On January 31, Connecticut Attorney General George Jepsen announced that he had reached an agreement with Guy Carpenter & Company, the world’s second largest reinsurance broker, to settle the state’s antitrust case against it for $4.25 million. With co-defendant Hartford Financial Services having settled with the state back in 2009 (for $1.3 million), the action finally comes to a close.
When originally filed by then Attorney General, now Senator, Richard Blumenthal in 2007, the action garnered significant attention in the reinsurance community. It was one of the first antitrust actions by a regulator directed at the reinsurance industry in many years, and the state’s contention that Guy Carpenter’s reinsurance facilities were operated in an anticompetitive manner raised novel legal issues. Filed in state court and asserting claims under state, not federal, antitrust laws, the Attorney General alleged that Guy Carpenter had “steered” its clients into facilities that it controlled, in which the participating reinsurers (which included an insurer, Excess Reinsurance, partially owned by Guy Carpenter) were shielded from competition and thus able to obtain anticompetitive rates from Guy Carpenter’s clients.
In announcing the settlement, the Connecticut Attorney General noted that Guy Carpenter is required to implement several business reforms as part of the settlement and suggested that these reforms were necessary to correct anticompetitive abuses. Specifically, Guy Carpenter agreed to (1) provide its clients with a written description of the structure of its facilities and the participating reinsurers in these facilities; (2) indicate whether Guy Carpenter has any direct or indirect interest in any of the participating reinsurers; (3) obtain at least three competitive bids from reinsurers outside of Guy Carpenter’s facilities before recommending that a client purchase reinsurance through its facilities; and (4) conduct a nationwide survey, each year, to determine whether bids from reinsurers in competition with its facilities may provide its clients with better rates, and if so, to communicate this information to all of its brokers nationwide and require them to make this information known to their clients. These reforms must stay in place for at least five years.
Guy Carpenter issued a contemporaneous press release that -- not surprisingly -- denied all liability and contended that its facilities were actually pro-competitive, and that at all times it provided clients with the best available terms for reinsurance. Guy Carpenter also characterized its settlement payment as being “substantially less than the expected legal fees and related costs to defend the case,” and stated that the business reforms would not constitute any “material change” in the way its facilities operate.
With a settlement having been reached prior to a court ruling on the merits of the state’s claims, a determination as to whether the challenged practices constituted an appropriate reinsurance practice or an anticompetitive conspiracy will have to wait for another day. Nevertheless, the business reforms required by the state to resolve the case provide some useful guidance to the reinsurance industry in assessing potential antitrust risk.