example.org>, "Carl Morton" <email@example.com>, "Charles Hurd" <firstname.lastname@example.org>, "David Shapiro" <email@example.com>, "Dee Jay Mailer" <firstname.lastname@example.org>, "J C Shannon" <Hapa1234@aol.com>, "James B Nicholson" <email@example.com>, "James B. Farris" <Farrisj@adr.org>, "James Cribley" <firstname.lastname@example.org>, "James Wriston" <email@example.com>, "Jeffrey Watanabe" <firstname.lastname@example.org>, "Jim Dooley" <email@example.com>, "Joe Moore" <firstname.lastname@example.org>, "John D. Finnegan" <email@example.com>, "John Goemans" <firstname.lastname@example.org>, "Judson Witham" <email@example.com>, "Ken Conklin" <firstname.lastname@example.org>, "Lyn Flanigan Anzai" <email@example.com>, "Margery Bronster" <firstname.lastname@example.org>, "Marsh Affinity Group" <email@example.com>, "Michael N. Tanoue" <firstname.lastname@example.org>, "Michelle Tucker" <email@example.com>, "Nathan Aipa" <firstname.lastname@example.org>, "Paul Alston" <email@example.com>, "Randall Roth" <firstname.lastname@example.org>, "Rick Daysog" <email@example.com>, "Robert Bruce Graham" <firstname.lastname@example.org>, "Robin Campaniano" <email@example.com>, "Samuel P. King" <firstname.lastname@example.org>, "William K Slate" <Websitemail@adr.org>, "Jim Terrack" <email@example.com>, "Don Michak" <firstname.lastname@example.org>, "Rocco Sansone" <email@example.com>, "Ted Pettit" <firstname.lastname@example.org>, "Laura Thielen" <email@example.com>, "Vaughn & Lynda Robinson" <firstname.lastname@example.org>, "Rebecca Christie" <email@example.com>, "Catbird" <firstname.lastname@example.org>, "James Duca" <email@example.com>, "Ian Lind" <firstname.lastname@example.org>, "Roy F. Hughes" <email@example.com>, "Malia Zimmerman" <Malia@hawaiireporter.com>, "Jack Cashill" <JCashill@aol.com>, "Marshall Chriswell" <firstname.lastname@example.org>, "Laser Haas" <email@example.com>, "Lucy Komisar" <firstname.lastname@example.org>, "Democrats.com" <email@example.com>, "Debra Sweet" <firstname.lastname@example.org>, "Jane Kirtley" <email@example.com>, "V K Durham" <firstname.lastname@example.org>, "John Jubinsky" <Jube@tghawaii.com>, "Yamil Berard" <email@example.com>, "Global Exchange" <firstname.lastname@example.org>, "William K. Black" <email@example.com>, "Carole Williams" <firstname.lastname@example.org>, "Susan Tius" <STius@rmhawaii.com>, "Human Rights in China" <email@example.com>, "Michelle Malkin" <firstname.lastname@example.org>, "Heather Vsn Doren" <email@example.com>, "Phil J. Berg" <firstname.lastname@example.org>, "Amnesty International U.S.A." <email@example.com>, "Michael Moore" <firstname.lastname@example.org>, "California Anti-SLAPP Project" <email@example.com>, "Thomas Fitton" <firstname.lastname@example.org>, "Ron Branson" <VictoryUSA@jail4judges.org>
California Insurance Fraud Attorneys
The Law Offices of Nadrich & Cohen, LLP, a successful and aggressive California and nationwide law firm is seeking appropriate companies and/or individuals who have utilized Marsh & McLennan or AON as their insurance brokers for placement of insurance policies. Marsh & McLennan & AON have participated for decades in fraud and bid rigging by placing its clients' insurance with certain carriers solely to obtain additional commissions undisclosed to their clients. What Marsh & McLennan and AON clients did not know was that a secret commission was paid to Marsh & McLennan or AON for their insurance placement in addition to the disclosed brokerage fee.
Unlike markets for securities, commodities, and other financial products, commercial insurance is bought and sold in private. Insurance brokers such as Marsh & McLennan & AON are no more than middle-men who match up buyers and sellers in return for a cut of the transaction. Marsh & McLennan is the leader in selling property casualty coverage to businesses around the world. Industry wide, premiums paid last year just in the United States totaled $176 billion.
The bid-rigging scheme worked as follows: Marsh & McLennan or AON steered business toward certain insurance companies at designated prices. They then would solicit additional artificial higher fake bids from other companies to give the appearance to the client of real bidding. Marsh & McLennan did this even as it claimed in public statements that its "guiding principles" was to consider its clients' best interests "first and foremost."
By this activity, Marsh clearly did not consider its client's best interest "first and foremost."
The kick-back scheme worked as follows: Insurance brokers such as Marsh & McLennan & AON received directly from insurance companies additional secret commissions over and above their ordinary commissions. These commissions were paid for steering volume business to a particular company's way. Insurance companies called these fees "contingent commissions" or "market service agreements". The client never knew.
Critics call these commissions for what they are:
These improper fee arrangements date back for decades. Many insurance industry executives say it was known to select insiders that these arrangements were in place in order to boost insurance brokers' revenue.
However, these payments were never disclosed to the insured/client to which the brokers owed a fiduciary duty to. Critics and New York Attorney General Eliot Spitzer maintain these practices are poorly disclosed and are a conflict of interest for brokers ostensibly acting on a policy holder's behalf.
Attorney General Spitzer has obtained documentation of employees of AIG who supplied fake quotes to provide the illusion of competitive bidding for Marsh & McLennan clients knowing; at all times, that another insurance company would nonetheless win the bid. Attorney General Spitzer's investigation includes AIG Insurance Company, Bermuda based Ace Insurance Company, Hartford Insurance Company and others.
Marsh & McLennan received $800 million in revenue from contingent commissions in 2003 - the equivalent of more than half of its $1.5 billion income.
Marsh & McLennan cheated its own corporate clients by rigging bids and wrongfully collecting huge fees from insurance companys for throwing business their way. They purposefully did not disclose these fees to their clients. If this occurred to you and/or your company, please immediately contact our experienced insurance class action law firm as we are vigorously investigating a class action against Marsh & McLennan and AON.
The effect of contingent commissions are that they wrongfully reward brokers for hitting profit or volume targets and thus provide brokers a financial incentive to choose one company over another, even if the other company offered a better price or better terms.
Nadrich & Cohen, LLP and co-counsel are actively interviewing Marsh and AON's clients for purposes of bringing a civil lawsuit against Marsh & McLennan and/or AON. The lawsuit's basis will be that the incentive fees or contingent commissions or placement service agreements paid in exchange for sending more business to an insurance company's way were in reality, wrongful commissions which defrauded the policy holder by not intentionally providing the policy holder with the best deal possible. The cost of insurance was also artificially raised, forcing buyers to pay higher premiums, thus further cheating buyers.
