ACE Ltd. has fired two employees and suspended three others over their alleged involvement in the contingent commissions scandal that is being investigated by New York Attorney General Eliot Spitzer.

The Bermuda-based insurance giant made the announcement yesterday almost a month after Mr. Spitzer sued Marsh & McLennan Cos. Inc. accusing the leading broker of engaging in price-fixing exercises and pay offs. ACE is one of several companies named as participants, but not defendants, in the suit.

The two dismissed employees are president of ACE Casualty Risk Geoffrey Gregory and Patricia Abrams, an employee in his unit. She was previously put on paid leave after pleading guilty to a criminal misdemeanour in connection with Mr. Spitzer's investigation. Both work in the Philadelphia unit that falls under ACE USA president and CEO Susan Rivera.

On October 19, the Wall Street Journal reported that in an internal e-mail Mr. Gregory warned Mrs. Rivera that the way bids were being arranged "could potentially be construed as simply creating the appearance of competition". The newspaper 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 Journal report also raised the question of whether the November 2003 e-mail to Mrs. Rivera could be the first indication that the alleged bid-rigging scheme was known at a high level of a major insurance company.

The Journal report said: "And it raises the odds that charges could be levied against ACE or individuals," because the correspondence suggests that Mr. Gregory and his superior Mrs. Rivera 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 but said it had been reviewed by the newspaper.

The Attorney General'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 they knew could not win but would give the appearance of a competitive bidding process. Mr. Gregory reportedly wrote to Mrs. Rivera in the e-mail to say 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 in 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.

ACE declined to comment on queries about Mrs. Rivera, but The Royal Gazette understands that she is still with the company.

The three unnamed employees who ACE suspended "as a result of the ongoing investigation into improper business practices being overseen by the Audit Committee of its Board of Directors" also worked in ACE Casualty Risk. ACE declined to disclose their names yesterday, but said that they were on a team "within the excess casualty unit that did business principally with Marsh Global Broking".

"These personnel decisions result from past improper actions in the excess casualty unit of ACE Casualty Risk, managerial issues, and/or failure to cooperate with the company's internal investigation or the Attorney General's investigation," ACE said in a statement. "ACE's investigation, which is continuing, is being conducted by the law firm of Debevoise & Plimpton LLP, under the direction of former U.S. Attorney Mary Jo White."

ACE also yesterday named its current general counsel, Peter Mear, as chief ethics officer and head of ACE's ethic committee as one of the steps it is taking to monitor its business practices. ACE has also issued detailed guidelines on the way it works with brokers, including a requirement that any commissions paid to brokers be reported to policyholders.

The insurer previously stated that it would stop paying contingent commissions. ACE will also appoint a business practices compliance officer and retain an outside consulting firm to review its business practices.

All of the steps are intended to "monitor and improve its compliance with best underwriting practices and avoid real or any appearance of conflicts of interest."

"These new business practice compliance programs will support and strengthen our company-wide commitment to ethical conduct," Mr. Greenberg said in the statement yesterday. "Our internal investigation is ongoing and we will continue to look for further ways to enhance our business culture."

Meanwhile, Marsh & McLennan Co. has confirmed it is has dismissed four people in recent weeks in connection with its investigation into the Attorney General's charges. While the company declined to name the people yesterday The Wall Street Journal reported that those let go included William Gilman, formerly executive marketing director of Marsh's Global Broking unit and a company official named in Mr. Spitzer's lawsuit against Marsh for its role in the bid-rigging scheme. The firm previously replaced chief executive, Jeffrey Greenberg with Michael Cherkasky, who used to be Spitzer's boss at the New York County District Attorney's Office.

CBS Marketwatch also reported yesterday that analysts are speculating Aon will likely become the second insurance broker to be sued by Mr. Spitzer "on the same bid-rigging and steering charges as its larger rival, or entirely new allegations relating to so-called tying."

"Aon is the No. 2, so if Spitzer is going to move on from Marsh they are the obvious next target," Adam Klauber, an analyst at Cochran, Caronia & Co told CBS Marketwatch. "Like Marsh, they have lots of market power and use that to leverage relationships from different parts of their business."

"Since retail insurance brokers have consistently used tying as a method of developing reinsurance brokerage revenues, investigators are going to find evidence of this with Aon," said Andy Barile, an industry consultant who founded his own reinsurance broker in 1977.

"The bigger issue will be how much of their reinsurance brokerage revenues came from tying," Barile told CBS. On a conference call, Patrick Ryan, Aon's chairman and chief executive, refused to comment when an analyst asked him whether Aon engaged in tying.