Exhibit 10.1


	
  

  	
  X

  
	
   

  	
   

  
	
  In the Matter of

  	
   

  
	
  The St. Paul Travelers Companies, Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
  X

  



 


ASSURANCE OF DISCONTINUANCE


Pursuant
to the provisions of Executive Law § 63 (12), the Donnelly Act (Gen. Bus. Law §
340 et seq.), the Martin Act (Gen. Bus. Law § 352-c) and the common law
of the State of New York, Eliot Spitzer, Attorney General of the State of New
York caused an investigation to be made of The St. Paul Travelers Companies,
Inc. and its subsidiaries (“St. Paul Travelers”) relating to practices in the
marketing, sale, renewal, placement or servicing of insurance and reinsurance
and their accounting and public reporting practices, including those relating
to nontraditional and finite reinsurance (the “Investigation”); and pursuant to
Conn. Gen. Stat. § 35-24 et seq. (the Connecticut Antitrust Act) and
Conn. Gen. Stat. § 42-110a et seq. (the Connecticut Unfair Trade
Practices Act), Richard Blumenthal, Attorney General of the State of
Connecticut, caused an investigation to be made of St. Paul Travelers on the
subject matter of the Investigation; and pursuant to the Illinois Antitrust
Act, 740 ILCS 10/1 et seq. and the Illinois Consumer Fraud and Deceptive
Business Practices Act, 815 ILCS 505/1 et seq., Lisa Madigan, Attorney
General of the State of Illinois, caused an investigation to be made of St.
Paul Travelers on the subject matter of the Investigation (collectively the “Attorneys
General Investigations”); and Howard Mills, the Superintendent of Insurance of
the State of New York (the “Superintendent”), caused an investigation to be
made of St. Paul Travelers on the subject matter of the Investigation (the “Superintendent’s
Investigation”); and based upon the Attorneys General Investigations and the
Superintendent’s Investigation the following findings have been made:









 



1.    In April 2004, St. Paul Travelers was formed
through the merger of The St. Paul Companies, Inc. (“St. Paul”) and Travelers
Property and Casualty (“Travelers”), two of the nation’s leading property
casualty insurance companies.  As most of
the conduct in this Assurance refers to events prior to April 2004, the conduct
of the individual, pre-merger companies will be specified.


2.    Since at least the mid-1990s, St. Paul and
Travelers and other insurers have paid hundreds of millions of dollars in
so-called “contingent commissions” to insurance brokers and agents
(collectively “Producers”(1)), including Marsh & McLennan Companies, Inc.
or Marsh Inc. (collectively “Marsh”), Aon Corporation (“Aon”),Willis Group
Holding Ltd. (“Willis”), Hilb Rogal & Hobbs Company (“HRH”), Arthur J.
Gallagher & Co. (“Gallagher”), and Acordia, Inc. (“Acordia”) as well as
tens of thousands of smaller brokers and independent agents.


3.    St. Paul and Travelers entered into a number
of undisclosed contingent commission agreements (also known as “override”
agreements) with Producers, such as Marsh, Aon, Willis, HRH, Gallagher, and
Acordia.  As a result of these
arrangements, the Producers steered insurance policies to St. Paul and
Travelers to give them new business and to keep retention levels (that is the
percentage of customers who elect to keep their insurer when a policy comes up
for renewal) of existing St. Paul and Travelers policies above certain
benchmarks. Producers purported to offer unbiased recommendations to their
clients about the selection of






(1)           For purposes of this Agreement, “Producer”
shall mean any insurance broker as that term is defined in § 2101(c) of the
Insurance Law of the State of New York or any independent insurance agent as
that term is defined in § 2101(b) of the Insurance Law of the State of New York
and who offers insurance for a specific product or line from more than one
insurer or affiliated group of insurers.



 2
 






 



insurers when, in many cases, the Producers’
recommendations were biased in favor of insurers who paid contingent
commission.


Steering


4. Under these
agreements, when a Producer steered new business or helped St. Paul or
Travelers retain its existing business at renewal time, St. Paul or Travelers
paid the Producer higher contingent commissions.  Examples of these arrangements are set out
below:


A. Acordia


                5. In its promotional materials,
Acordia maintains that  “Acordia’s core
values center around doing what is ethical and what is right for the customer.”  It boasts, “If it is right for the customer
it is right for Acordia.”  Contravening
these statements, Travelers and Acordia entered into a large number of
contingent commission deals (at the local, regional and national levels) from the
late 1990’s (if not earlier) to the present. 
As a result of these deals, Acordia agreed to “sweep more business to
Travelers” and steered thousands of unsuspecting individuals and small
businesses to Travelers in return for millions of dollars in contingent
commissions.


                6. For example, in 1999 Acordia
initiated a “Millennium Partnership Program” in order to “leverage our major
market [insurer] relationships in conjunction with our strategic initiative to
electronically link ourselves to markets [insurers].”  Acordia hoped that this program would
generate millions of dollars from “Preferred Market Partners” over a three year
period. The program was designed to consolidate insurance business with a very
small number of Preferred Market Partners by giving them “the inside track for
future business development.” Travelers, along with four other insurers (Chubb,
Hartford, Royal SunAlliance and Atlantic Mutual), entered into Millennium
Partnership Agreements with Acordia.  To “incent
the proper



 3
 






 



national
and local commitment to the program,” Travelers advanced Acordia  $158,610 in early 2000. Travelers advanced
$145,000 to Acordia in 2001, and $182,920 in 2002, giving Acordia a strong
incentive to steer business to Travelers so that it could avoid repaying these
advances. Acordia responded to this largesse by making sure that Travelers’
business increased.  Travelers was
pleased with the results of the Millennium agreement and renewed it in 2003
under terms similar to the original deal. 
Acordia was pleased as well, noting that the Millennium project had
generated nearly $7 million in added revenue, nearly 10% of which was from
Travelers, in the first year and a half “with little, if any, associated
expense.”


                7. The Millennium agreement most
particularly affected two Travelers units: Travelers Personal Lines and
Travelers Select, a Travelers unit specializing in the small commercial segment
of the market (i.e., companies whose premiums are under approximately $10,000
per year).  These Millennium Incentive
Agreements generally provided a 1% override on top of the standard commission
for all business written by Acordia with Travelers Select and most of the
business written by Acordia with Travelers Personal Lines.  Travelers Select paid Acordia the advances
described above on these Incentive Agreements and Travelers Personal Lines paid
Acordia an advance on its Incentive Agreement in 2000.


                8. These Travelers Incentive
Agreements went beyond this simple override and advance scheme.  They also included either a “Growth Override”
which could add hundreds of thousands of dollars of increased overrides if
written premiums increased sufficiently, or a “Policy-In-Force Override” which
could add up to 7% more commission if the number of policies in force with
Travelers Select grew by more than 2,000 policies.  As Travelers told Accordia,  “Our Millenium [sic][Travelers Select]
proposal is based on the belief that while our



 4
 






 



relationship
has been mutually beneficial, superior compensation demands outstanding
performance.” Acordia responded to these incentives by steering more business
to Travelers, thereby earning a Growth Override under the Personal Lines
Incentive Agreement of $278,297 and of $245,613 under the Travelers Select
Incentive Agreements.  As an April 2001
e-mail from its P/C Executive Marketing Group explained after meeting with
Travelers to review the 2000 results, Acordia was “look[ing] forward to
implementing plans to sweep more business to Travelers . . . .”  By February 2002, Acordia’s Chief Marketing
Officer reported internally that it had increased written premiums with
Travelers Select by 9%.  In the Personal
Lines, Acordia increased written premiums 14.3% in 2004 to earn a $235,000
Growth Override that year.


                9. A feature of these Travelers
Select agreements with Acordia was to offer Acordia the use of a Travelers
Select Service Center for small commercial policies.  By using the service center arrangement,
Acordia allowed Travelers to answer all of its small commercial customers’
various service-related calls, such as ones dealing with claims or premium
payments.  When an Acordia customer with
a Travelers Select policy called Acordia with a question about a policy or
claim, the customer would immediately be connected to the Travelers Service
Center, which would answer the call as if it were an Acordia office.