The lawsuit will seek to have contingent commissions declared illegal, recover damages for Marsh customers and forces Marsh & McLennan to give up illegal profits.
Nadrich & Cohen, LLP and its co-counsel are pursuing a separate class action to demand reimbursement to Marsh & McLennan stock investors because Marsh's wrongful actions devalued the price of the stock.
The Law Offices of Nadrich & Cohen, LLP is seeking clients of Marsh & McLennan who were victims of the undisclosed contingent commission bid-rigging and other anti-competitive activities. We strongly believe Marsh's actions harmed its clients by keeping their insurance prices artificially inflated.
Our law firm is an experienced and aggressive insurance fraud law firm actively seeking policy holders who purchased insurance through Marsh & McLennan or AON, Inc.
Companies that we know who are involved in the bid-rigging process included AIG or American International Group, Hartford Fire Insurance Company, Chubb Indemnity Corp., and other insurances.
If you or your business purchased insurance through Marsh & McLennan of AON, please contact us immediately. Nadrich & Cohen, LLP works on a contingent fee basis only. We are paid a fee only if we obtain a recovery. If we do not obtain a recovery our clients owe us nothing for our services.
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GOOGLING FOR ACE
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May 19, 2009
Dear President Obama, Attorney General Holder, Trustee Farmer, Mr. Guttman, and All Concerned:
Due to the discovery of new facts, I am adding the subject Exhibit as it relates to this lawsuit which violates my Constitutional Rights of Free Speech and a Fair Trial, and Federal and Hawaii Anti-SLAPP statutes.
You will find related information on-line at:
In view of all the facts that I have presented in this and hundreds of other Exhibits and witness descriptions, it is beyond comprehension that former Attorney General Alberto Gonzales; Assistant U.S. Trustees Curtis Ching, Gayle Lau and Carol Muranaka; Judges Eden Hifo (fka Bambi Weil), Kevin Chang, David Ezra, Barry Kurren, Lloyd King and Robert Faris; Trustees Mary Lou Woo, James Nicholson and David C. Farmer; American Arbitration Association arbitrator Judith Neustadter Fuqua, attorney Steven Guttman, and others, can still claim that they were non-conflicted, fair, impartial, and unbiased in this case.
Mr. Farmer and Mr. Guttman, in spite of all this factual evidence (not just "political opinions" or "conspiracy theories" as you have previously alleged), I am again asking that we attempt to reach a global settlement of this matter through confidential negotiation or mediation rather than continuing these costly and seemingly-endless court proceedings.
However, if you, and your insurance carriers, are still not willing to attempt to negotiate or mediate a settlement, then I ask that you perform your mandated review of this new Exhibit in accordance with Judge Ezra's Order, and advise me if you find it contains any so-called "protected subject matter", and whether or not you intend to OBJECT to my filing a Motion to reopen this case.
I respectfully request your immediate reply. If I do not receive a response from you or your insurance carrier within 15 days, I will assume that you have found no "PSM" in these updated pages, and that you will NOT file any objections to my Motion.
Very truly yours,
Bobby N. Harmon, CPCU, ARM
July 9, 2008
Ahead of the Bell:
Citi downgrades ACE
Forbes, Associated Press
NEW YORK - A Citi Investment Research analyst downgraded shares of ACE Ltd. Wednesday, saying the insurer's stock may fall after the company completes a move to Switzerland and is removed from major U.S. indexes.
The Cayman Islands-based property and casualty insurance and reinsurance company plans to reincorporate in Switzerland. ACE Shareholders are scheduled to vote on the move Thursday.
Analyst Joshua Shanker said that the company will probably be removed from the Russell 1000 index, and perhaps the Standard & Poor's 500, after it moves.
Shanker estimated that about 45 million shares of ACE are held by index funds, which would sell the stock if ACE is taken off those lists. He downgraded the stock to "Hold" from "Buy," and cut his price target to $58 per share from $73.
ACE has a total of 332.9 million outstanding shares, and over the last 100 days, an average of 2.3 million ACE shares have traded per day. Shanker said the stock may be volatile after the move is official.
He added that the Russell index is likely to act quickly if it chooses to delist ACE shares, while the S&P may take more time. Representatives from Russell Investments and Standard & Poor's did not immediately return calls seeking comment.
ACE shares finished at $55.64 Tuesday.
November 12, 2007
Phyllis Berman, Forbes
Robert Clements became a legend making big money in Bermuda insurance for Marsh & McLennan. Now at age 75 he's finally amassed some nice coin for himself--partly at his former employer's expense.
During a 35-year career at Marsh & McLennan, the giant insurance services firm, Robert Clements revolutionized the Bermuda insurance industry. Two insurers he set up for Marsh, ACE Ltd. and XL Capital Ltd., later went public and now have a combined market cap of $34 billion. Clements was also key in creating another successful insurer, Mid Ocean Re. One history of Bermuda insurance calls him a "founding father."
Clements was a hired hand. He got no founder shares in ACE or XL. In 1986, the year after he pulled off his reinsurance innovations, his bonus was bumped up only $25,000. A decade later he left his job running Marsh's investment arm and a year after that left the board of directors. Although he would remain a few more years as a consultant, at age 65 he essentially was out on his own.
Clements started doing insurance deals for himself. In his seventh and eighth decades Clements launched three companies. One, Arch Capital Group, is now about to crack the world's thousand biggest by market cap. This time around his ideas made him and his family a pile that came to several hundred million dollars before substantial charitable donations.
Doing well is the best revenge. The executive who replaced him at Marsh in 1996, Jeffrey Greenberg, later became chief executive--but lost that job in 2004 when then New York Attorney General Eliot Spitzer alleged fraudulent selling practices. Marsh's shares are trading at barely half of what they were five years ago, and its short interest has risen sharply, meaning a lot of people are betting on a further fall. Of Marsh and its continuing troubles, Clements, a quiet, handsome man with piercing blue eyes who dresses casually, says cagily, "Of course, I wish them the best. But I'm hardly surprised, given the problems they have been forced to cope with."
A Chicago native, Clements went to Dartmouth. "I was never particularly ambitious," says the 75-year-old. "I was a mediocre student. When it came to my career, I was most concerned about vacations and retirement than how I was going to make a living." Clements recalls one professor telling him his real major was "poker, beer and class-cutting." Clements joined Marsh in 1960, working as a casualty broker in Canada; his dad, also a Dartmouth grad, was a manager in the firm's Chicago office.
Higher-ups spotted his talent. Clements rose through the ranks and moved to the New York corporate offices to become head of national casualty in 1975. In 1991 he became the parent company's vice chairman, in recognition of his work in the 1980s dramatically expanding the insurance market in Bermuda.
In the years after World War II the self-governing British colony had risen to prominence as a center for captive insurers. These are insurance firms created and wholly owned by a company (often U.S.) to self-insure only that company. Back home the parent company gets a tax deduction for premiums that really are transfers of assets held in reserve for future payouts. In Bermuda the reserves compound in a low-tax regime. Part of Bermuda's lure was avoidance of U.S. state-by-state bureaucracy and quick regulatory approvals. Also, Hamilton, Bermuda is just a three-hour flight from New York.
