Marsh CEO resigns; S&P gives negative outlook to commercial insurers

Ending weekend speculation, Marsh CEO Jeffrey Greenberg has resigned, amid civil charges filed against the international broker by New York Attorney General Eliot Spitzer. In a statement, Marsh says Greenberg “placed the interests of the company first” in resigning, and added that on Tuesday it would unveil changes to the way it does business “which will be rooted in transparency”. Greenberg will be replaced by Michael Cherkasky, formerly CEO of Marsh Kroll, the risk consulting subsidiary of Marsh & McLennan.As a result of the investigation into broker commissions and the charges against Marsh, Standard & Poor’s has revised the once stable outlook for U.S. commercial p&c lines to negative.S&P says the investigation which has already resulted in the civil charges against broker Marsh, as well as guilty pleas to criminal charges by two AIG executives and one ACE executive will result in lower revenues and higher expenses for many insurers. The situation casts “doubt on prior expectations of ratings stability and ongoing improvement in profitability for the industry over the medium term”.S&P has downgraded commercial brokers Marsh and Aon, and placed both, as well as Willis, on a negative credit watch.Although the complaint filed by Spitzer against Marsh cites four insurers AIG, ACE Ltd., Hartford Financial and Munich-American Risk Partners none of the insurers has been charged as yet, and none face ratings downgrades at this time. However, S&P notes, “in a press conference, the Attorney General left little doubt that these and other insurance companies will be pulled into this investigation. He gave some indication of the breadth of the investigation by saying that it touched virtually all lines of insurance.”S&P expects greater competition to hit the market given the cessation of practices viewed as non-competitive. Whatever insurers save on the commission side, will be more than offset by premium losses, and the softening of rate already being seen in commercial lines should be bolstered, S&P says. Also, insurers will face the high cost of complying with subpoenas issued by the Attorney General, as well as potentially having to defend against charges in the future, including private litigation already in the offing. There will also likely be increased regulation in the future which will hurt insurer expenses.Here in Canada, the Consumers’ Association of Canada is asking government to look into what it terms “secret” commissions.