                10. Travelers misled these
customers and convinced more than 90% of them to keep their policies with
Travelers at renewal time.  Travelers
charged Acordia 2% of premiums for use of the service center, but offered to
reduce this amount to 1%, or even waive it entirely, if Acordia swept at least
75% of this business into the Travelers Service Center.  As an Acordia November 2003 email to
Travelers summed up, the service center for small business was “essentially
another consolidation play . . . .”



 5
 






 



                11. Travelers and Acordia also entered into special, one-off
deals to steer whole books of business involving thousands of customers.  For example, when Kemper Insurance Company’s
rating was lowered by insurance credit rating organizations, Travelers Select
quickly approached Acordia to propose that Acordia transfer Kemper’s entire
book to Travelers. Travelers Select provided very significant incentives to
Acordia to make sure this would happen, paying up to a 10% override if Acordia
placed over 75% of the Kemper book with Travelers. Travelers even sent in “SWAT
teams” to local Acordia offices to facilitate the transfer of Kemper
business.  Acordia told its brokers in a
May 2003 email to its Managing Directors, entitled “Consolidation of Kemper
Accounts,” that this was a “great opportunity” and that “[t]his deal is in addition to the
National [Contingent] Compensation agreement we have with Travelers and any
local agreements you may have in place.” 
(Emphasis in the original.)


B.
HRH


                12.  HRH claims that it represents the best
interest of its clients.  For example, on
its 2000 and 2001 web page HRH claimed, “we find or create the best products
and services for your insurance needs, and we negotiate with insurers to secure
the most favorable terms for you.” 
Contrary to that claim, in 1997 HRH began negotiating a “Carrier
Consolidation Initiative.”   The Carrier
Consolidation Initiative was designed to “leverage” HRH’s ability to steer
business into higher contingent commission payments for HRH.


                13. HRH quickly focused its
attention for the Carrier Consolidation Initiative on three insurers,
Travelers, CNA and The Hartford.  These
companies became known as the “Big 3.” The consolidation effort was sometimes
referred to as “de-marketing.”


14. In July of
1998, an HRH team flew to Connecticut to negotiate the terms of the 



 6
 






 



consolidation agreement with the president and other
executives of Travelers.  In these
discussions, Travelers insisted that the number of insurance companies that
benefitted from the arrangement be kept small and the terms strictly
confidential.  A Travelers senior vice
president wrote to HRH: “I am pleased to share our expression of interest to
build a strategic partnership. I have summarized below the key items from our
perspective: . . . . Travelers & HRH agree terms and conditions will be
handled with ABSOLUTE CONFIDENTIALITY .
.. . .  HRH will limit participation to a
maximum of 3 national carriers with ‘similar’ programs.”  (Emphasis in original).  The senior vice president then ended his
letter, saying that “we look forward to building on our already strong
relationship.  These terms and conditions
assume a similarity of intent with the strategic partners.”


                15. Once the agreements were
signed, HRH began systematically to identify customers whose business could be
switched to Travelers and the other selected insurers.  Sales representatives from the “Big 3”  visited each HRH office to help smooth
implementation of the plan and determine which non-preferred insurers’ books of
business would be “book rolled” wholesale to one of the Big 3 carriers.  Travelers even dedicated a full time employee
whose job was to “consolidate” HRH’s small business insurance customers with
Travelers.  HRH  told its clients, “We . . . are confident
that it is in your best interest” to move to one of the Big 3 carriers but
never disclosed its own financial motives for the switch.


                16. As part of the “book roll”
process, Travelers sometimes increased their new customers’ premiums by as much
as 10%.  As in the case of Acordia,  HRH customers that were steered to Travelers
insurance had their policies administered by the Travelers Select Customer
Service Center in Elmira, New York.  HRH
customers did not know their account had been sent



 7
 






 



to the
service center until they received a “Welcome Letter” from HRH, on HRH
letterhead, telling them about “our Customer Service Center.”  As with Acordia, if an HRH customer called
the service center, the service representatives were instructed to answer the
phone simply “customer service,” without indicating that the center was
actually owned and operated by Travelers and staffed with Travelers
employees.  Thus, if customers called
with a question or concern about their insurance, they would not be speaking
with their so-called independent insurance agent, but with a Travelers
employee.


                17. The plan paid high dividends
to both HRH and Travelers.  An August
1999 HRH memo describing the success of the program at increasing the premium
volume with Travelers proclaimed “a positive 8.5% growth 1999 YTD vs. 1998 and
our retention ratio is 84.1%.” Such a high retention and growth rate was highly
profitable to HRH because Travelers was paying HRH a 3.5% override on all
policies steered to Travelers and 5% for all new policies.


                18. Travelers was happy with the
“consolidation plan.”  As one Traveler’s
executive wrote, “The HRH-Travelers strategic partnership has been very
successful.  You have demonstrated an
acute ability to initiate and execute a business plan that has produced
tremendous results.”  In recognition of
these “tremendous results,” Travelers gave HRH’s Connecticut office an advance
$25,000 “good faith” payment in anticipation of HRH successfully steering
clients in 2000.  All told, Travelers
received some $580 million in premium through HRH during operation of the Big 3
arrangement and more than doubled its annual premium volume with HRH.


                19. Additionally, in the “Select”
market, i.e. insurance for small businesses, Travelers’ participation in the
Big 3 arrangement with HRH amounted to a customer allocation



 8
 






 



scheme.  HRH, Travelers and the other Big 3 carriers
agreed that in return for hidden contingent commissions to HRH, the Big 3
carriers would split among themselves more than 80% of HRH’s Select commercial
accounts nationwide.  Travelers
understood that no Select accounts would be switched from one carrier to
another and that HRH offered available books of business to only one Big 3
carrier at a time.  Only if the chosen
carrier chose not to take a large enough share of the book would the business
be offered to another Big 3 carrier. 
Travelers knew who the other members of the “Big 3” were, and all three
agreed not to compete for available books of business on the basis of
commission paid to HRH.  Indeed, one
Travelers vice president wrote that: “to ensure a level playing field, each
carrier partner agreed to the same financial program.”


                20. The steering relationship
continued to yield high profits for Travelers and continued unabated until the
end of 2004, when HRH terminated the arrangement in response to the Attorneys
General and Superintendent’s investigations.


C. Gallagher


21. Gallagher also steered business to St. Paul and
Travelers in exchange for undisclosed contingent commissions.  In December 2003, a senior Gallagher
executive sent an email to all branch and regional managers urging them to “pump”
business into seven favored insurers, including St. Paul and Travelers:


With year-end approaching, it is our last chance to pump additional
premium volume into these markets so that it is included in the 2003 contingent
income calculation.  Some of the more
lucrative incentive programs are in place with these companies


	
  1. Crum & Forster 

  	
   

  	
  (National)

  
	
  2. Hartford

  	
   

  	
  (National)

  
	
  3. St. Paul

  	
   

  	
  (Local)

  
	
  4. CNA

  	
   

  	
  (Local)

  



 



 9
 






 



 


	
  5. Chubb 

  	
   

  	
  (Local)

  
	
  6.Travelers

  	
   

  	
  (Local)

  
	
  7. Wausau

  	
   

  	
  (National)

  



 


Any opportunity which you or your staff have to support these markets,
either through renewal retention or new business, will help generate additional
revenue for [Gallagher].