Clements' opening came in the mid-1980s when a crisis hit the market for excess (or "surplus") insurance, most notably policies underwritten by Lloyd's of London. This coverage kicks in after an underlying "primary" policy pays to its coverage limit. A string of huge claims--asbestos illnesses, hurricanes, the Bhopal gas disaster and other environmental ills, augmented by big jury awards--threatened to bankrupt some insurers. In some cases the excess insurer was being asked to pay for misdeeds that occurred before the primary insurance policy was even in effect.
Doodling on a notepad during a Paris-New York flight in 1984, Clements came up with the idea of creating entirely new terms that came to be known as "occurrence reported" coverage. Customers wanting excess insurance would have to purchase or self-insure large amounts of underlying primary insurance--in some cases covering the first $50 million of claims. New excess policies would cover old claims, say for groundwater contamination, if filed during the new policy period--but only to the limits of the excess coverage. Limits would be limits.
However, Clements' plan, and a similar plan for directors and officers coverage, attracted little interest from traditional insurers or, in the beginning, even from Marsh, his own employer. Marsh said he could set up the operations as long as it didn't have to put in any capital. It would, however, like to get some warrants--long-term options on shares of the new company.
In 1985 Clements persuaded 34 large U.S. companies--such as U.S. Steel, GE, Merck, Dow and Emerson Electric--to invest a total of $285 million to get ACE off the ground. Another $410 million went into XL Capital a few months later. Among the startups' positives: efficient staffing levels, pricing freedom since few competitors offered the product, no lingering claims--and new lucrative high-end products for Marsh's army of brokers.
ACE went public in 1993. Its market cap today is 69 times the money its industrial backers put in. The initial stakes in XL Capital, which went public in 1991, have grown 33-fold. "The biggest thing that has happened in the insurance business since the Chicago fire," one trade pub gushed about Clements' successes. Marsh likely collected several billion dollars from those warrants.
Clements' third company: Mid Ocean Re, a Bermuda reinsurer aimed at catastrophes like hurricanes or collapsed buildings as opposed to longer-gestation situations like asbestos contamination. This time Marsh took a 10% stake for $36 million in the 1992 founding. Clements got a sliver of equity. Marsh's stake paid off nicely when Mid Ocean was sold a few years later to, as it happened, XL Capital.
One night while at dinner with his eldest son, John, a West Coast investment banker, Robert Clements griped that his ideas were being copycatted during the long stretches it took to raise capital for a new company. "The next time you have a great idea, Dad," John said, "you should raise a fund." Replied Clements, who had spent much of his working life putting together deals for his employer, "What's a fund?"
In 1995 Clements started Arch Capital, another reinsurer with money from Marsh, other investors and himself. After he left Marsh, Marsh sold its interest. Clements then sold off Arch's book of existing business, raised $750 million from outside investors and in 2000 relaunched Arch as a public company, getting 4% of the stock as a fee. It was a good time to start a new reinsurance company, since the established ones were so fearful of potential big claims (like the resurgence of asbestos claims) that they refused to offer policies even to their best risks. In 2006 Arch had $3 billion in premiums.
Enough reinsurance. Why not move in on the primary market? Clements raised $1 billion and this year started Ironshore Ltd. The company, which has only 40 employees and works out of a small office in Hamilton, expects to offer policies insuring against storm and earthquake damage in several dozen countries, including the U.S.
In 2004 Clements, his son and two ex-Marsh presidents raised $320 million to launch Integro Corp., which brokers the sale of large, complex policies for corporations. So far, however, Integro has yet to prove itself, amid industry gossip that the expensive force of brokers it recruited--many from scandal-plagued Marsh--has yet to earn its keep. Clements says Integro is growing rapidly and wasn't supposed to make money in its first three years.
On Sept. 11, 2001 Clements, a kayaker, stroked into Long Island Sound to watch the huge black stream of smoke rising 35 miles to the southwest at the World Trade Center. (XL Capital and ACE were among the companies that had exposure to the resulting multibillion-dollar billion casualty settlement.)
The tragic event underscored the peculiar nature of insurance. "What we do is a kind of a craft," he muses. "Underwriting complex, enormous risks for the corporate world is something like a being high-wire walker."
April 20, 2005
Insurance Cos. Eyed By Global Watchdogs
The United States promoted the formation of the Financial Action Task Force during the 1989 G-7 Summit, motivated by the global range of the money-laundering problem and the competitive disadvantage its own anti-money-laundering regime imposed on its financial sector.
The FATF has helped develop a coordinated international response to money-laundering, which is defined as taking illicit proceeds and moving them into the legitimate economy. The FATF initially put forth 40 recommendations intended to help national governments implement effective anti-money-laundering regimes; these were first revised in 1996 and then further updated in 2003....
The FATF promotes policies at the national and international levels to combat money-laundering and terrorist-financing....
In October 2001 the FATF expanded its remit beyond its original mandate of traditional money-laundering to cover terrorist finance, which has been describes as “reverse money-laundering,” in that it takes legitimate sources of funds and turns them toward illicit ends....
The FATF currently consists of 33 full member, including 31 countries and territories, and two regional organisations. Members are mainly drawn from advanced countries but also include the European Commission and the Gulf Cooperation Council (GCC) - Dahrain, Kuwait, Omar, Qatar, Saudi Arabia and United Arab Emirates....
The FATF has become increasingly concerned that some money-laundering activities are migrating from banks to other parts of the formal financial sector. Therefore, the FATF is currently working on a report, scheduled to appear in June, which analyzes the role of the insurance sector in money-laundering. This exercise could lead to additional recommendations concerning the “best practices” to discourage money-laundering within this sector.
However, any additional scrutiny of problematic practices in the insurance sector comes at a difficult time as, in the United States, insurance firms such as Marsh & McLennan (nyse: MMC), Ace (nyse: ACE), AIG (nyse: AIG) and Berkshire Hathaway’s (nyse: BRKA) General RE unit are facing significant scrutiny by various state and federal regulators for various transgressions, including fraud, bid-rigging and improper transactions....
The FATF remains the principal international policy-making body dedicated to coordinating efforts to counter money-laundering and shut down terrorist finance. ... Later this year, the FATF will probable extend its sectoral reach by making new recommendations covering the insurance sector....
$ $ $
March 16, 2005
Ace Ltd. Slammed
by 43 Subpoenas
Associated Press, Forbes
Ace Ltd., the property and casualty insurer recently implicated in a probe of insurance industry practices, on Wednesday said it received 43 subpoenas and legal inquiries regarding its involvement in bid rigging and price fixing.
The Bermuda-based company said in a filing with the Securities and Exchange Commission it received subpoenas and other inquiries from 9 state attorneys general and one from Washington, D.C. Further, insurance commissioners and other regulators from 10 states also launched some form of legal action.
