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Zurich combines reinsurance units,

appoints new executives

NEW YORK-The Zurich Insurance Group is restructuring its reinsurance operations into a single global business with four regional headquarters, says Steven M. Gluckstern, chairman of New York-based Zurich Reinsurance Centre Inc. and a member of the group's corporate executive board.

Richard E. Smith, ZRC's president and chief executive officer, will be CEO of the North American region; Dennis Purkiss, CEO of Zurich Re U.K., will be CEO of the London market region; and the group is in the final stages or recruiting a CEO for the Zurich-based operation. Plans are still being developed for an Asian regional headquarters as well, said Mr. Gluckstern, who is responsible for Zurich's global reinsurance business and is overseeing its reinsurance strategy.

The strategic focus is on the development of a "truly global business as opposed to an isolated geographic business," with skills, talent and expertise to be shared globally, said Mr. Gluckstern.

The intent of the restructuring is to "put our arms around the business" under a single leadership, while continuing to be a major player, particularly in "non-commodity reinsurance," said Mr. Gluckstern.

Underwriter, exec sentenced

NEW YORK-United States Aviation Underwriters Inc. was fined $20.5 million, and its former chairman, John V. Brennan, was sentenced to nearly five years imprisonment last week in a criminal fraud case involving insurance allocation.

If the convictions are upheld on appeal, all insurers will face stringent new operating requirements and will have to rethink what formerly were routine business decisions, said Harold J. Clark, USAU's current chairman.

"The application of federal mail fraud laws to business decisions is alarming," Mr. Clark said.

The sentencing follows a trial in the U.S. District Court for the Eastern District of New York last year in which a federal jury found USAU, the underwriting manager of U.S. Aircraft Insurance Group, and Mr. Brennan guilty of 43 counts of mail fraud (BI, July 8, 1996).

The case centered on the allocation of claims after the crash of Pacific Southwest Airlines Flight 1771 in December 1987. The crash, which killed all 39 passengers, occurred after a disgruntled former employee smuggled a gun on board and shot his former supervisor, both pilots and himself.

USAIG was the lead insurer for both PSA's parent, USAir Group Inc., and Ogden-Allied Corp., the ground checkpoint security firm. The USAir coverage was completely reinsured, and at last year's trial prosecutors argued that USAU saved USAIG at least $7.5 million in claims by allocating all of the loss to the USAir insurance contract.

At last week's sentencing, Mr. Brennan also was personally fined $100,000 and USAU was ordered to continue a special compliance program established after the trial last year that established an independent monitoring committee, including two outside lawyers, to oversee USAU claims handling.

The case will be appealed to the 2nd U.S. Circuit Court of Appeals in New York. USAU is a wholly owned subsidiary of General Reinsurance Corp.

Zenith to buy Riscorp book

WOODLAND HILLS, Calif.-Zenith National Insurance Co. will purchase Sarasota, Fla.-based Riscorp Inc.'s workers compensation insurance and managed care business for at least $35 million in cash.

Zenith officials said they see the acquisition providing their company "profitable workers compensation business, additional geographic diversification and state-of-the-art managed care capability."

After the purchase, Riscorp executives will "go about trying to resolve (the company's) contingent liabilities, in essence, the lawsuits it faces," a company spokesman said. "Once those are resolved, the shareholders will receive any remaining cash and assets." Financially troubled Riscorp recently announced plans to close offices, lay off workers and restrict its underwriting (BI, June 16).

The final purchase price paid by Woodland Hills, Calif.-based Zenith, a unit of Zenith National Insurance Corp., will be the difference between the book value of the assets purchased and the liabilities it assumes from Riscorp on the deal's closing date, subject to the $35 million minimum. Zenith will finance the purchase with bank financing and internal funds.

Zenith will not purchase the stock of Riscorp, which closed at 15/16ths June 26, or its affiliates, or assume their corporate liabilities. The deal's closing is subject to the review of state and federal authorities and Riscorp shareholders. Until the deal closes, Zenith will reinsure all new and renewal Riscorp workers comp policies.

Tribe to form comp system

MASHANTUCKET, Conn.-In an effort to increase its autonomy and efficiency in handling workers compensation risks, Connecticut's Mashantucket Pequot Tribal Nation will begin operating its own workers comp system this week.

MPTN, which employs about 12,000 people, operates Foxwoods Resort Casino and other businesses in eastern Connecticut. As a sovereign nation, under rights granted by Congress, MPTN is free to operate independently of the state workers comp system.

The MPTN formerly participated in the state system, and the tribal council is modeling its workers comp code after that of Connecticut so that the change will be easier for employees, said Richard Paton, chief risk management officer for the MPTN.