D. Willis


22. Willis also
made systematic efforts to steer business to St. Paul.  A September 2003 internal report at Willis
stated, “Marketing centers are reviewing contingent, bonus and override plans
to maximize all agreements during the fourth quarter.  Special attention is being given to St. Paul,
Chubb, Liberty Mutual, Hartford and Crum & Forster due to special
[contingent commission] agreements.”  The
following month, Willis put together a revenue growth strategy focused on
contingent commissions.  One of the “Key
Objectives” in the strategy was to “[m]aximize premium volume flow to key
carriers with the most attractive contingent income agreements.”  The strategy was implemented through emails
and other communications from senior management exhorting Willis
personnel:  “Don’t forget the advantages
of placing as much business as possible with the carriers we have negotiated
special deals with, as you look for ways to maximize revenues the last few
months of this year and into 2004.”  And
a November 3, 2003 email from a senior Willis executive directed subordinates
to “feed our biggest contingency players, Hartford, St. Paul, Chubb and Liberty Mutual.” (Emphasis supplied.)


Reinsurance Tying


23. Travelers
engaged in other improper activities to ensure that brokers steered their
customers to Travelers.  This included
tying the use of a broker for reinsurance placements to the placement of the retail  insurance with Travelers.  For example, in 2001 Travelers Bond



 10
 






 



business unit communicated to Aon Re that it was
considering moving its reinsurance brokerage business to Guy Carpenter, Aon Re’s
competitor.  In response, Aon Re offered
a strategic partnership under which it would increase Aon’s placement of retail
business to Travelers Bond if Aon Re maintained the reinsurance brokerage
business.


                24. In a series of meetings with
Travelers, executives at Aon stated that if Travelers continued to use Aon Re,
Aon would commit to increasing its retail placements with Travelers. These
meetings were followed by a formal offer sent from Aon to the CEO and CFO of
Travelers Bond business unit, providing that if Travelers maintained the
reinsurance relationship, Aon would pay Travelers up to $1.5 million and that
Aon could eliminate or “claw back” Aon’s payment if it increased its retail
business to Travelers.  Ultimately,
although on slightly different terms, a clawback agreement was entered into by
the parties.  Aon’s retail clients were
never informed of any clawback agreement or Aon’s incentives to steer retail
business to Travelers Bond.


Excess Casualty Bid Rigging


25. St. Paul also
agreed to join other insurers and Marsh in rigging the process of bidding for
excess casualty insurance policies. 
Among insurance lines, excess casualty policies typically had the
highest rates of contingent commissions, and therefore, were the most
profitable to Producers. For example, in the 2002 placement service agreement
between St. Paul and Marsh in base and contingent commissions and relating to
excess casualty, St. Paul agreed to pay Marsh an aggregate percentage of gross
written premium that varied from a minimum of 10% for the first $1 of premium
to 17.5% for any amount over $55 million dollars of premium.


26. St. Paul
participated in the scheme in two ways: 
(1) where St. Paul was the 



 11
 






 



incumbent on the
lead layer of business, Marsh generally sought to “protect” St. Paul’s
incumbency and gave St. Paul an unfair competitive advantage by seeking out
non-competitive bids from other insurers; and (2) where St. Paul was not the
incumbent on the lead layer, St. Paul agreed to provide quotes to protect the
incumbent, with the understanding that St. Paul would receive business on an
excess layer without competition, thereby allowing it to enter the market.2 These practices were to the
detriment of the insured, whose best interests Marsh was supposed to be
serving.


                27. The details of the scheme
were as follows.  When St. Paul was the
incumbent carrier on a layer, or was otherwise chosen by Marsh to win a client’s
excess layer business, Marsh set a target for St. Paul that included proposed
premium and policy terms for St. Paul’s bid. 
If St. Paul met this target, Marsh generally arranged for St. Paul to
win the business, regardless of whether St. Paul, or any other insurance
company, could have quoted better terms for the client.


                28. In order to control the
market, Marsh instructed other insurance companies to provide intentionally
losing bids that were inferior to those provided by the incumbent or its chosen
winner for the excess layer.  These
losing quotes were known, among other things, as “fake,” “backup,” “supportive,”
“alternative leads” or “protective quotes.” 
They were also known as “B Quotes” or simply “B’s.”  After securing such quotes, Marsh would
present them to clients as bids obtained through a competitive process.  This pretense of competition was






                (2)           Excess
casualty insurance is typically sold in multiple layers of coverage over and
above the insured’s primary casualty policy with several different insurers
each covering a layer.  For example,
Insurer A’s primary policy provides coverage up to $10 million; Insurer B
provides the first layer excess coverage from $10 million to $25 million; and
Insurer C covers the next layer from $25 to $50 million.



 12
 






 



intended to, and did, give clients the impression that
St. Paul’s bid was the best available. 
It also had the effect of directing business to St. Paul, not on terms
best for the client, but rather on terms advantageous to St. Paul.  Certain employees of St. Paul were aware of
this arrangement and of the “B Quotes” supplied by other insurers.


29. The
arrangement with Marsh allowed St. Paul to sharply increase the premiums
directed to it by Marsh.  For example in
2001, St. Paul received only $22 million in excess casualty premium in the
United States from Marsh.  This number
increased in 2002 to $63 million, $98 million in 2003 and $108 million in
2004.  Set forth below are specific
examples of St. Paul’s participation in the bidrigging scheme:


a.                                       In or about June of 2003, Client A sought
competitive bids for its excess casualty coverage on which St. Paul was the
incumbent.  An internal Marsh e-mail
stated, “Risk Manager has said that she wants to see options other than the
incumbent.”  Despite the wishes of the
Client, Marsh had no intention of opening St. Paul to competition.  St. Paul, with Marsh’s blessing, proposed
raising the premiums of the policy over 40% in its bid from the year
before.  Marsh, to convince its client
that this increase was justified, reached out to Zurich and ACE to provide
higher non­competitive bids. As a Marsh executive wrote to Zurich:


I need a protective quote.


Please email me indicating [sic] you would need a 2mm
per occurrence, and make your premium for [the layer] unattractive, St. Paul is
the incumbent and they offered [the layer for] $351,000 (GL 1/2/2 AL 2).  Also make the terrorism surcharge in addition
to this premium.



 13
 






 



                                                Both Zurich and ACE responded to Marsh’s
request with quotes that were higher than St. Paul’s bid.


b.                                      In or about July of 2003, Client B sought
to renew its excess casualty coverage and asked Marsh to solicit competitive
bids.  Marsh’s broking plan dictated that
St. Paul was to receive the coverage for the lead layer at a premium of
$200,000.  Once St. Paul hit that target
in its bid, Marsh sought protective B Quotes. 
An internal Marsh e-mail stated: “I am going to need a B quote from ACE
.. . . so I can get CA [the Marsh client advisor] off my back.  In fact, please have ACE Excess release a
quote for [the lead layer].”   This was
followed by an e-mail from Marsh to the ACE underwriter, which stated:


St. Paul quoted a lead . . .  (same attachments as expiring) and hit target
of $200,000.  I rated up the program and
came to approx. $460,000 for a lead . . . . [giving ACE an indication of what
to bid]


Can you please provide us with a back-up indication at
your soonest.  Should you need any
additional information, please advise.  I
await your indication.


                                                Later that same day, ACE responded by
stating that its price would be about $450,000 or more than double St. Paul’s
price.  St. Paul received the coverage.


c.                                       In or about November of 2001, Client C
sought excess casualty coverage. In the past, it had placed its coverage
directly, without using a broker. However, for the 2002 year it hired
Marsh.  Rather than allow the market 



 14
 






 



                                                to compete for the new coverage, Marsh
set a broking plan that called for Zurich to receive the coverage.  The broking plan stated that “we will need to
do a Type B on this to MANY markets for this client.  Therefore submissions to MARP [Munich American Risk Partners], Chubb, Kemper,
St. Paul, Liberty [Mutual], AIG.” (Emphasis in original). Shortly
after the broking plan was determined, Zurich met the target and Marsh went
about getting “B Quotes” to make Zurich appear to be the winner of a bona-fide
competition.  On December 18, 2001 a
Marsh executive wrote to St. Paul and stated:


Specs were forwarded in November for [Client C].  Zurich’s renewal quote is $175,000 for [the
lead excess layer].  Primary AL is $2MM.


Josh is asking for non-quotes.  If you didn’t already respond to [the Marsh
executive] . . ., please feel free either to decline for class or quote higher
(please).


