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Contact:
 Marc Violette (AG)
 518-473-5525
 Michael Barry (Ins. Dept.)
 212-480-5262

FOR IMMEDIATE RELEASE
August 1, 2006    

ST. PAUL TRAVELERS SETTLES BID-RIGGING PROBE
Agreement is Part of Ongoing Effort to Restore Competition in Insurance Industry

Attorney General Eliot Spitzer and State Insurance Department Superintendent Howard Mills today announced an agreement with one of the country’s largest property casualty insurance companies to resolve charges of customer steering, bid-rigging and improper finite reinsurance transactions.

Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan also joined in today's settlement.

Under the agreement, St. Paul Travelers, a major provider of automobile and homeowners insurance for individuals and commercial insurance for small businesses, will pay $77 million in restitution and penalties and adopt a series of reforms. In addition, St. Paul Travelers has issued an apology acknowledging its improper conduct.

"St. Paul Travelers has joined the growing number of insurers, brokers and agents who have pledged to make the market for insurance coverage more transparent and competitive,” Spitzer said. “This development will benefit all consumers, from individuals buying car insurance to small businesses to large corporations."

State Insurance Superintendent Howard Mills said: "St. Paul Travelers is now reforming its business so that consumers are given access to more information about their insurance transactions while at the same time compensating policyholders who were economically harmed by their past conduct. Both initiatives are welcome news for all those involved in the property casualty insurance market."

As described in the Assurance of Discontinuance settling this case, the investigation found that St. Paul Travelers made undisclosed payments to insurance brokers and agents in exchange for business referrals, and participated in a scheme to fix insurance prices in the excess casualty area.

For example, the assurance cites an e-mail from a broker at Marsh & McLennan Companies to a St. Paul underwriter seeking a phony bid for an insurance contract that was being steered to one of St. Paul ’s competitors, Zurich:

"Specs were forwarded in November for [Client C]. Zurich’s renewal quote is $175,000 for [the lead excess layer]. Primary AL is $2MM. Josh is asking for non-quotes. If you didn’t already respond to [the Marsh executive] . . ., please feel free either to decline for class or quote higher (please)."

The next day St. Paul responded by issuing a quote 30 percent higher than Zurich’s bid.

The assurance also details St. Paul’s use of improper "finite reinsurance" to bolster both its own financial results and those of its clients. For example, in the years 1999 through 2002, St. Paul entered into aggregate excess of loss reinsurance contracts with an insurer in Barbados, despite a side agreement that any losses suffered by the insurer would be made up by St. Paul.

In a statement today, St. Paul Travelers apologized for its actions, saying: “St. Paul Travelers acknowledges that certain of its employees violated acceptable business practices and St. Paul Travelers’ own standards of conduct by engaging in improper bidding practices and certain “finite insurance” activities. St. Paul Travelers apologizes and has enacted business practice reforms to ensure that these incidents do not occur again. Further, St. Paul Travelers has agreed to support legislation eliminating contingent compensation for brokers and agents.”

Under today's agreement, $37 million will be paid to St. Paul Travelers policyholders harmed by the company’s bid-rigging activities. In addition, St. Paul Travelers will pay penalties of $24 million to New York and $8 million each to Connecticut and Illinois.

In the fall of 2004, the New York Attorney General's office and the New York Insurance Department announced a joint probe of misconduct in the insurance industry. This investigation has resulted to date in guilty pleas from 20 insurance company executives and officers, and the recovery of approximately $3 billion for consumers and workers compensation plans.

The investigation underlying today's Assurance of Discontinuance was conducted by Assistant Attorneys General Maria Filipakis, Matthew Gaul, and Mel Goldberg under the direction of David D. Brown IV, Chief of the Attorney General’s Investment Protection Bureau.

Susan Donnellan, a Deputy Superintendent and General Counsel of the New York State Department of Insurance, led the Insurance Department’s investigation.


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