In addition, Ace said the SEC and New York Attorney General Eliot Spitzer have issued subpoenas for information relating to “non-traditional or loss mitigating insurance products.” The insurer said it will continue to cooperate with such requests, and is also conducting its own internal investigation.
Ace was one of four insurers implicated, but not formally charged, in an investigation of brokerage Marsh & McLennan Co. launched in October by Spitzer. Spitzer filed a lawsuit against the nation’s largest insurance broker accusing it of bid rigging, price fixing, and demanding incentive fees from insurance companies in exchange for sending more business their way.
The internal investigation launched by Ace has resulted in the termination of two employees, on of whom already pleaded guilty to a misdemeanor. Three other employees were suspended as part of the probe, which is being led by former U.S. Attorney Mary Jo White.
ACE said Chief Executive Evan Greenberg received a $1 million salary in 2004, with a $2.7 million bonus. He is scheduled to get a raise of $25,000 this year, according to the SEC filing.
Greenberg is the son of Maurice Greenberg, who stepped down this week as CEO of American International Group Inc. Greenberg’s older brother, Jeffrey, was CEO of Marsh & McLennan before being ousted in the wake of Spitzer’s investigation.
The insurer said it has received legal inquiries from attorneys general in Connecticut, Florida, Massachusetts, Minnesota, New York, Ohio, Pennsylvania, Texas and West Virginia.
Insurance commissioners and other regulators from California, Florida, Illinois, Maryland, Michigan, Minnesota, New York, North Carolina, Pennsylvania and Texas have also contacted Ace....
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June 2, 1998
Vesta shares take a beating
CNN Financial News
Shares of Vesta Insurance Group Inc. headed into a freefall Tuesday after trading in the company's stock resumed, plummeting more than 43% on news of reported accounting problems and the resignation of Vesta's top executive.
Trading in Vesta shares was halted yesterday on the Big Board after the company confirmed it was conducting an internal probe into accounting irregularities that could affect previously reported earnings for the past six months by up to $15.25 million.
Adding to its woes, the company said its board had accepted the resignation of President and CEO Robert Huffman. The news sent Vesta stock down sharply Tuesday. It also caused several rating organizations to place Vesta under closer scrutiny. A.M. Best Co., an agency that rates the financial health of insurance companies, placed Vesta's "A" rating "under review" with negative implications. (CNNfn)
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June 2, 1998
Hawaii insurer’s parent
pounded on Wall St.
Vesta Group, which owns Hawaiian Insurance & Guaranty,
reports 'accounting irregularities'
NEW YORK -- Vesta Insurance Group Inc., which owns a major Hawaii insurer, saw it shares plunge 47 percent today, a day after the parent company said "possible accounting irregularities" will force it to restate earnings for the last two quarters.
Vesta's president and chief executive officer, Robert Y. Huffman, also has resigned.
However, the company's Hawaii operation, Hawaiian Insurance & Guaranty Co., said it has not been affected by the changes at the Birmingham, Ala.-based parent.
"I expect no impact whatsoever on HIG's operations," said Pete Grimes, HIG general manager. HIG had been declared insolvent in 1992 after Hurricane Iniki losses. It was later rehabilitated by the state insurance division and was sold to Vesta in 1995 for $35 million.
Vesta's stock closed today at $27.75 on the New York Stock Exchange, down $24.94 from its Friday close of $52.69. The stock did not open for trading yesterday....
Vesta is the holding company for the property and casualty insurance subsidiaries of Torchmark Corp., also based in Birmingham.
Torchmark, Vesta's largest shareholder with 28 percent of the company's outstanding shares as of Dec. 31, declined to comment.
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July 18, 2001
VESTA INSURANCE GROUP INC (VTA) - Form 8-K
Item 2. Acquisition and Disposition of Assets.
On July 10, 2001, Vesta Fire Insurance Corporation, an Illinois corporation ("Vesta Fire") and a wholly owned subsidiary of Vesta Insurance Group, Inc. completed its acquisition of 100% of the outstanding shares of capital stock of Florida Select Insurance Holdings, Inc. for approximately $64.5 million in cash. Vesta Fire acquired the stock of FSIH from FSIH's four stockholders - Centre Solutions (Bermuda) Limited, Mynd Corporation, Orienta Point Group, L.L.C., and Kamehameha Schools Bernice Pauahi Bishop Estate.
The purchase price resulted from arms' length negotiation which took into consideration various factors, including Florida Select's book value at December 31, 2000 of approximately $31.5 million and net income for the twelve months ended December 31, 2001 of approximately $6.6 million.
Vesta funded the acquisition with the proceeds of its recently completed supplemental stock offering, which raised net proceeds of approximately $64.7 million before offering expenses.
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March 31, 2001 - December 31, 2001
Vesta Insurance Group, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands except per share amounts)
Subsequent to the filing of our quarterly report on Form 10-Q for the period ended March 31, 1998 with the U.S. Securities and Exchange Commission (“SEC” or “Commission”), we commenced an internal investigation to determine the exact scope and amount of certain reductions of reserves and overstatement of premium income in our reinsurance assumed business that had been recorded in the fourth quarter of 1997 and the first quarter of 1998. This investigation concluded that inappropriate amounts had, in fact, been recorded and we determined that we should restate our previously issued 1997 financial statements and first quarter 1998 Form 10-Q. Additionally, during our internal investigation we were advised by our then outside auditors that there was an error in the accounting methodology used to recognize earned premium income in our reinsurance business. We had historically reported certain assumed reinsurance premiums as earned in the year in which the related reinsurance contracts were entered even though the terms of those contracts frequently bridged two years. We determined that reinsurance premiums should be recognized as earned over the contract period and corrected the error in our accounting methodology by restating previously issued financial statements. On June 1, 1998 and June 29, 1998, we issued press releases, which were filed with the Commission, regarding the matters addressed in this section.
We restated our previously issued financial statements for 1995, 1996, and 1997 and our first quarter 1998 Form 10-Q for the above items by issuance of a current report on Form 8-K dated August 19, 1998. These restatements resulted in a cumulative decrease to stockholders’ equity of approximately $75.2 million through March 31, 1998. Commencing in June 1998, we and several of our current and former officers and directors were named as defendants in several purported class action lawsuits filed in the United States District Court for the Northern District of Alabama. Several of our officers and directors also have been named in a derivative action lawsuit in the Circuit Court of Jefferson County, Alabama, in which Vesta is a nominal defendant. In addition, we received various inquiries and requests for information from various state departments of insurance and other regulatory authorities, including a subpoena issued to Vesta on August 24, 1998 by the 34 Commission as part of a formal, non-public order of investigation. We fully responded to such requests in 1998, and no further requests for information from Vesta have been made by the Commission.