                                The
next day St. Paul responded by issuing a quote 30% higher than Zurich’s bid.


d.                                      In or about October of 2003, Client D was
looking to rebid its excess casualty insurance and asked Marsh to solicit
competitive bids.  Marsh’s broking plan
called for Zurich, the incumbent, to receive the renewal at a premium of
$176,000 for $50 million of coverage and for St. Paul to receive one of the
excess layers.  Once Zurich matched the
$176,000 target, Marsh devised a plan whereby St. Paul would bid an
unattractive amount on only $25 million of coverage, thereby allowing Marsh to
steer 



 15
 






 



                                                the client to Zurich.  To enact this plan, a Marsh broker forwarded
the


following internal e-mail to a St. Paul underwriter:


Enclosed is a copy of Zurich’s renewal quote for the
lead $50m. They have hit our target of $176,000 for renewal. . . . St. Paul is also
in the broking plan for an alternate lead. 
Since Zurich will be OK on the renewal, please send me an email
confirming that St.Paul’s lead for $25m would be at least $125,000.


St. Paul responded, as requested, in an email stating “Our
Lead $25,000,000 . . . will be at least $125,000.”   Once it had the manufactured St. Paul quote,
Marsh wrote to its client:


St. Paul provided an indication for the $25 million
lead of $125,000. To complete the $50 million ($25 million excess of $25
million) as an alternative to the Zurich $50 million lead quote, the
indications that were obtained from several insurer . . . were at least
$70,000. Therefore, the premium would be at least $195,000 for the $50 million
structured on this basis in comparison to the Zurich lead $50 million quote of
$176,000.


The client, having been deceived by Marsh and the
insurance companies, awarded the contract to Zurich.


Finite Reinsurance


30. St. Paul also
used non-traditional and finite reinsurance to improperly enhance both its own
earnings and those of its clients.  In a
series of contracts, St. Paul entered into reinsurance agreements that appeared
to contain enough risk to be accounted for as legitimate reinsurance.  Unknown to its auditors, however, St. Paul
entered into “understandings” outside of the written contracts that specified
that neither side would lose or profit beyond an agreed-upon margin, with any
gains or losses to be made up in subsequent years.  In this way, neither side had any real risk.  The following is an example of this type of
conduct by St. Paul: 



 16
 






 



31. Over a number
of years, St. Paul entered into a series of reinsurance contracts with various
reinsurance companies through its agent, a reinsurance brokerage firm.  Outside of these contracts, St. Paul reached
an “understanding,” through its agent but approved by St. Paul, that various
reinsurers would achieve a set level of return and if that level was not
achieved, any difference would be made up through future contracts.  For example, in the years 1999 through 2002,
St. Paul, through its agent, entered into aggregate excess of loss reinsurance
contracts with Underwriters Reinsurance Company (Barbados).  During the discussions for the 2001 renewal,
its reinsurance broker, acting on behalf of St. Paul, made clear that, despite
the wording of the reinsurance contract between the parties, any losses
suffered by Underwriters Re would be made up by St. Paul.  In a letter dated December 22, 2000, a Senior
Vice President at its reinsurance broker wrote to Underwriters Re:


St. Paul Re intends to alleviate the loss position on
the 1999 contract by using excess funding, if any, on the 2000 contract and any
future contract not commuted. . . . It is St. Paul Re’s intention to commute
the 1999 year before the 2000 year is commuted. 
To the extent that the 1999 year suffers an economic loss, then St. Paul
Re would forfeit that portion of its excess funding refund, that would be due
at the time of commutation under the 2000 contract.


32. Two years
later, the parties were again discussing how to deal with losses in the contract.  An Underwriters Re executive wrote to St.
Paul’s reinsurance broker and quoted from the December 22, 2000 letter.  She then wrote:


Based upon this framework of understanding and based
upon recent discussions with ... [St. Paul’s reinsurance broker] and SPRE [St.
Paul Re], it is our understanding that any excess funding in the 2001 Agg XL
contract will be used to alleviate any loss positions on the 1999 and 2000
contracts.  To this end, SPRE will hold
the 2001 contract



 17
 






 



open until 2015.


                33. The letter was then sent to
the Chief Operating Officer of St. Paul Re who signed the letter agreeing to
its content.  St. Paul’s auditors were
never informed of this side agreement.


                34. Based on these findings, the
Attorneys General and the Superintendent allege that St. Paul Travelers
unlawfully deceived policyholders, regulators and other authorities and
shareholders by:  (a) participating in
schemes to steer business and allocate customers; (b) participating in rigging
of bids for excess casualty insurance through Marsh; and (c) improperly using
reinsurance transactions to bolster the quality, quantity and stability of
their clients’ and St. Paul’s earnings.


                35. St. Paul Travelers has been
and is continuing to cooperate with the Attorneys General Investigations and
the Superintendent’s Investigation.


                36. In the wake of the issuance
of the subpoenas and the Attorneys General Investigations and the
Superintendent’s Investigation, St. Paul Travelers has adopted and, under this
Assurance of Discontinuance (the “Assurance”) and corresponding Stipulation
with the Superintendent (the “Stipulation”), will continue to implement a
number of business reforms governing the conduct of employees of St. Paul
Travelers.


                37. By entering into this
Assurance, the Attorneys General resolve all issues uncovered to date (with the
exception of those areas noted below) in the Attorneys General Investigations.


                38. The Attorneys General find
the relief and agreements contained in this Assurance appropriate and in the
public interest. The Attorney General of New York is willing to accept this
Assurance pursuant to Executive Law § 63(15), in lieu of commencing a statutory



 18
 






 



proceeding.  The
Attorney General of Connecticut is willing to accept the Assurance in lieu of
commencing a statutory proceeding under Conn. Gen. Stat. §§ 35-32, 42-110m and
33-1335. The Attorney General of Illinois is willing to accept the Assurance in
lieu of commencing a statutory proceeding under 740 ILCS 10/1 et seq.
and 815 ILCS 505/1 et seq.


                39. The Superintendent and St.
Paul Travelers will, simultaneously with the signing of the Assurance, enter
into a Stipulation to resolve all issues uncovered to date in the
Superintendent’s Investigation.


                40. This Assurance is entered
into solely for the purpose of resolving the Attorneys General Investigations,
and is not intended to be used for any other purpose.


                41. Without admitting or denying
any of the above allegations, St. Paul Travelers is entering into this
Assurance and the Stipulation.


                42. Nothing herein shall be
construed to apply to any business or operations involving group and
individual:  (1) fixed and variable life
insurance, (2) fixed and variable, immediate and deferred annuities, (3) accidental
death and dismemberment insurance, (4) short and long term disability
insurance, (5) long term care insurance, (6) accident and health insurance,
including vision and dental insurance, (7) credit insurance, (8) involuntary
unemployment insurance, (9) guaranteed investment contracts, and (10) funding
agreements (collectively “St. Paul Travelers’ Life Insurance Operations”).


                       NOW THEREFORE, the Attorneys General and St.
Paul Travelers hereby enter into this Assurance with a statement of apology
attached as Exhibit 1, and agree as follows:



 19
 






 



Bid
Rigging — Excess Casualty Policyholders 


                1. On or before September 7,
2006, St. Paul Travelers shall pay $37 million into a fund (the “Excess
Casualty Fund”) held by St. Paul Travelers to be paid to St. Paul Travelers’
policyholders who purchased or renewed St. Paul Travelers’ excess casualty
policies, excluding excess workers compensation policies, through Marsh during
the period from January 1, 2000 through September 30, 2004 (the “Eligible
Policyholders”).  All of the money paid
into the Excess Casualty Fund and any investment or interest income earned
thereon shall be paid to Eligible Policyholders pursuant to this
Assurance.  No portion of the Excess
Casualty Fund shall be considered a fine or a penalty.


                2. The Excess Casualty Fund
shall be invested in a designated money market fund subject to the prior
approval of the Attorneys General and the Superintendent.


