Connecticut sues Marsh & McLennan unit

By Lilla Zuill

NEW YORK (Reuters) - The state of Connecticut accused a unit of Marsh & McLennan Cos Inc (MMC.N) of illegally inflating insurance costs for consumers nationwide in an antitrust suit filed on Monday.

The suit, filed in Hartford Superior Court, names the Guy Carpenter unit, Marsh & McLennan's risk and reinsurance specialist. It seeks unspecified damages, restitution and civil penalties.

Connecticut Attorney General Richard Blumenthal said the practices potentially cost consumers "hundreds of millions of dollars."

The complaint is the latest blow to Marsh & McLennan, whose Chief Executive Michael Cherkasky has been looking to regain investor confidence since an $850 million settlement in 2005 of a suit brought by the state of New York.

Guy Carpenter, in a statement, said there was "no basis" for the lawsuit, and it would defend itself vigorously against the allegations, which were based on "a fundamental misunderstanding of reinsurance facilities."

Marsh & McLennan shares, down more than 14 percent this year and about 40 percent compared to their value before New York's 2004 lawsuit, closed Monday down 34 cents, or 1.3 percent lower, to $26.43 on the New York Stock Exchange.

Blumenthal charged Guy Carpenter -- which helps insurers spread the risk of losses by placing coverage with reinsurers -- with creating markets that were, in its own words, "insulated from competition."

"Guy Carpenter served as ringleader in choreographing the reinsurance market to fix prices, stifle competitors and collect excessive profits at the expense of the entire industry," Blumenthal said in a statement.

He added that the "schemes were enabled by a shifting coterie of more than 20 co-conspirators -- reinsurers willing to play Guy Carpenter's game of deceit, and damage consumers."

The lawsuit names Excess Reinsurance Co, based in Philadelphia, and partly owned by Guy Carpenter, as a defendant in the action.

Companies named as "co-conspirators" but not as defendants include Arch Reinsurance Company, a U.S. unit of Bermuda-based Arch Capital Group (ACGL.O), Aspen Insurance UK Limited, a unit of Bermuda-based Aspen Insurance Holdings (AHL.N); and Swiss Reinsurance America Corp, a unit of reinsurance giant Swiss Re (RUKN.VX).

A spokeswoman for Aspen said the company had been on the Guy Carpenter program, but noted it had not been named a defendant. The other companies named as co-conspirators did not return calls seeking comment.

Blumenthal said the practices had gone undetected for nearly 50 years and he blamed the "unregulated" nature of the reinsurance industry for the matter having gone on so long.

Guy Carpenter over time exploited about 170 insurers, Blumenthal charged.

Blumenthal issued about 20 subpoenas in July as part of an investigation into anti-competitive practices in the reinsurance industry. He said Monday the investigation was "active and ongoing."