The North American subsidiaries of Zurich Financial Services have reached an agreement with a number of U.S. state regulators to settle allegations of anti-competitive business practices and inadequate accounting for non-traditional reinsurance.
Zurich American Insurance Company and its holding company refused to admit wrongdoing. But on March 27 they agreed to pay $88 million in damages to policyholders in New York, Connecticut and Illinois, and $65 million in fines.
The firm also agreed to improve its financial reporting for reinsurance transactions and to stop paying U.S. brokers for placing excess casualty business with its underwriters until the end of 2008. More of ZAIC's business lines may be subjected to the same treatment if regulators can determine that 65% of ZAIC's rivals have ceased paying contingent commissions in those lines.
The action came hot on the heels of a March 20 agreement with nine state attorneys general and one department of insurance. This settled Zurich's part of a U.S.-wide class action involving several commercial insurers and brokers. The number of authorities involved in this agreement has since grown to 10 attorneys general and three insurance departments, and more may join.
Under this agreement, Zurich agreed to pay $151.7 million into a settlement fund for aggrieved policyholders, and $20m to state attorneys and class action counsel. Unlike the more recent agreement with New York, Connecticut and Illinois, no portion of the March 20 settlement was to be considered a fine or penalty.
Combined, the settlements will cost Zurich about $325 million, plus legal fees, which it will book in its first-quarter 2006 results.