                3. St. Paul Travelers shall (a)
by November 8, 2006 calculate the amount of money each of the Eligible
Policyholders paid for excess casualty insurance placed by St. Paul Travelers
through Marsh with inception or renewal dates during the period from January 1,
2000 through September 30, 2004 (the “Eligible Policies”); (b) within ten days
of completing these calculations, file a report with the Attorneys General and
the Superintendent, certified by an officer of St. Paul Travelers, setting
forth:  (i) each Eligible Policyholder’s
name and address; (ii) the Eligible Policyholder’s Eligible Policy(ies)
purchased or renewed and policy number(s); (iii) the amount the Eligible
Policyholder paid in premiums for each such policy; and (iv) the amount each
policyholder is eligible to receive which shall equal each policyholder’s pro
rata share of the Excess Casualty Fund as calculated by multiplying the amount
in the Excess Casualty Fund by



 20
 






 



the ratio of the policyholder’s gross written premium
for Eligible Policies for the period from January 1, 2000 through September 30,
2004, divided by the total gross written premium for all Eligible Policies; and
(c) by November 22, 2006, send a notice to each Eligible Policyholder, setting
forth items (ii) through (iv), above, and stating that the amount paid may
increase if there is less than full participation by Eligible Policyholders in
the Excess Casualty Fund (the “Excess Notice”). 
The form of the Excess Notice shall be subject to the prior approval of
the Attorneys General and Superintendent.


4. Eligible Policyholders
who receive an Excess Notice and who voluntarily elect to receive a cash
distribution (the “Participating Policyholders”) shall tender a release in the
form attached hereto as Exhibit 2 on or before April 23, 2007.


                5. On or before June 4, 2007,
St. Paul Travelers shall pay each Participating Policyholder the amount that
that Participating Policyholder is eligible to receive from the Excess Casualty
Fund as set forth in paragraph 3(b)(iv) above, and any interest or investment
income earned thereon.


                6. On or before July 2, 2007,
St. Paul Travelers shall file an interim report with the Attorneys General and
the Superintendent, certified by an officer of St. Paul Travelers, listing all
amounts paid from the Excess Casualty Fund.


                7. In the event that any Eligible Policyholder elects
not to participate or otherwise does not respond to the Excess Notice (the “Non-Participating
Policyholders”), the amount that such policyholder was eligible to receive from
the Excess Casualty Fund as set forth in paragraph 3(b)(iv) may be used by St.
Paul Travelers to satisfy any pending or other claims asserted by 



 21
 






 



policyholders relating to
the excess casualty bid rigging or excess casualty steering allegations set
forth in this Assurance, provided that in no event shall a distribution be made
from the Excess Casualty Fund to any other policyholder until all Participating
Policyholders have been paid the full aggregate amount set forth in paragraph
3(b)(iv) above, and any interest or investment income earned thereon;  nor shall the total payments from the Excess
Casualty Fund to any Non-Participating Policyholder exceed 80% of the amount
that Non-Participating Policyholder was originally eligible to receive as set
forth in paragraph 3(b)(iv).


                8. If any money remains in the Excess Casualty Fund
as of April 2, 2008 any such funds shall be distributed by May 2, 2008 on a pro
rata basis to the Participating Policyholders.


9. In no event shall any
of the money in the Excess Casualty Fund or the investment or interest income
earned thereon be used to pay or considered in the calculation of attorneys
fees.


10. In no event shall any
of the money in the Excess Casualty Fund or the investment or interest income
earned thereon be used to pay or considered in the calculation of commissions,
administrative or other fees to St. Paul Travelers.


11. On or before
May 15, 2008, St. Paul Travelers shall file a report with the Attorneys General
and the Superintendent, certified by an officer of St. Paul Travelers, listing
all amounts paid from the Excess Casualty Fund, including any payments
subsequent to the payments described in paragraph 6.



 22
 






 



MONETARY
FINE, PENALTY AND PAYMENT


12. On or before
September 7, 2006 St. Paul Travelers shall pay $40 million as a fine or penalty
of which a $24 million fine will be paid by wire transfer to the State of New
York, a $8 million payment will be made in accordance with 815 ILCS 505/7(d) by
wire transfer to the State of Illinois and a $8 million penalty will be paid by
wire transfer to the State of Connecticut. Each Attorney General and the
Superintendent shall provide issuing instructions with respect to the
payments.  These fines, payments and
penalties are imposed for all of the improper conduct described in this
Assurance and the Stipulation.


BUSINESS REFORMS 


                13. Within 60 days of the date
of this Assurance (or such other date as specified below), St. Paul Travelers
shall undertake the following business reforms. 
St. Paul Travelers will not undertake any transaction for the purpose of
circumventing the prohibitions contained in this Assurance.


                14. For purposes of this
Assurance, Compensation shall mean anything of material value given to a
Producer including, but not limited to, money, credits, loans, forgiveness of
principal or interest, vacations, prizes, gifts or the payment of employee
salaries or expenses, provided that Compensation shall not mean customary,
non-excessive meals and entertainment expenses. St. Paul Travelers shall
develop and implement policies for its employees explaining the provisions of
this paragraph as part of the standards described in paragraph 29 below.  Prior to January 7, 2007, St. Paul Travelers
shall submit to the Attorneys General and the Superintendent a draft of the
intended policies.


                



 23
 






 



                15. For purposes of this Assurance, Contingent Compensation
is any Compensation contingent upon any Producer: (a) placing a particular
number of policies or dollar value of premium with St. Paul Travelers; (b)
achieving a particular level of growth in the number of policies placed or
dollar value of premium with St. Paul Travelers; (c) meeting a particular rate
of retention or renewal of policies in force with St. Paul Travelers; (d)
placing or keeping sufficient insurance business with St. Paul Travelers to
achieve a particular loss ratio or any other measure of profitability; (e)
providing preferential treatment to St. Paul Travelers in the placement
process, including but not limited to giving St. Paul Travelers last looks,
first looks, rights of first refusal, or limiting the number of quotes sought
from insurers for insurance placement; or (f) obtaining anything else of material
value for St. Paul Travelers.  This
definition does not include Compensation paid to employees of St. Paul
Travelers or to their Producers that are captive or are exclusive to St. Paul
Travelers with respect to a specific line or product that is clearly and
conspicuously identified in marketing materials as St. Paul Travelers’ line or
product.


                16. Compensation
Disclosure.  Beginning six
months from the date of this Assurance, St. Paul Travelers’ offices, situated
and issuing insurance policies in the United States or its territories, shall
send a notice accompanying the insured’s policy, stating that the insured can
review and obtain information relating to St. Paul Travelers’ practices and
policies regarding Compensation on either a website or from a toll-free
telephone number.  The information on the
website or available through the toll-free number shall be sufficient to inform
insureds of the nature and range of Compensation, by insurance product, paid by
St. Paul Travelers.  No later than four
months from the date of this Assurance, St. Paul Travelers shall submit to the
Attorneys 



 24
 






 



General the proposed format and content of the notice,
website and the information available via the toll-free telephone number
described in this paragraph.  The form
and content of the notice, website and information available via the toll-free
telephone number shall be subject to the prior approval of the Attorneys
General.  St. Paul Travelers shall
commence posting the website and operation of the toll-free telephone number no
later than six months after the date of this Assurance.


                17.
Prohibition on Contingent Compensation for
Excess Casualty.  During the
period of 2006 through and including 2008, St. Paul Travelers’ offices situated
and issuing policies in the United States shall not pay any Producer Contingent
Compensation relating to the placement of any excess casualty insurance
policy.  In addition, St. Paul Travelers
commits that its offices situated and issuing policies outside the United
States shall not pay any Producer Contingent Compensation relating to the
placement of any excess casualty insurance policy issued or renewed to any
insured domiciled in the United States, which policy is principally associated
with covering property or operations situated in the United States.  Subsequent to 2008, excess casualty insurance
shall be subject to the provisions of paragraph 23.