In March 1999, the actions filed in the United States District Court for the Northern District of Alabama were consolidated into a single action in that district and certified as a class action. Torchmark Corporation and KPMG Peat Marwick LLP, our outside auditor at the time, were added as additional defendants in the consolidated class action. The consolidated amended complaint alleges violations of certain federal securities laws and seeks unspecified but potentially substantial damages. The court has denied all motions to dismiss and the class action is presently in discovery, with a trial date set for November 5, 2001. We are vigorously defending this litigation but there is no assurance of its outcome. The parties have conducted settlement discussions, but have not been successful in reaching any resolution. The derivative case has been stayed and placed on the administrative docket.
We have several layers of directors’ and officers’ liability insurance coverage (“D&O insurance”), the terms of which may cover all or a portion of the damages or settlement costs of the class action. These policies provide up to $100 million in D&O insurance to cover damages or settlement costs and an additional policy provides another layer of $10 million D&O insurance to cover any damages awarded by a court in these actions. Cincinnati Insurance Company (“Cincinnati”) issued the primary policy that provides the first $25 million of D&O insurance.
Federal Insurance Company (The Chubb Group of Insurance Companies) issued an excess D&O insurance policy which provides coverage for the second $25 million in losses, if necessary. The balance of the coverage is provided by a group of insurers and was purchased after the class actions comprising the consolidated class action were filed.
In September 1998, after these actions were filed, Cincinnati, which provides the primary insurance policy, filed a lawsuit in the United States District Court for the Northern District of Alabama seeking to rescind the policy and avoid the coverage. That action was dismissed for lack of subject matter jurisdiction, and we then filed an action against Cincinnati in the Circuit Court of Jefferson County, Alabama, to enforce the policy and to recover damages arising out of Cincinnati’s actions. Cincinnati filed an answer and counterclaim in that action, seeking to rescind the policy and avoid the coverage. This action is in the discovery stage and the outcome is uncertain. There is no assurance that the primary insurance coverage will ultimately be available for any damages or settlement costs incurred.
The outcome of this litigation may also materially affect the availability of the excess policy issued by The Chubb Group. The damages sought by stockholder plaintiffs in the consolidated class action, either at trial or through settlement, may be substantial. If the damages or settlement costs incurred in connection with the consolidated class action and derivative action are ultimately determined not to be covered by our D&O insurance policies for any reason, we may incur a significant and material loss which could have a material and adverse impact on our financial condition and results of operation....
Indemnification Agreements and Liability Insurance
Pursuant to Delaware law and our Bylaws, we are obligated to indemnify our current and former officers and directors for certain liabilities arising from their employment with or services to Vesta, provided that their conduct complied with certain requirements. Pursuant to these obligations, we have agreed to advance costs of defense and other expenses on behalf of certain current and former officers and directors, subject to an undertaking from such individuals to repay any amounts advanced in the event a court determines that they are not entitled to indemnification.
As discussed above, we corrected our accounting for assumed reinsurance business through restatement of our previously issued financial statements. Similar corrections were made on a statutory accounting basis by recording cumulative adjustments in Vesta Fire’s 1997 statutory financial statements....
NRMA Insurance, Ltd. (“NRMA”), one of the participants in the 20% whole account quota share treaty, filed a lawsuit in the United States District Court for the Northern District of Alabama contesting our billings. NRMA sought rescission of the treaty and a temporary restraining order preventing us from drawing down approximately $34.5 million of collateral. We filed a demand for arbitration as provided for in the treaty and also filed a motion to compel arbitration which was granted in the United States District Court action. Vesta has entered into a $25 million letter of credit in favor of NRMA to fund any amounts NRMA may recover as a result of the arbitration. We filed for arbitration against the other two participants in the treaty and all of these arbitrations are in their early stages. While management believes its interpretation of the treaty’s terms and computations based thereon are correct, these matters are in their early stages and their ultimate outcome cannot be determined at this time.
During 1999, F&G Re (on behalf of USF&G), filed for arbitration under two aggregate stop loss reinsurance treaties whereby F&G Re assumed certain risk from us. F&G Re is seeking to rescind the treaties and avoid its obligation. Under the terms of the two treaties, we believe we will be entitled to recoveries of approximately $28.2 million as losses mature from prior accident years. Vesta has recorded a reinsurance recoverable of approximately $28.2 million as of March 31, 2001 and December 31, 2000 related to these two treaties. This arbitration is in its early stage and the ultimate outcome cannot be determined at this time.
A dispute has also arisen with CIGNA Property and Casualty Insurance Company (“CIGNA”) (now ACE USA) under a personal lines insurance quota share reinsurance agreement, whereby we assumed certain risks from CIGNA. During September 2000, CIGNA filed for arbitration under the reinsurance agreement, seeking payment of the balances that CIGNA claims are due under the terms of the treaty. In addition, during the fourth quarter, the treaty was terminated on a cut-off basis. Vesta is seeking recoupment of all improper claims payments and excessive expense allocations and charges from CIGNA. This arbitration is in its early stages and the ultimate outcome cannot be determined at this time.
If the amounts recoverable under the relevant treaties are ultimately determined to be materially less than the amounts that we have reported as recoverable, we may incur a significant, material, and adverse impact on our financial condition and results of operations.
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August 21, 2000
Vesta Creates Office of the Chairman
Vesta Insurance Group, Inc. announced today that the company has created an Office of the Chairman and promoted William Perry Cronin to the position of Senior Vice President, Chief Financial Officer and Treasurer of Vesta Insurance Group.
Mr. Cronin was previously Senior Vice President, Controller and Treasurer of Vesta Insurance Group. The newly created Office of the Chairman will be charged with setting and executing the strategic direction of the Company and will include the Chairman, James E. Tait and the President, Norman W. Gayle, III.
"Perry's promotion is an acknowledgement of his instrumental role in the success of Vesta's turnaround," said Norman W. Gayle, President of Vesta Insurance Group....
Cronin has served Vesta Insurance Group in an executive capacity since January 1999, and has been responsible for all accounting and financial operations at the subsidiary level, as well as Securities and Exchange Commission reporting for Vesta Insurance Group.
Cronin moves into his new role with seventeen years of finance experience. Prior to joining Vesta, he worked at several accounting firms, including Ernst and Young L.L.P. and Coopers and Lybrand.
Hopson B. Nance joins Vesta Insurance Group as Vice President and Controller.
Nance previously worked for PricewaterhouseCoopers....
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October 22, 2002
CFO Resigns Over Alleged Conflict
by Stephen Taub, CFO.com
Vesta Insurance Group, Inc. said Monday Chief Financial Officer, W. Perry Cronin resigned, effective immediately.
Hopson B. Nance, vice president and controller, has been named Interim Chief Financial Officer. Nance, who had formerly worked at PricewaterhouseCoopers, joined Vesta in July 2000.
"These relationships do not impact the accuracy of our financial statements and we intend to certify our financial statements for the third quarter," said Norman W. Gayle III, President and CEO.
He added the company is looking to name a permanent CFO by the end of the year....
