ACE's top female executive knew about the company being pressured by leading broker Marsh to rig bids to create an appearance of competition long before New York Attorney General Eliot Spitzer's investigation, according to an internal e-mail revealed in a Wall Street Journal report.

In a story on the Journal's front page yesterday, it was reported that ACE USA president and CEO Susan Rivera was warned in November 2003, in an e-mail from the president of ACE's casualty risk unit Geoffrey Gregory, that the way bids were being arranged "could potentially be construed as simply creating the appearance of competition".

But the widely-read newspaper - the Journal's online and print circulation numbers show it having more than 2.1 million readers - citing unnamed sources close to events, said that rather than put a stop to the phoney bids, ACE began referring to them by an unrevealing in-house euphemism: "indication" bids.

The news follows Bermuda-based insurance giant ACE Limited last week being caught up in damning allegations against the insurance industry after Mr. Spitzer launched a lawsuit against leading broker Marsh & McLennan alleging that it and some insurers it places business for had engaged in price-fixing exercises and pay offs to Marsh for business.

Mr. Spitzer's suit - after the Attorney General began an intensive probe of the insurance industry in April - names Marsh alone as a defendant but charges the world's largest commercial insurer American International Group (AIG), ACE, Hartford and Munich-American Risk Partners had participated in a "bid-rigging scheme with Marsh".

In total, $800 million of the $1.5 million in profit that Marsh took in last year was said to have come from insurers, and with much of it being paid out as a reward from insurers to Marsh for business.

Mr. Spitzer charged that Marsh's interest, which should have been to the clients it represents, was conflicted through these payments.

In addition, it became clear that some companies were revising bids to create the sham appearance of competition.

Mr. Spitzer said that the investigation had unearthed "craven disregard for ethics and the law at some of the nation's largest corporations" and was far from done, saying other insurers were being scrutinised.

Several other states also revealed their own investigations into how insurers compensate brokers for sending business their way, news reports revealed yesterday.

Although a statement by ACE on Friday indicated that it was cooperating with Mr. Spitzer's investigation, the Journal story yesterday questioned whether the company was truly making an effort to make changes or simply moving to reduce any eventual penalties.

ACE has not been charged in Mr. Spitzer's investigation. It was however named numerous times - along with several other large insurers, including American International Group (AIG) - in the complaint against Marsh.

A US-based ACE employee Patricia Abrams has pleaded guilty to a misdemeanour charge, in connection with Mr. Spitzer's investigation and has been put on paid leave by ACE.

Ms Abrams worked in a unit that falls under Mrs. Rivera, who was put in charge of ACE USA in 2002 and has been widely recognised as a rising star at ACE. She joined ACE from AIG, as did many other ACE executives including chairman Brian Duperreault and CEO Evan Greenberg. Mr. Greenberg not only came to the company after holding the post of chief operations officer at AIG, he is the son AIG boss Maurice 'Hank' Greenberg.

Mr. Evan Greenberg's brother is the CEO of Marsh & McLennan Cos., the defendant in the suit from Mr. Spitzer that names ACE and AIG.

Yesterday the Journal said ACE and other insurers had "scrambled in the past to weeks to present evidence to Mr. Spitzer of how they worked with Marsh to cheat customers - in an effort to perhaps

reduce any eventual penalties".

The Journal report also raised the question of whether the e-mail to Mrs. Rivera nearly a year ago could be the first indication that the alleged bid-rigging scheme was known at a high level of a major insurance company.

The Journal story continued: "And it raises the odds that charges could be levied against ACE or individuals," because the correspondence suggests that Mr. Gregory, 48, and Mrs. Rivera, 39, to whom he reports, knew that their employees were submitting sham bids and misleading corporate customers in their dealings with Marsh.

The Journal did not say where it had obtained the ACE e-mail from but said it had been reviewed by the newspaper.

Mr. Spitzer's complaint alleges that Marsh brokers decided in advance which insurer would get a client's business and at what price, and then sought an 'A' quote from the incumbent or chosen insurer, while calling underwriters at other insurers for 'B' quotes - higher bids that it was aware it couldn't win but would give the appearance of a competitive bidding process.

The Journal said that insurers played along by providing 'B' and 'C' quotes because they knew their turn would come another time.

"Marsh is consistently asking us to provide what they refer to as 'B' quotes," Mr. Gregory reportedly wrote to Mrs. Rivera in the e-mail. He said he was worried that "our actions on 'B' quotes could potentially be construed as simply creating the appearance of competition. ... In my opinion ACE cannot be seen as aiding [Marsh in providing quotations for 'competitive appearance purposes' only."

Even after discussing the bid-rigging scheme, however, "ACE continued to provide Marsh with inflated quotes into 2004," according to the attorney general's complaint, filed Thursday in a New York state court.

What ACE did, according to a person the Journal cited as being familiar with the investigation, was change the terminology of the scheme - to "indication bid" rather than a 'B' quote - but not change the quoting process.

The Journal said it isn't clear whether Mr. Gregory or Mrs. Rivera was aware of the changed language. The Journal continued: "Such machinations between Marsh and insurers would violate New York State antitrust laws and the broker's duty to act in the best interest of its clients," according to Mr. Spitzer.

By helping the attorney general build his case, ACE and the other insurers were hoping to get credit for cooperation and reduce their eventual punishment. But ACE's cooperation is seen by investigators as less than complete, according to a person familiar with the investigation, the Journal said.

Yesterday, a spokesperson from a public relations firm hired by ACE told The Royal Gazette that the company had no comment to make on the Journal report, and also declined to comment on whether or not the company was considering taking disciplinary action against the executives named in the story.

Late Sunday ACE president and CEO Evan Greenberg, in a letter to employees published on the company website, said that following questions from Mr. Spitzer's office earlier in the year, the company had launched its own internal investigation.

"If an internal investigation uncovers lapses, "they will be fixed quickly and permanently," Mr. Greenberg wrote.

Meanwhile, two class action lawsuits have been launched against the company following Mr. Spitzer's allegations.

A class action by law firm Schatz & Nobel, P.C., said it is representing ACE employees who may have seen their retirement savings plans hit by a drop in the value of ACE shares, with the value of the company's shares falling on the news.

The claims concern whether ACE participated in alleged insurance bid-rigging schemes and whether ACE customers or employees were harmed by these schemes.

A second class action lawsuit has been launched by law firm Schiffrin & Barroway on behalf of investors. The complaint charges ACE, Mr. Greenberg, Mr. Duperreault, and chief financial officer Philip Bancroft with violations of Sections 10(b) and 20(a) of the Securities Exchange Act. Specifically, the complaint is that ACE failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the company was paying illegal and concealed "contingent commissions" pursuant to illegal "contingent commission agreements"; (2) that by concealing these "contingent commissions" and such "contingent commission agreements" the defendants violated applicable principles of fiduciary law, subjecting the company to enormous fines and penalties totalling potentially tens, if not hundreds, of millions of dollars; (3) that defendants had concealed the fact that ACE had engaged in illegal transactions; and (4) that as a result, the company's prior reported revenue and income was grossly overstated.

The complaint adds: "On these revelations, the company's shares fell $3.84 per share, or 9.53 percent, to close at $36.47 per share on October 14, 2004 on unusually high trading volume."

Yesterday ACE's shares fell further, closing down $2.23 or 6.3 percent to $33.15. ACE's 52-week share trading range on the New York Stock Exchange is $32.95 to $45.98.