                18. St. Paul Travelers shall
undertake the business reforms set forth in paragraphs 19­25 for any offices
situated and issuing policies in the United States or its territories.


                19. Except as set forth in paragraphs 23-25 below, in
connection with its issuance, renewal or servicing of insurance policies
through a Producer, St. Paul Travelers shall pay as Compensation only a
specific dollar amount or percentage commission on the premium set at the time
of each purchase, renewal, placement or servicing of a particular insurance
policy.



 25
 






 



 


                20. Prohibition on
Pay-to-Play.  St. Paul
Travelers shall not offer to pay or pay, directly or indirectly, any Producer
any Compensation in connection with the Producer’s solicitation of bids for the
Producer’s clients.


                21. Prohibition on Bid Rigging.  St.
Paul Travelers shall not directly or indirectly knowingly offer or provide to
any Producer any false, fictitious, artificial, ‘B’ or “throw away” quote or
indication.  Nothing herein shall
preclude St. Paul Travelers from offering to provide or providing any bona fide
quote or indication.


                22. Prohibition on Leveraging.  St.
Paul Travelers shall not make any promise or commitment to use any Producer’s
brokerage, agency, producing or consulting services, including reinsurance
brokerage, agency or producing services, contingent upon any of the factors
listed in paragraph 15(a) - (f) above.


                23. Additional
Limitations on Contingent Compensation.  Within
30 days of receipt of a notice from any of the Attorneys General that the
Attorneys General have made a determination, based on market share information
available from the National Association of Insurance Commissioners (“NAIC”) or
A.M. Best Company (or another agreed upon third-party source of market share
data if such data is not available from NAIC or A.M. Best for a given insurance
line (or product/segment)), that (a) insurers who do not pay Contingent
Compensation in a given insurance line (or product/segment) including but not
limited to direct writers and insurers that employ only captive agents in the
given insurance line (or product/segment) and (b) insurers who have signed
Agreements or Assurances with the Attorney General of New York or agreements
with other Attorneys General containing this paragraph as applied to them,
together 



 26
 






 



represent more than 65%
of the national gross written premiums in the given insurance line (or
product/segment) in the calendar year for which market share data is most
recently available (the “Notice”), St. Paul Travelers shall stop paying
Contingent Compensation for such insurance line (or product/segment) beginning
on January 1 of the next calendar year following the date of the Notice. If, in
any given calendar year after the date of the Notice described above, the
market share used in the Notice falls below 60%, St. Paul Travelers shall
notify the Attorneys General of the change. 
If, within 60 days, the Attorneys General do not object to St. Paul
Travelers’ determination that the market share used in the Notice is below 60%,
any prohibition on Contingent Compensation described in the Notice shall
cease.  If any of the Attorneys General
do object to St. Paul Travelers’ determination, the Attorneys General shall set
forth the reasons for such objections in a written notice to St. Paul Travelers
within 60 days of St. Paul Travelers’ notification to the Attorneys
General.  Resort to court action to
resolve a dispute related to the determination of market share or the
determination that a given insurer does not pay Contingent Compensation under
this paragraph shall not be deemed a violation of this Assurance.


24. Except as
provided in paragraph 17, in any insurance line or product in which St. Paul
Travelers paid Contingent Compensation for the 2004 calendar year or any part
thereof, St. Paul Travelers may continue to pay Contingent Compensation until
the receipt of a Notice from the Attorneys General that the conditions
described in paragraph 23 above have been met. Following receipt of a Notice,
St. Paul Travelers may continue to pay any Contingent Compensation accrued or
accruing until the end of the calendar year. 
In no event shall any provisions in paragraphs 23, 24 and 25 be construed
to require St. Paul Travelers to take any action that would cause St. Paul
Travelers to be in breach of an agreement that is in force as 



 27
 






 



of the date of
this Assurance.


                25. St. Paul Travelers agrees
not to commence the paying of Contingent Compensation in any insurance line (or
product/segment) in which it did not pay Contingent Compensation for the 2004
calendar year or any part thereof and where the Attorneys General have sent a
Notice pursuant to paragraph 24 above. 
In the event that St. Paul Travelers intends to enter into any agreement
potentially obligating it to make Contingent Compensation payments for any
insurance line (or product/segment) in which it did not pay Contingent
Compensation for the 2004 calendar year or any part thereof, St. Paul Travelers
agrees to give the Attorneys General written notice and a copy of the intended
agreement at least 60 days prior to the execution of any such agreement.


                26. Controls on “Book Rolls.”  St. Paul Travelers shall not enter any
agreement or arrangement to transfer 25 or more insurance policies from an
insurer unless the agreement or arrangement provides for giving written notice
to affected insureds of (a) the reason for the transfer of the policy,
including any Compensation paid to the Producer related to the transfer; and
(b) a statement that the insured can review and obtain information relating to
St. Paul Travelers’ practices and policies regarding Compensation on either a
website or from a toll-free telephone number.


                27. Controls on Service Centers. Persons communicating on behalf
of St. Paul Travelers with any consumer and/or insured participating in any St.
Paul Travelers sponsored or affiliated service center must immediately and
clearly identify themselves to the consumer and/or insured as representing St.
Paul Travelers.



 28
 






 



 


                28. Controls on Finite and Non-traditional Reinsurance. St. Paul
Travelers commits that St. Paul Travelers will enact policies and procedures
satisfactory to the Attorneys General and the Superintendent to prevent
transactions designed solely to manipulate accounting results, transactions
involving insufficient risk transfer created for purposes of improperly qualifying
such transactions for reinsurance accounting, and transactions that contain
undisclosed side agreements.


                29. Standards of Conduct and Training. 
St. Paul Travelers shall implement written standards of
conduct regarding Compensation paid to Producers, consistent with the terms of
this Assurance, subject to approval of the Attorneys General and
Superintendent, which implementation shall include, inter alia, appropriate training of relevant employees,
including but not limited to training in business ethics, professional
obligations, conflicts of interest, anti­trust and trade practices compliance,
and record keeping.  St. Paul Travelers
commits that its insurance subsidiaries doing business outside of the United
States directly or through professional intermediaries, with United States
resident insureds for policies principally associated with property or operations
situated in the United States, will conform their conduct to the requirements
of the Assurance and Stipulation.


                30. St. Paul Travelers agrees to support legislation
and regulations in the United States to abolish Contingent Compensation for
insurance products or lines.  St. Paul
Travelers further agrees to support legislation and regulations in the United
States requiring greater disclosure of Compensation.


                31.
St. Paul Travelers shall not engage or attempt to engage in violations of New
York 



 29
 






 



State Executive Law § 63(12), New York State’s Donnelly Act (Gen. Bus.
Law § 340 et seq.), New York State’s Martin Act (Gen. Bus. Law § 352-c), New
York Insurance Law, Connecticut’s Antitrust Act, Conn. Gen. Stat. § 35-24 et
seq; Connecticut’s Unfair Trade Practices Act, § 42-110a et seq. and
Connecticut’s laws relating to corporate accountability, § 33-1335 and the
Illinois Antitrust Act, 740 ILCS 10/1 et seq. and the Illinois Consumer
Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq.