> > > FAST FORWARD > > >
January 8, 2005
ST. PAUL LINKED TO MARSH FRAUDS
By Diane Levick, The Hartford Courant
The St. Paul Cos. - now part of The St. Paul Travelers Cos. - was among the insurers that benefited from alleged bid-rigging by broker Marsh Inc., the New York attorney general’s office said.
A court document released Thursday on the guilty plea of a Marsh senior vice president draws St. Paul Travelers into the controversy, but does not make clear whether the insurer intentionally participated in any wrongdoing....
Robert Stearns, an executive in Marsh’s excess casualty business, pleaded guilty in a New York court Thursday to the felony of scheming to defraud in the first degree. It was the sixth guilty plea in a far-reaching probe of the insurance industry by New York Attorney General Eliot Spitzer.
Stearns asked various insurers to submit bids that were less favorable than others, so Marsh could steer business to maximize its profits and protect incumbent insurers on certain accounts that were up for renewal, the felony complaint says.
The sham bids were sometimes called “B Quotes” or simply “B”.
In one example in March 2003, Stearns asked a Marsh broker in an e-mail to get a B quote from insurer Zurich on an account that would be renewing insurance with St. Paul, the complaint says. Stearns suggested “325,000 should work” because St. Paul’s price was $270,000, the complaint says.
Later that day, Stearns repeated the request, and the next day, a Zurich underwriter provided a $360,000 quote to Marsh, the document says.
In another March 2003 example, Stearns was asked by another Marsh executive to get B quotes on an account that was up for renewal with American International Group. “Further e-mails reflect that Zurich, ACE, and St. Paul subsequently offered losing quotes on this account,” the complaint states.
The document does not say whether St. Paul knew its quote for the account would be used in bid-rigging.
However, a Marsh broker’s e-mail that was cited in the document strongly implies he considered the B quotes laughable, as the broker told an ACE underwriter: “need a B for [expletive] and giggles.”
The client renewed insurance with American International Group.
St. Paul Travelers was not named in Spitzer’s bid-rigging lawsuit against Marsh in October, though the suit implicated several insurers including The Hartford Financial Services Group Inc. without naming them defendants.
However, Spitzer’s office has subpoenaed information from St. Paul and dozens of other companies.
Meanwhile Friday, Spitzer said he expects the guilty pleas he has gotten so far will lead to more charges.
“We are laying the foundation with these criminal cases that permit us to make criminal cases and bring criminal actions against those more senior within the companies,” Spitzer said after a state assemble hearing in New York, according to Bloomberg News.
In addition to Stearns, guilty pleas have come from two executives at AIG, two from Zurich American Insurance Co. and one from ACE.
In another development, Marsh & McLennan Cos. Inc. said Friday it has named E. Scott Gilbert to the new post of senior vice president and chief compliance officer effective Jan. 24. He was chief compliance counsel for the General Electric Co.
For more, GO TO > > > Claims By Harmon; Claims By Harmon: The St. Paul Travelers
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White House Press Release
January 5, 2005
Legal Reform: The High Costs of Lawsuit Abuse
► President Bush on January 5, 2005, highlighted the need for common-sense medical liability reform to protect patients, to stop the sky-rocketing costs associated with frivolous lawsuits, to make health care more affordable and accessible for all Americans, and to keep necessary services in communities that need them most....
► The President also stressed the need for class action lawsuit reform and asbestos litigation reform, and he urged Congress to enact proposed reforms. Class action lawsuits are an important part of the U.S. legal system. However when the ability to bring a class action lawsuit is abused, it truly harms injured parties and undermines the American judicial system. The growing problem of asbestos litigation is similarly hurting workers, bankrupting businesses, and delaying relief for the truly sick claimants....
► Aiding Asbestos Victims with a Fair System and Long-Term Solution
Victims of asbestos-related diseases deserve a fair system and a long-term solution. The current system may leave little or no funds to pay current and future asbestos victims; is costly to administer (future transaction costs are estimated at between $145 and $210 billion); will impose large, indirect costs on the economy; and has driven exposed defendants, including small businesses, into bankruptcy. Asbestos, as the longest-running mass tort litigation in U.S. history, has led to the bankruptcies of at least 74 companies....
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One day later...
January 6, 2005
ACE UNVEILS ASBESTOS CHARGE, ‘05 FORECAST
By Alistair Barr, CBS Marketwatch
Ace Ltd., one of the largest U.S. property and casualty insurers, boosted its asbestos reserves and gave a 2005 forecast that disappointed some analysts.
The Bermuda-based firm said late Wednesday that it will take a $298 million, or $1.05 per share, after-tax charge in its fiscal fourth quarter to strengthen its asbestos, environmental and other runoff reserves....
“Ace’s news is bad, but not horrible,” Paul Newsome, an analyst at A.G. Edwards said in a note to clients.
After initially dipping, Ace shares climbed 54 cents, or 1.3 percent, to $42.73 in morning trading Thursday.
The asbestos charge was about $100 million higher than Newsome expected. However, the analyst said that the charge is manageable and means the firm will have made a profit in the fourth quarter of 2004.
Ace also announce that is has agreed to sell three asbestos-related units - Ace American Reinsurance Co., Brandywine Reinsurance Co. Ltd, and Brandywine Reinsurance Co., S.A.-N.V. - to international insurance firm Randall & Quiter Investment Holdings Ltd. The move will reduce the amount of capital the firm has to put aside to cover future liabilities....
Jay Gelb, an analyst at Prudential Equity Group, calculated that Ace’s new forecasts suggest 2005 earnings of $4.95 to $5.75 per share....
Head of U.S. unit replaced
Ace also said late Wednesday that Susan Rivera, chief executive of its U.S.-based property and casualty retail brokerage division Ace USA, resigned. Brian Dowd replaces her.
According to a Wall Street Journal report in October, Rivera and another Ace executive Geoffrey Gregory knew about potentially anti-competitive practices months before New York Attorney General Eliot Spitzer accused the firm and other insurers and brokers of bid-rigging.
“Ace cleaned the house,” Newsome said. “We consider the loss of Ms. Rivera a loss to Ace, as we believed her to be a very able executive.”
Topping off asbestos reserves...
Based on studies by the company, an independent actuary and the Pennsylvania Department of Insurance, Ace had been expected to unveil an after-tax charge of about $500 million to bolster its current $2.7 billion of asbestos reserves, Prudential Equity’s Gelb estimated Wednesday....
A.M. Best reckons U.S. property and casualty insurers had $14 billion worth of unfunded asbestos liabilities at the end of 2003. The insurance rating agency expects the industry to ultimately lose $65 billion from asbestos claims.
Ace inherited most of the asbestos liabilities from its 1999 acquisition of Cigna’s property and casualty business.
In a move approved by the Pennsylvania Insurance Commissioner in 1995, Cigna chopped its P&C operations into two companies: one that kept accepting new policies and another, Brandywine, which housed most of its asbestos liabilities and didn’t write new business.
