NEW YORK (Bloomberg) — New York Attorney General Eliot Spitzer, invoking terms of bid-rigging settlements reached earlier this year, yesterday told Ace Ltd. and three other insurers that they must stop paying hidden commissions to brokers of automobile and homeowners policies.The ban on “contingent commissions” stems from agreements that ended Spitzer’s two-year investigation of the industry that yielded more than $3 billion in penalties from companies including American International Group, the world’s largest insurer. Zurich American Insurance Co., a unit of the biggest Swiss insurer; and St. Paul Travelers Cos. also settled with regulators and are covered by the prohibition, Spitzer said today in a statement.

The companies must stop paying the commissions, which Spitzer alleges are kickbacks to win business from agents and brokers, by January 1. This year’s settlements barred contingent payments for any insurance line in which 65 percent of US premiums are written by a combination of the four companies and others that don’t pay the fees. Financial-guaranty and boiler- and-machinery coverage also are included in today’s action.

“This is an historic milestone in our ongoing pursuit to crumble a culture of pay-to-play in the insurance industry,” Connecticut Attorney General Richard Blumenthal said in a separate statement. Blumenthal and Illinois Attorney General Lisa Madigan worked with Spitzer on the investigation.

Charges of bid-rigging led to the ouster in October 2004 of Jeffrey Greenberg as head of New York-based Marsh & McLennan Cos., the largest insurance broker. Spitzer and the attorneys general have alleged that “since at least the mid-1990s” Marsh and other brokers solicited fake quotes to predetermine the winner of business and steer clients to insurers who paid them hundreds of millions of dollars in hidden fees.

AIG chief executive officer Martin Sullivan told analysts in February that the New York-based company no longer pays contingent commissions. That month AIG announced a $1.64 billion settlement with state and federal regulators ending probes it faked bids, misled investors and cheated workers-compensation programs.

“We are complying with the terms of our settlement reached in February,” said AIG spokesman Chris Winans.

Zurich, a subsidiary of Zurich Financial Services AG, will “take appropriate responsive action,” said spokesman Steven McKay. Calls seeking comment from the other insurers weren’t returned.

Impact on Agents

Gabriel Solomon, an insurance analyst at T. Rowe Price Group Inc. in Baltimore, said the insurers’ earnings wouldn’t be significantly affected by the settlements.

“They may lose a piece of business here or there, but my guess is they’ll find a way to keep it,” Solomon said. T. Rowe Price owns almost 27 million shares of AIG and more than 10 million shares of St. Paul Travelers.

Agents and brokers will be hurt financially by the agreement, said Robert Rusbuldt, chief executive officer of the Independent Insurance Agents & Brokers of America. He said he was “greatly distressed” with the development.

“This decision will impact thousands of agencies across the country as they face reductions in compensation,” Rusbuldt said.

Zurich, the third largest US commercial insurer, agreed in March to pay $325 million, while Ace, a Bermuda-based insurer, in April agreed to pay $80 million to settle bid-rigging and accounting probes. St. Paul Travelers, the second-largest US commercial insurer, in February agreed to pay $77 million to settle similar allegations.