REINSURANCE
REPORTING OBLIGATIONS 


32. For a period of five years beginning November 6,
2006, St. Paul Travelers will provide annually by May 1 of each year to the
Superintendent a report, in a format approved by the Superintendent, that
includes:


a.                        A review of
ceded and assumed reinsurance of the property/casualty insurance subsidiaries
of St. Paul Travelers required to file statutory financial statements on the
NAIC blanks (the “Property/Casualty Insurers”) verifying that all contracts
comply with SSAP 62 and 75 and the new NAIC disclosure and attestation
requirements including the attestation that with respect to all reinsurance
contracts for which the reporting entity is taking credit on its current
financial statements, to the best of St. Paul Travelers’ knowledge and belief,
after diligent inquiry and unless noted as an exception under the attestation
requirement:


i.             Consistent with SSAP 62, there are
no separate written or oral agreements between the reporting entity (or its
affiliates or



 30
 






 



companies
it controls) and the assuming reinsurer that would under any circumstances,
reduce, limit, mitigate or otherwise affect any actual or potential loss to the
parties under the reinsurance contract, other than inuring contracts that are
explicitly defined in the reinsurance contract except as disclosed;


ii.            For each such reinsurance contract
entered into, renewed or amended on or after January 1, 1994, for which risk
transfer is not reasonably considered to be self-evident, documentation
concerning the economic intent of the transaction and the risk transfer
analysis evidencing the proper accounting treatment, as required by SSAP 62 and
75, is available for review;


iii.           The reporting entity complies with
all the requirements set forth in SSAP 62 and 75, and any supporting
documentation is available for review;


iv.           The reporting entity has appropriate
controls in place to monitor the use of reinsurance and adhere to the
provisions of SSAP 62 and 75.


b.                     A list of
all its affiliated insurers, categorized by domicile, whether controlled
through ownership or otherwise under the Insurance Law.  The list shall include the percentage of
ownership or other means by which St. Paul Travelers controls the affiliated
insurer.



 31
 






 



c.                        A list of
its ownership of five percent or more of the voting shares of any
non-affiliated insurer entities.


d.                       A list of
non-affiliated insurers to whom St. Paul Travelers’ Property/Casualty Insurers
have ceded business during the preceding calendar year either directly, or
through retrocession agreements if known, excluding those captive reinsurance
entities that do not accept third party business, where the business ceded
represents fifty percent or more of the entire direct and assumed premium
written by insurer, based upon such insurer’s most recent publicly available
financial statements.


Such report shall be certified by the Chief Reinsurance Officer and the
Chief Executive Officer of St. Paul Travelers and a copy of such report shall
be submitted to the relevant Audit Committee of St. Paul Travelers.


33. The Chief
Reinsurance Officer of St. Paul Travelers will maintain approved lists of
reinsurers. St. Paul Travelers will not cede insurance to any reinsurer not set
forth on those lists. Such lists will be available to the Superintendent upon
examination.  All approved reinsurance
relationships will be reviewed by the Chief Reinsurance Officer of St. Paul
Travelers and such review will include a written determination of whether the
reinsurance entity is affiliated or controlled (by ownership, by contract or
otherwise) by St. Paul Travelers.


                                                34. Additional
Undertakings.


a.                                       St. Paul Travelers agrees that it will
establish and maintain a training and education program, completion of which
will be required for all officers, 



 32
 






 



executives, and employees of St. Paul Travelers who
have supervisory responsibility over accounting, financial reporting and public
disclosure functions relating to the United States (collectively, the “Mandatory
Participants”).


b.                                      The training and education program shall
be designed to cover, at a minimum, the following: (i) the obligations imposed
by federal and state securities law, St. Paul Travelers’ financial reporting
and disclosure obligations; (ii) the financial reporting and disclosure
obligations imposed on St. Paul Travelers by New York State, Illinois and
Connecticut insurance laws; (iii) compliance with federal and state anti-trust
laws; (iv) proper internal accounting controls and procedures; (v) discovering
and recognizing accounting practices that do not conform to GAAP or SSAP or
that are otherwise improper; and (vi) the obligations assumed by, and responses
expected of the Mandatory Participants upon learning of improper, illegal or
potentially illegal acts relating to St. Paul Travelers accounting and
financial reporting.  The General Counsel
of St. Paul Travelers shall communicate to Mandatory Participants, in writing
or by video, its endorsement of the training and education program.


COOPERATION WITH THE SUPERINTENDENT 


35. St. Paul Travelers will maintain and provide to the
Superintendent, upon the Superintendent’s request, complete underwriting files,
including correspondence and e-mails,



 33
 






 



and risk transfer analysis to the extent required by
SSAP 62 relating to all reinsurance ceded or assumed by St. Paul
Travelers.  St. Paul Travelers will
authorize its independent auditors and direct its internal auditors to make
available to the Superintendent upon request all workpapers of their auditors,
including but not limited to all Schedules of Unadjusted Differences.


                36. St. Paul Travelers will file
all holding company transactions in a timely manner in compliance with Article
15 of the New York Insurance Law and Department Regulation 52.


                37. St. Paul Travelers will cooperate fully on all
examinations and on all other regulatory requests and will respond to all
Department inquiries in a prompt, timely and complete manner and will provide
appropriate staff during examinations in order to provide timely
responses.  Failure to respond to the Department
in a timely manner, as required by this paragraph, will constitute violations
of this Assurance and the Insurance Law. 
Any issues that relate to the timeliness of the responses shall be
reported to the Chief Financial Officer of St. Paul Travelers.


                38. The Chair of the St. Paul Travelers’ Audit
Committee, if requested, will meet with the Superintendent and/or a designated
official of the Superintendent on an annual basis or more frequently as deemed
necessary by the Superintendent.


COOPERATION
WITH THE ATTORNEYS GENERAL


                39. St. Paul
Travelers shall fully and promptly cooperate with the Attorneys General with
regard to their Investigations, and related proceedings and actions, of any
other person, corporation or entity, including but not limited to St. Paul
Travelers’ current and former 



 34
 






 



employees, concerning the insurance industry.  St. Paul Travelers shall use its best efforts
to ensure that all its officers, directors, employees, and agents also fully
and promptly cooperate with the Attorneys General in their Investigations and
related proceedings and actions. Cooperation shall include without limitation:
(a) production voluntarily and without service of subpoena of any information
and all documents or other tangible evidence reasonably requested by any of the
Attorneys General, and any compilations or summaries of information or data
that any of the Attorneys General reasonably request be prepared; (b) without
the necessity of a subpoena, having St. Paul Travelers’ officers, directors,
employees and agents attend any proceedings at which the presence of any such
persons is requested by any of the Attorneys General and having such persons
answer any and all inquiries that may be put by any of the Attorneys General
(or any deputies, assistants or agents of the Attorneys General) to any of them
at any proceedings or otherwise (“proceedings” include but are not limited to
any meetings, interviews, depositions, hearings, grand jury hearing, trial or
other proceedings); (c) fully, fairly and truthfully disclosing all information
and producing all records and other evidence in its possession relevant to all
inquiries reasonably made by any of the Attorneys General concerning any
illegal fraudulent or criminal conduct whatsoever about which it has any
knowledge or information; (d) in the event any document is withheld or redacted
on grounds of privilege, work-product or other legal doctrine, a statement
shall be submitted in writing by St. Paul Travelers indicating: (i) the type of
document; (ii) the date of the document; (iii) the author and recipient of the
document; (iv) the general subject matter of the document; (v) the reason for
withholding the document; and (vi) the Bates number or range of the withheld
document.  Any of the Attorneys General
may challenge such claim in any forum of their choice and may, without
limitation, rely 



 35
 






 



on all documents or communications theretofore produced or the contents
of which have been described by St. Paul Travelers, its officers, directors,
employees, or agents; and (e) St. Paul Travelers shall not compromise the
integrity of the investigations, including jeopardizing the safety of any
investigator or the confidentiality of any aspect of the investigation,
including sharing or disclosing evidence, documents, or other information with
others during the course of the investigation, without the consent of the
relevant Attorney General.  Nothing
herein shall prevent St. Paul Travelers from providing such evidence to other
regulators, or as otherwise required by law.


 


40. St. Paul
Travelers shall comply fully with the terms of this Assurance.  If St. Paul Travelers violates the terms of
paragraph 39 in any material respect, as determined solely by any of the
Attorney Generals: (a) each of the Attorney Generals may pursue any action,
criminal or civil, against any entity for any crime it has committed, as
authorized by law, without limitation; (b) as to any criminal prosecution
brought by the New York or Illinois Attorneys General for violation of law
committed within six years prior to the date of this Assurance or for any
violation committed on or after the date of this Assurance, St. Paul Travelers
shall waive any claim that such prosecution is time barred on grounds of speedy
trial or speedy arraignment or the statute of limitations.


