Marsh & McLennan, parent of the world's biggest insurance brokerage, yesterday struck an unusual settlement deal with New York attorney general Mr Eliot Spitzer and regulators to put charges of corruption and bid rigging behind it.
Under the terms of the deal, Marsh will spend $850 million to set up a fund to reimburse corporations that paid higher premiums because the broker accepted incentive commissions and rigged bids on insurance contracts.
The deal is likely to serve as a model for the other settlements expected as the investigation into abuses in the insurance industry gathers pace.
Yesterday, Mr Spitzer applauded the agreement.
"To its credit, Marsh is not disputing the problems identified in our original complaint," the New York's attorney general said.
"The company has embraced restitution and reform as a way of making a clean break from the practices that misled and harmed its clients in the past."
Analysts and investors saw the deal as a victory for Marsh & McLennan, which has seen its shares fall more than 30 per cent since Mr Spitzer filed a lawsuit against it last October and accused it of widespread corruption. In early trading, the company's shares rose 4.21 per cent to $32.40.
Marsh & McLennan will avoid paying additional fines to Mr Spitzer and the deal might help stave off lawsuits from angry clients and regulators in other states, analysts say.
Marsh & McLennan will take a pre-tax charge of $618 million in the fourth quarter to pay for the settlement.
Mr Michael Cherkasky, chairman and chief executive of Marsh & McLennan, said that the settlement would begin "the process of ending a period of uncertainty" at Marsh & McLennan and allow it to "move forward - temporarily scarred but well-positioned".
"It's a very large sum of money, but it won't threaten the company's viability," Mr Cherkasky said.
The terms of the deal require Marsh & McLennan to pay for the fund in four annual instalments, beginning in June. This year and the following, Marsh & McLennan will put $255 million towards the fund. The payment will drop to $170 million in 2007.
Marsh & McLennan also agreed to a series of reforms demanded by Mr Spitzer.
As previously announced, the group will stop accepting special incentive commissions from favoured insurers, the practice at the heart of Mr Spitzer's investigation into abuses in the insurance industry.
In addition, it will only charge flat commissions at the time insurance coverage is placed and adopt a written code of conduct for how it places business.
All quotes and terms of contracts will be disclosed to allow companies to make "informed" decisions about their coverage. - (Financial Times Service)
