Marsh & McLennan has agreed to pay $850 million to settle charges it conspired with insurers to rig bids. The settlement sent Marsh shares up 4.5 percent, by ending a battle with New York Attorney General Eliot Spitzer, who accused Marsh of colluding with AIG and other insurers to fix prices.
Chief Executive Michael Cherkasky has been overhauling Marsh’s brokerage practices and corporate governance in a bid to retain clients. Spitzer said Marsh would apologize for its “unlawful” and “shameful” conduct.
Marsh will fully disclose all compensation to clients and charge only one fee or commission when arranging a policy. Marsh neither admitted nor denied wrongdoing. But Cherkasky said the company was nevertheless “ashamed” about the conduct of “a few” employees. He said talks are ongoing with other state regulators and that while shareholder class-action lawsuits are still in prospect, the settlement with Spitzer provides “a measure of closure” on litigation.
In the settlement with Spitzer’s office and New York ‘s insurance department, Marsh will put the $850 million in a fund to compensate US clients who hired it to place insurance from 2001 to 2004. The clients need not show harm to recover. “The company has embraced restitution and reform as a way of making a clean break from the practices that misled and harmed its clients,” Spitzer said. In an interview with Reuters, Spitzer said he arrived at $850 million as “a number that would be fair compensation, but would also ensure that the company did not suffer.”
The settlement is the largest Spitzer has extracted from a single company in his probes of the insurance industry, Wall Street conflicts of interest and improper mutual fund trading. Marsh will make annual installment payments beginning 1 June. The company said none of the sum reflects a fine or penalty.
Spitzer is investigating Marsh’s rivals Aon, Willis Group, AIG, Ace Ltd., Hartford Financial Services Group Inc. and St. Paul Travelers The settlement sum is roughly the same as the $845 million in “contingent compensation” fees that Marsh received in 2003 for steering more business to brokers. Marsh has since scrapped those fees. It has also cut 3,000 jobs and created a compliance unit, and its board now consists of 10 outside directors. Marsh will take a $618 million pre-tax charge to fourth-quarter 2004 earnings for the settlement. It previously set aside $232 million in the third quarter.
Cherkasky, Spitzer’s former boss at the Manhattan district attorney’s office, became Marsh’s chief executive when Jeffrey Greenberg was ousted 11 days after Spitzer’s complaint.