Benfield hit by link to Spitzer insurance inquiry

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The Independent Online

Benfield, the reinsurance broker that listed in London last year, has been dragged into the investigation by Eliot Spitzer, the New York attorney general, into bribery and corruption at Marsh & McLennan and the insurance industry.

Benfield, the reinsurance broker that listed in London last year, has been dragged into the investigation by Eliot Spitzer, the New York attorney general, into bribery and corruption at Marsh & McLennan and the insurance industry.

The company yesterday said its US subsidiary had received a subpoena requiring it to assist Mr Spitzer in gathering information on broking practices, as part of his lawsuit against Marsh. Benfield is not, however, subject to a formal investigation by the Attorney General.

Benfield shares fell 7.5p to 255.5p as investors feared the investigation could have repercussions throughout the insurance industry.

Mr Spitzer has accused Marsh & McLennan, one of the world's largest insurance brokers, of placing business with certain insurers in exchange for lucrative pay-offs. It is also accused of inventing fictitious quotes to make customers believe they were getting the most competitive deal on offer.

The lawsuit targets a practice known as "contingent commissions", also known as payment service agreements (PSAs), whereby insurers pay brokers to steer business their way. This is not illegal when disclosed, but Mr Spitzer is charging Marsh with garnering commissions by rigging bids for business and fixing prices that inflated costs for its clients. The attorney general said its review of documents from 2003 found that Marsh collected $800m (£444m) in these contingent commissions, which was more than half the $1.54bn of profits. It also alleges that the company's policy of not disclosing how much the contingent commissions add to its earnings has misled shareholders.

Benfield said it had never used the type of commission arrangements that are under scrutiny. "Benfield has acquired businesses where a limited number of PSAs existed and took appropriate action to close these down in line with group policy of full transparency for its customers." It said it would co-operate with the Attorney General and "supports actions that result in greater market transparency for customers". However, Jardine Lloyd Thompson, another UK-based insurance broker, yesterday said it had not been approached by the attorney general's office and that it provides full disclosure on its remuneration practices to customers. Shares in Jardine, which does about 60 per cent of its business in the US, fell 4.75p to 440p.

The lawsuit also implicated the US group, Hartford, American International Group (AIG), the world's largest insurer, Chubb and ACE, as well as a division of Munich Re. Shares in US insurers and European counterparts dropped sharply as details of the allegations emerged. Mr Spitzer said the "investigation is broad and deep" and would expose "disregard for ethics and the law among some of our largest corporations".

Two AIG executives have pleaded guilty to criminal fraud charges for their involvement in the alleged manipulation.

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