Standard & Poor’s Ratings Services said on Friday that it is taking “no immediate rating actions” on the three companies – American International Group Inc. (AAA/Stable/A-1+), ACE Ltd. (BBB+/Stable/A-2) and Hartford Financial Services Group Inc. (A-/Stable/A-2) – named in New York State Attorney General Eliot Spitzer’s civil complaint.
However, S&P said it is “reviewing the implications of these alleged practices for the commercial insurance sector.” It noted that the charges go “well beyond the practice of placement service agreement fees and charges that the broker Marsh Inc., a unit of Marsh & McLennan Cos., engaged in bid rigging, which involved the solicitation of fictitious quotes to give the appearance of a fair and competitive bidding process for their clients’ business when in fact Marsh had already decided what company would get the business.”
The rating agency explained that the “complaint filed by Mr. Spitzer alleges that several insurers complied with requests from Marsh employees for noncompetitive quotes with the understanding that Marsh would reward them in turn with noncompetitive business. The attorney general’s investigations are in their early stages, and it is uncertain how widespread these practices permeate the commercial insurance marketplace.”
S&P credit analyst Grace Osborne commented: “Although the extent of these practices is currently unknown, heightened regulatory scrutiny of insurance practices is expected which will likely increase the cost of doing business within states and across the nation. On a broader scale, the prospect of pricing collusion and other anticompetitive measures to attract business are serious matters. The implications on both business position and brand recognition could have adverse implications on the ratings of insurance companies that have engaged in these practices.”
“At this early stage, it’s difficult to assess the full the extent of financial and reputational damage to the sector,” stated S&P’s Managing Director Steve Dreyer. “Commercial property/casualty insurers had been enjoying strong but softening pricing conditions for the last two years, and reserve deficiencies have been moderating. However, these recent developments could introduce significant new risks to the industry’s future performance.”
S&P said it is “currently engaging a dialog with all companies within this sector to understand the scope of the alleged business practices, the financial impact of these practices, and any prospective changes to their competitive position.”
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