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Spain charges big insurers developed construction coverage cartel

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MADRID—Spain's competition watchdog says it has extensive evidence to justify €120.7 million ($180.1 million) in fines it levied against six insurers and reinsurers for allegedly fixing prices for construction defect insurance.

The Madrid-based Comisión Nacional de la Competencia says the group of European insurers and reinsurers for more than five years controlled the price of decennial insurance, which provides property developers with 10 years of coverage against flaws or defects in new construction projects.

The companies reacted angrily to the commission's charges, which were leveled earlier this month, and say they will fight the fines in court.

Decennial insurance has been compulsory on new residential construction in Spain since May 2000. The cartel operated between 2002 and 2007, the CNC alleges.

The insurers and reinsurers accused of fixing prices on the coverage were fined varying amounts (see related box).

The CNC says proof that a cartel existed is found in a document dated Dec. 5, 2001, indicating that five of the companies exchanged information on setting minimum premiums on decennial insurance in the Spanish market. Madrid-based Caja de Seguros Reunidos, Compania de Seguros y Reaseguros S.A. joined the arrangement in 2006, according to the CNC, which did not release the document but referenced it in its resolution levying the fines.

“It is a very explicit document,” said María Naranjo, chief of staff at the CNC. Not only did the document call for minimum prices for the coverage, it detailed retaliation measures to be taken against insurers in the Spanish market that did not go along with cartel pricing, she said.

“And that's just the beginning,” said Ms. Naranjo.

The CNC has produced its own documentation citing numerous meetings of the insurers and reinsurers and the steps they allegedly took to set coverage prices.

A CNC statement said meetings between the companies resulted in “complete uniformity in the premiums proposed by the different underwriters present in the Spanish decennial market and the elimination of competition.”

The insurers and reinsurers tried to set up a cartel that included all insurers offering decennial coverage in Spain, the CNC alleged. “Toward this end, the reinsurers undertook to work the minimum price agreement into the pricing guidelines they annex to the reinsurance contracts. These guidelines are compulsory for insurers,” the agency said.

Most of the companies accused of participating in the alleged cartel denied the allegations. By late last week, all of the companies except Munich Reinsurance Co. said they would appeal the fines to the Audiencia Nacional, one of Spain's high courts.

In statements, Madrid-based Asefa S.A. called the commission's charges “completely unfounded,” and Zurich-based Swiss Reinsurance Co. branded them “unjustified.”

In a statement, Caja de Seguros Reunidos denied there was any price-fixing agreement and said the CNC had damaged the insurer's reputation by filing the charges.

Asefa said the CNC move “very seriously injures the company's image.”

However, one large insurance buyer in Spain said the CNC is on the right track.

Prices throughout the market for decennial coverage were “not exactly the same, but similar,” said the head of insurance at a large Spanish construction company, who asked not to be named. “This gives the impression that there was some agreement.”

The investigation into the alleged price-fixing was initiated by the directorate of investigation at the CNC, said Miguel Ángel Martín de Pablos, a member of Ms. Naranjo's staff. There were no complaints from policyholders, he said.