Most of the cash and investments held by Brandywine to pay asbestos claims have been used up, according to A.G. Edward’s Newsome.
When Ace acquired the Cigna business, it bought $2.5 billion worth of reinsurance coverage from Berkshire Hathaway subsidiary National Indemnity.
That protection was exhausted when Ace took about $2 billion in asbestos charges in 2002.
Before Thursday, claims had eaten up more than half of a $800 million reinsurance contract between Brandywine and parent Ace USA - a requirement of regulators in Pennsylvania.
That left about $344 million of protection before Ace would have to decide whether to pump more money into Brandywine, something the firm’s management has repeatedly said it wouldn’t do, Newsome wrote in a note to clients Wednesday.
The charges announced late Wednesday meant Ace exceeded this internal reinsurance coverage and ended up having to pump $100 million of new capital into Brandywine, Newsome explained Thursday....
< < < FLASHBACK < < <
April 25, 2003
How big business turned the Texas House into a puppet show. And can we cut the strings?
Payoff is a Bitch
By Jessica Chapman and Dave Mann, The Texas Observer
During the lengthy House floor debate on the omnibus civil justice legislation last month, Democrats referred to the House gallery - where the three amigos of tort reform, Dick Weekley, Leo Linbeck, and Dick Trabulsi were perched (along with the Speaker’s wife) - as the “owner’s box.”
It struck many at the Capitol as an accurate assessment of who really ran the Texas House while it passed House Bill 4 and its companion constitutional amendment, House Bill 3. Together, the two bills will cap non-economic jury awards in medical malpractice suits at $250,000, pave the way for future caps, and impose a host of other restrictions on civil liability cases.
The folks in the owner’s box represent Texans for Lawsuit Reform (TLR) and its top donors. They helped engineer the Republican takeover of the House last fall that handed Rep. Tom Craddick (R-Midland) his long-sought speakership. In return, Craddick and the House leadership went to extraordinary lengths to pass the tort reformers’ dream leadership package almost untouched.
As the three founders of Texans for Lawsuit Reform watched from the gallery, Craddick overruled one point of order after another, and 88 Republicans robotically scuttled nearly 70 Democratic amendments in an impressive display of legislative force and heavy-handed politics. The true beneficiaries of all this legislative turmoil will be TLR and its supporters, not coincidentally, the very people who wrote the bill, and the heaviest hitters in some of the state’s most lawsuit-prone industries.
Beginning with the 1996 elections, the Houston-based TLR PAC spent millions in highly organized attempts to overthrow former Speaker Pete Laney (D-Hale Center) and install Craddick. In 2002, it finally succeeded, joining with Tom DeLay-spawned Texans for a Republican Majority and the Texas Association of Business to help elect 27 Republican freshmen....
Buying the Texas House didn’t come cheap, unless one factors in future business savings. According to campaign contribution records, TLR’s political action committee gave more than $1.8 million to candidates in 2002. Its top donors separately contributed several million more....
A number of major corporations as well stand to benefit directly from provisions of HB 4 and its constitutional amendment HJR 3. The most blatant example is the so-called “Dick Cheney” amendment, which would make it easier for companies to elude asbestos lawsuits.
The amendment, a collaboration between Rep. Will Harnett (R-Dallas) and Rep. Joe Nixon (R-Houston), seems drafted specifically for Cheney’s former employer, Houston-based Halliburton.
One of Halliburton’s main subsidiaries, Dresser Industries, has already paid millions in asbestos liability it absorbed from a company it bought in 1967. The Cheney amendment would limit successor liability so that the maximum Halliburton and Dresser would be forced the pay in asbestos claims would equal the value of the company Dresser bought back in 1967. Dresser has already paid that amount in settlements, effectively ending its asbestos liability.
Last November, Halliburton indicated it was ready to settle nearly 300,000 current and future asbestos suits for a payout of $4 billion. But a month later, Halliburton backed away from the settlement offer.
Plaintiffs’ attorneys believe the company is awaiting the outcome of tort reform at the Lege. If the Chaney amendment is enacted, Halliburton wouldn’t have to pay the $4 billion settlement, or any other asbestos damages, and victims would be flat out of luck.
Honeywell is another company with significant asbestos liability and likely to save billions from HB4. Many of these companies purchased smaller firms on the cheap, discounted because of liability concerns.
Now, if that liability is lifted, the buyers will reap a major windfall....
> > > FAST FORWARD > > >
January 21, 2005
Connecticut AG Sues Marsh, Ace Financial in
Broker Commission Case
Connecticut Attorney General Richard Blumenthal on Friday sued insurance broker Marsh & McLennan Inc., and insurance provider ACE Financial Solutions Inc., for a scheme in which ACE reportedly paid Marsh a secret $50,000 commission to steer an $80 million state contract to the company.
Blumenthal’s office is investigating whether ACE may have paid additional illegal commissions to Marsh in the deal.
Marsh reportedly never told the Department of Administrative Services (DAS), which paid the company $100,000 to act as its advisor on the contract, about the $50,000 or any additional payments. Marsh reportedly solicited and accepted the $50,000 commission, even though the DAS clearly expected the company to accept no additional fees.
It was also reported that Marsh failed to inform the DAS that ACE was in serious financial difficulty at the time it sought the contract.
The lawsuit is the first of a series of legal actions that Blumenthal expects to bring soon in his ongoing investigation into insurance industry abuses.
“As offensive as this specific scheme is the outrageously common pattern and practice of illegal commissions and kickbacks that it reflects,” Blumenthal said.
“This lawsuit - the first of a series anticipated against insurance abuses - shows particular arrogance and avarice in victimizing the state and its taxpayers. Whatever name they are called - bonuses, commissions, overrides - the effect of these concealed kickbacks is to steer contracts, corrupt competitive bidding, inflate costs and deceive customers. The resources raided by Marsh and ACE were a public trust to be used for compensating workers. Our investigation is active and ongoing, and additional legal action will be forthcoming shortly involving other companies and consumer victims.”
In April 2001, the DAS sought an insurance company to administer 678 workman’s compensation cases. The cases involved state workers with serious injuries, many of them requiring long-term care, and were therefore unusually expensive....
Two brokers, Marsh and Hagedorn & Company, responded to the state’s request for qualification (RFQ). As required by the RFQ, Marsh named its “preferred” companies, including ACE.
The DAS eventually selected both Marsh and Hagedorn. In its contract, Marsh agreed to limit its commission to a $100,000 fee from the state.
Despite that express limit, Marsh reportedly demanded that ACE pay Marsh a commission on the DAS contract if it wanted to continue receiving similar contracts. On Dec. 3, 2001, less than two weeks after the deal was finalized, a Marsh executive informed the company’s New York office that ACE had agreed to pay a $50,000 commission on the DAS contract. The two companies then reportedly signed a confidentiality agreement preventing ACE from revealing the terms of the deal.
