Bermuda-based insurance giant ACE Limited was yesterday implicated in damning allegations against the insurance industry from New York Attorney General Eliot Spitzer after he 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.

The suit 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 been paid by insurers.

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

Yesterday it was reported that two AIG executives had been arrested in connection with the allegations.

Mr. Spitzer, well-known for his high-profile investigation into the mutual fund industry, turned his eye to how brokers are compensated, and if this creates a conflict of interest, after a February, 2004 letter from a legal and public policy think tank urging investigation into broker commission agreements.

Investors yesterday reacted swiftly to Mr. Spitzer?s stinging charges with insurance stock pricing taking a nosedive.

A brief Press statement from ACE last night said the company would cooperate.

?The Attorney General of the State of New York filed a civil lawsuit today against Marsh & McLennan Companies, Inc. and Marsh Inc. This is an outgrowth of the Attorney General?s investigation into broker compensation practices. Although ACE is not named as a defendant, ACE and several other insurers are referenced in the complaint. We have been cooperating with the Attorney General?s office since earlier this year in this matter and we intend to continue to cooperate fully with the investigation,? the company said.

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