Reinsurance broker sued by Blumenthal

By John O'Brien | Oct 9, 2007


HARTFORD, Conn. - One of the world's largest reinsurance brokers has been violating antitrust laws by fixing prices and manipulating markets for nearly 50 years, Connecticut Attorney General Richard Blumenthal is alleging.

Thursday, Blumenthal filed a lawsuit against New York-based Guy Carpenter & Co., claiming it conspired with other reinsurers to maintain its high-profile position. The complaint can be viewed here.

"Thousands of consumers in Connecticut and many more in most states across the country paid premiums up to 40 percent higher, costing them potentially hundreds of millions of dollars," Blumenthal said. "We are drawing back the cloak of secrecy on industry practices that inflated prices and profits at the expense of 170 insurance companies and their customers."

Excess Reinsurance Co., partly owned by Guy Carpenter, is also listed as a defendant for having business allegedly steered to it. Blumenthal alleges nine other conspired with the two companies, though they have not been named as defendants -- yet.

"Guy Carpenter served as ringleader in choreographing the reinsurance market to fix prices, stifle competitors and collect excessive profits at the expense of an entire industry," Blumenthal said. "Guy Carpenter's schemes were enabled by a shifting coterie of more than 20 coconspirators -- reinsurers willing to play Guy Carpenter's game of deceit, and damage consumers."

In a statement, Guy Carpenter said it would fight the suit.

"The Connecticut Attorney General's complaint is based on a fundamental misunderstanding of reinsurance facilities that have been in operation for the benfit of small- and mid-sized clients for as long as 50 years," the company said. "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."

Guy Carpenter funneled business to certain reinsurers in exchange for excessive fees and other benefits, Blumenthal argues. If the reinsurer refused to participate, Blumenthal said it would not receive the lucrative business that other reinsurers did.

Blumenthal also claims the two defendants violated a federal organized crime statute, the Racketeer Influenced and Corrupt Organizations Act (RICO).

He says profits on the various lines of Guy Carpenter's business were as much as 40 percent higher than industry averages for decades, a period during which more than $1 billion in premiums went to reinsurers willing to cooperate with Guy Carpenter. The company received more than $80 million in fees, plus millions more in undisclosed contingent commissions, Blumenthal added.

The businesses considered coconspirators are: Arch Reinsurance Co., of Nebraska; Aspen Insurance UK Ltd., of London; Employers Mutual Casualty Co. of Iowa; Farmers Mutual Hail Insurance Co. of Iowa; Farm Mutual Reinsurance Plan, of Canada; Swiss Reinsurance America Corp., of New York; The Hartford Steam Boiler Inspection and Insurance Co., of Connecticut; The Toa Reinsurance Co. of America, of New Jersey; and QBE Reinsurance Corp., of New York.

Guy Carpenter is a subsidiary of Marsh & McLennan, a business services brokerage firm. Marsh & McLennan was the prime target in former New York Attorney General Eliot Spitzer's crusade against alleged bid-rigging in the insurance industry.

The company ultimately reached an $850 million settlement with Spitzer. Blumenthal also joined in similar settlements with The Hartford (worth $115 million) and Zurich American (worth $302 million).

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