In selecting ACE, Marsh also reportedly failed to inform the DAS of the company’s dire financial condition resulting from claims stemming from the Sept. 11 terrorist attacks.
The DAS awarded ACE the contract in November 2001, paying the firm $80 million to take over the portfolio of cases.
Blumenthal’s suit accuses Marsh of violating Connecticut consumer protection laws by accepting a commission other than the $100,000 paid by the state, falsely claiming that it considered only the state’s best financial interests in arranging the contract, and falsely claiming that it recommended ACE sole on ACE’s qualifications.
The attorney general’s action seeks actual and punitive damages, information allowing determination of how much Marsh was falsely paid and reimbursement for legal and investigative expenses.
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(Catbird Note: For an earlier case of alleged corruption, collusion, kick-backs, racketeering, bid rigging and price fixing involving Marsh & McLennan, ACE, The Chubb Group, and other birds of a feather, GO TO > > > Harmon’s Letter to the Hawaii Attorney General; Harmon’s Claim Letter to John Sinnott; Harmon’s Letter to the FBI; Harmon’s Letter to the IRS; Harmon’s Letters to Insurance Commissioners; RICO in Paradise; Claims By Harmon)
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February 23, 2005
Lawsuit Accuses Insurers of
Rigging Bids, Fixing Prices
Two small businesses allege that insurers paid
independent agents a second commission
By Rene Stutzman, Orlando Sentinel
SANFORD - Two small Seminole County businesses are suing some of the insurance industry’s most prominent players, including the Chubb Corp. and Prudential Financial Inc., accusing them of rigging bids and fixing prices.
The suit, which seeks class-action status, names two-dozen insurance companies or insurance brokerages that do business in Florida.
It accuses the insurers of paying independent agents a second commission, or “contingent commissions,” to lock up more business.
Independent agents are supposed to work strictly for their clients, according to the suit, selling the insurance policy that best fits their needs.
The second commission though, skews that, causing agents to push the insurance line that pays them what amounts to a “kickback,” according to the suit. It accuses the insurers and brokers of racketeering, bid rigging and anti-competitive behavior.
As a consequence, customers - all of them businesses - have been cheated out of “hundreds of millions, if not billions, of dollars” since 1994, according to the suit.
The suit makes the same allegations that New York Attorney General Eliot Spitzer did four months ago, when he launched an investigation that, so far, has won guilty pleas from nine insurance company or insurance brokerage executives, including those associated with two of the companies named in the Seminole County suit.
Those two companies are American International Group, also known as AIG, and ACE Insurance.
Shortly after Spitzer announced his investigation, Florida Attorney General Charlie Crist began one of his own. Crist has issued subpoenas to nearly two-dozen insurance companies and brokers, according to Bob Sparks, a spokesman in Crist’s office.
The Seminole County suit was filed Feb. 16 in state Circuit Court here by Palm Tree Computer Systems Inc., a small Oviedo company that sells and services computers and provides Web page design and hosting; and Delta Research Institute Inc., a Longwood financial-research company.
Officers with neither company would discuss the suit. Each, though, is represented by Longwood lawyer Mark Nation....
A tiny, independent insurance agency in Winter Park, First Market International Inc., is one of the defendants. It sold insurance from The Hartford to Palm Tree.
First Market President Tom Rossello called the allegations “ridiculous.”
“No, we don’t get contingent commissions,” he said.
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October 15, 2004
By Gregory Bull, AP, USA Today
ALBANY, N.Y. - New York Attorney General Eliot Spitzer on Thursday sued No. 1 insurance brokerage Marsh & McLennan and arrested two American International Group executives in his first prosecution of the insurance industry.
Spitzer alleged that Marsh & McLennan took “lucrative payoffs” for steering unsuspecting clients to certain insurers. Spitzer also said American International (AIG), Hartford Financial Services Group, Ace, and Munich Re participated in “steering and bid rigging.”
“Where is the ethical compass of this industry?” Spitzer said in a news conference, calling it “thoroughly corrupt.”
The victims were mostly large corporations who were deceived into buying property and casualty coverage that may have cost more, but also included small and midsize businesses, municipal governments, school districts and individuals, Spitzer said....
In some cases, Spitzer said, companies provided false and inflated quotes to help another in the scheme win a bid, with the idea that a subsequent bid would be steered to them.
A 2001 internal memo from a regional manager at Munich to a senior vice president said: “This idea of ‘throwing the quote’ by quoting artificially high numbers in some predetermined arrangement for us to lose is repugnant to me, not so much because I hate to lose, but because it is basically dishonest. And I basically agree with the comments of others that it comes awfully close to collusion or price fixing.”...
“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,” said Spitzer, who has forced Wall Street to adopt measures against conflicts of interest among stock analysts....
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(Catbird Note: For an earlier alleged case of steering and bid rigging involving Marsh & McLennan and the Chubb Group, GO TO > > > Harmon’s Claim Letter to John Sinnott; RICO in Paradise; Claims By Harmon )
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October 27, 2004
Ace in the Hole?
By Rick Aristotle Munarriz, The Motley Fool
Does the apple fall far from the tree when the orchard is ripe for resignation?
With Marsh & McLennan (NYSE: MMC) CEO Jeffrey Greenberg stepping down over the weekend after New York Attorney General Eliot Spitzer accused the insurance broker of faking bids, will Evan Greenberg be the next Greenberg to go?
Evan, Jeffrey's brother, heads up ACE Limited (NYSE: ACE), one of the insurance providers being singled out by Spitzer for supposedly being funneled business inappropriately in exchange for contingent commissions.
Keeping it in the family, another of the companies implicated in the tangled Marsh & McLennan web of accusations is American International (NYSE: AIG) - run by Evan and Jeffrey's father. Yep, that's going to be one uneasy family reunion.
Each party is jockeying for position as the market begins to tally the potential implications, but it's business as usual as ACE posted disappointing third-quarter results last night. Hurricanes and typhoons cost the company dearly as it posted a loss of $0.05 a share after generating a profit of $1.22 per share a year earlier. While one may be tempted to back out the $1.42-per-share hit that the company is taking to account for the $409 in catastrophe losses, why would you? It's that very perception of risk that keeps the company -- and the industry -- in business....
Naturally, Spitzer's vigilant eye will keep the company in check until matters are resolved. Allegations are just that -- allegations -- and the best and worst case scenarios are so wide in scope that just about the only assurance here is that there will be a bit of volatility in the shares in the near term.
Yet you only need to look as far as Berkshire Hathaway's (NYSE: BRK.A) Warren Buffett to know that the insurance field can be a great industry if you have a financially sturdy company taking all the right risks.
If ACE's hands do come up dirty, then all bets are off in the muddy playing field.
Longtime Fool contributor Rick Munarriz thinks that Spitzer's next watchdog assignment may come with good news -- if he switches to GEICO. Rick does not own shares in any of the companies mentioned in this story.
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MORE TO COME
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Originally posted: October 18, 2004
Last Updated May 3, 2010, by The Catbird