The MPTN already operates its own court system and is looking to hire its own workers comp commissioner. Efficiency is the major advantage to creating an independent system, Mr. Paton said.

Other advantages include greater flexibility in managing claims and a more convenient hearing and adjudication process for workers, he said. The tribal nation will self-insure its risks.

The Navajo Tribal Nation of Window Rock, Ariz., operates its own workers compensation system and self-insures its risks.

Punitive award overturned

SPRINGFIELD, N.J.-A New Jersey appellate court threw out as excessive an $8 million punitive damage award ordered in 1994 against Schering-Plough Corp. in an age discrimination case.

Calling the punitive damage award "manifestly outrageous," a three-judge panel of the Superior Court Appellate Division in New Jersey ordered a new trial to determine punitive damages. The appeals court upheld the lower court finding of age discrimination and $435,000 in compensatory damages.

Salesman Fred Maiorino, a Schering-Plough veteran with 35 years' experience, was fired in 1991 at the age of 63. He alleged that the firing was due to his age, while the Madison, N.J.-based pharmaceutical company contended it was due to poor performance.

Reading from a statement, a spokesman for the company said Schering-Plough was "gratified" by the June 25 ruling but was "disappointed" the court affirmed the compensatory damages.

Aetna sues over Texas HMO law

HOUSTON-Aetna Health Plans of Texas Inc. is suing to block implementation of a Texas law that would allow medical malpractice lawsuits against managed care plans.

The Houston-based health maintenance organization filed the suit earlier this month in U.S. District Court in Houston, charging that the law scheduled to take effect Sept. 1 would drive up health care costs and make care less accessible for many Texans.

The suit claims the law is pre-empted by the federal Employee Retirement Income Security Act of 1974 and the Federal Employees Health Benefit Act.

The Texas Department of Insurance and Insurance Commissioner Elton Bomer are named as defendants because of their authority to enforce the act.

The Texas law is the first to allow such suits, though similar laws are pending in Missouri and New York.

Travelers repurchases stock

HARTFORD, Conn.-Travelers Property Casualty Corp. has agreed to repurchase 6.6 million shares of its common stock held by various investors, increasing the Travelers Group's ownership of the unit to 83.4%from about 82% said a spokesman.

Hartford, Conn.-based Travelers agreed to pay a total of $240.8 million for 20%of the holdings of each of the private investors: Aetna Services Inc., J.P. Morgan Capital Corp., Fund American Enterprises Holdings Inc. and The Trident Partnership L.P. The shares purchased will be used to issue stock for various compensation plans and for other corporate purposes.

Robert I. Lipp, chairman and chief executive officer of Travelers Property Casualty Corp., said in a statement, "These repurchases are a solid investment and represent our continuing positive outlook for the company."

Briefly noted

London-based broker C.E. Heath P.L.C. on Friday agreed to a management buyout of the company. The offer, which is valued at approximately 98 million pounds ($163.2 million), would pay 143 pence ($2.38) per share for Heath stock, which was trading at 129 pence ($2.15) as of last Friday. Heath, which ranks among the world's largest brokers, announced the buyout negotiations May 30 (BI, June 9). The management bid was backed by DLJ Phoenix Private Equity Ltd. . . .HCC Insurance Holdings Inc. of Houston is acquiring all outstanding shares of Managed Group Underwriting Inc., a Kansas City, Mo.-based managing general agency specializing in medical stop-loss insurance. . . .The House Banking Committee has narrowly approved a financial services reform bill that would allow affiliations between commercial banks and insurance companies and other non-banking businesses. The measure-H.R. 10-is expected to be taken up by the Commerce Committee later this summer. . . .CIGNA Corp. said its CHC Acquisition Corp. subsidiary has completed its $21.75 per share cash tender offer for the outstanding common stock of Healthsource Inc. CIGNA announced in February it planned to acquire Healthsource for about $1.7 billion, including the repayment of about $250 million in outstanding Healthsource long-term debt (BI, May 12, March 3). . . .

Sen. James Jeffords, R-Vt., said he intends to introduce legislation that would gradually increase the lifetime benefits employers and insurers would have to offer in their health care plans. The minimum limit would be set at $5 million in 1998 and then would be increased to $10 million in 2002. However, the lifetime cap requirement would not apply to employers with fewer than 20 employees. Typically, employers now include limits of $1 million to $2 million in their health care programs. . . .Edgar "Sandy" Clark has resigned as executive director of the Surplus Lines Assn. of California. Mr. Clark joined the association in 1995 after numerous years in the brokerage side of the insurance business, most recently with the former Alexander & Alexander Services Inc. in San Francisco. No replacement has been named yet, and Mr. Clark could not be reached to discuss his plans.