OTHER PROVISIONS 


41. St. Paul
Travelers shall implement procedures and controls designed to provide full and
complete disclosure to state insurance regulators.


42. St. Paul
Travelers commits that it shall not seek or accept, directly or indirectly, 



 36
 






 



indemnification pursuant to any insurance policy, with
regard to any or all of the amounts payable pursuant to this Assurance.


                43. None of the provisions of
this Assurance shall apply to St. Paul Travelers’ Life Insurance Operations.


                44. The Attorneys General agree
that any prior approval required under the terms of this Assurance shall not be
unreasonably withheld.


                45. This Assurance is not
intended to disqualify St. Paul Travelers, its subsidiaries, or any of its
current employees from engaging in any business in New York, Illinois,
Connecticut or in any other jurisdiction. 
Nothing in this Assurance shall relieve St. Paul Travelers or its subsidiaries
of obligations imposed by any applicable state insurance law or regulations or
other applicable law.


                46. This Assurance shall not confer
any rights upon any persons or entities besides the Attorneys General and St.
Paul Travelers.


47. St. Paul
Travelers shall maintain custody of, or make arrangements to have maintained,
all documents and records related to this matter for a period of not less than
six years.


48. The Attorneys
General may make such application as appropriate to enforce or interpret the
provisions of this Assurance, or in the alternative, maintain any action,
either civil or criminal, for such other and further relief as the Attorneys
General may determine is proper and necessary for the enforcement of this
Assurance.  If compliance with any aspect
of this Assurance 



 37
 






 



proves impracticable, St. Paul Travelers reserves the
right to request that the parties modify the Assurance accordingly.


                49. In any application or in any
such action, facsimile transmission of a copy of any papers to current counsel
for St. Paul Travelers shall be good and sufficient service on St. Paul Travelers
unless St. Paul Travelers designates, in a writing to the relevant Attorney
General, another person to receive service by facsimile transmission.


                50. Facsimile transmission of a
copy of this Assurance to counsel for St. Paul Travelers shall be good and
sufficient service on St. Paul Travelers.


                51. This Assurance shall be
governed by the laws of the State of New York without regard to conflict of
laws principles, except that with respect to enforcement actions taken by the
Connecticut Attorney General or the Illinois Attorney General.  Those actions will be governed by the laws of
the state of the Attorney General bringing the action without regard to choice
of law principles.


                52. This Assurance may be
executed in counterparts. 


Executed
this 31st day of July, 2006. 


	
  ELIOT
  SPITZER

  	
   

  
	
  Attorney General of the State of New York

  	
   

  
	
   

  	
   

  
	
  /s/ Eliot Spitzer

  	
   

  
	
  Office of the New York State Attorney General

  	
   

  
	
  120 Broadway, 25th Floor

  	
   

  
	
  New York, New York 10271

  	
   

  




 38
 






 



 


	
  LISA MADIGAN

  	
   

  
	
  Attorney General of Illinois

  	
   

  
	
   

  	
   

  
	
  /s/ Lisa Madigan

  	
   

  
	
  Office of the Attorney General

  	
   

  
	
  State of Illinois

  	
   

  
	
  100 W. Randolph Street, 12th Floor

  	
   

  
	
  Chicago, Illinois 60601

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  RICHARD BLUMENTHAL

  	
   

  
	
  Attorney General of the State of Connecticut

  	
   

  
	
   

  	
   

  
	
  /s/ Richard Blumenthal

  	
   

  
	
  Office of the Connecticut Attorney General

  	
   

  
	
  55 Elm Street

  	
   

  
	
  Hartford, Connecticut 06141-0120

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  The St. Paul Travelers Companies, Inc.

  	
   

  
	
   

  	
   

  
	
  /s/ Kenneth F. Spence, III

  	
   

  
	
  Kenneth F. Spence, III

  	
   

  
	
  Executive Vice President, General Counsel

  	
   

  
	
  385 Washington Street

  	
   

  
	
  St. Paul, Minnesota 55102-1396

  	
   

  




 39
 






 



EXHIBIT
1


APOLOGY


St. Paul Travelers
acknowledges that certain of its employees violated acceptable business
practices and St. Paul Travelers’ own standards of conduct by engaging in
improper bidding practices and certain “finite insurance” activities.  St. Paul Travelers apologizes and has enacted
business practice reforms to ensure that these incidents do not occur
again.  Further, St. Paul Travelers has
agreed to support legislation eliminating contingent compensation for brokers
and agents.



 40
 






 



EXHIBIT
2


RELEASE



This RELEASE (the “Release”) is executed this
         day of
            , 2007
by RELEASOR (defined below) in favor of RELEASEE (defined below).


DEFINITIONS



“RELEASOR” refers to [fill
in name                 ] and any of its affiliates, subsidiaries,
associates, general or limited partners or partnerships, predecessors,
successors, or assigns, including, without limitation, any of their respective
present or former officers, directors, trustees, employees, agents, attorneys,
representatives and shareholders, affiliates, associates, general or limited
partners or partnerships, heirs, executors, administrators, predecessors,
successors, assigns or insurers acting on behalf of RELEASOR.


“RELEASEE” refers to St. Paul Travelers. and any of
its subsidiaries, associates, general or limited partners or partnerships,
predecessors, successors, or assigns, including, without limitation, any of
their respective present or former officers, directors, trustees, employees,
agents, attorneys, representatives and shareholders, affiliates, associates,
general or limited partners or partnerships, heirs, executors, administrators,
predecessors, successors, assigns or insurers (collectively, “St. Paul
Travelers”).


“ASSURANCE” refers to an
Assurance of Discontinuance between St. Paul Travelers and the Attorney General
of the State of New York, the Attorney General of the State of Illinois and the
Attorney General of the State of Connecticut (collectively “Attorneys General”)
dated--- 2006 and an accompanying stipulation between St. Paul Travelers and
the Superintendent of Insurance of the State of New York (“NYSI”) dated -----
2006, relating to (i) investigation by each of the Attorneys General and NYSI
related to St. Paul Travelers’ alleged use of contingent commission agreements
or placement service agreements to steer business; and (ii) investigations by
each of the Attorneys General and NYSI related to St. Paul Travelers’ alleged participation
in bid rigging schemes.


RELEASE



                1. In
consideration for the total payment of
$              
in accordance with the terms of the ASSURANCE, RELEASOR does hereby fully
release, waive and forever discharge RELEASEE from any and all claims, demands,
debts, rights, causes of action or liabilities whatsoever, including known and
unknown claims, now existing or hereafter arising, in law, equity or otherwise,
whether under state, federal or foreign statutory or common law, and whether
possessed or asserted directly, indirectly, derivatively, representatively or
in any other capacity (collectively, “claims”), to the extent any such claims
are based upon, arise out of or relate to, in whole or in part, (i) any of the
allegations, acts, omissions, transactions, events, types of conduct or matters
described in the ASSURANCE, or were subject to investigation by any of the
Attorneys General and NYSI as referenced in the ASSURANCE; (ii) any
allegations, acts, omissions, transactions, events, types of conduct or matters
that are the subject of In re Insurance Brokerage Antitrust Litigation,
MDL No. 1663, or the actions pending in the United States District Court for
the District of New Jersey captioned In re: Insurance Brokerage Antitrust
Litigation, Civ. No. 04­5184 (FSH), and In re Employee Benefit Insurance
Brokerage Antitrust Litigation, Civ. No. 05-1079 (FSH) or any related
actions filed or transferred to the United States District Court for the
District of New Jersey that are consolidated into either of the preceding Civil
Action dockets; or (iii) any allegations of bid-rigging or of the use of



 41
 






 



contingent commission agreements or placement service
agreements to steer business arising from acts or conduct on or before the date
of the ASSURANCE; provided, however, that RELEASOR does not hereby release,
waive, or discharge RELEASEE from any claims that are based upon, arise out of
or relate to (a) the purchase or sale of St. Paul Travelers’ securities; (b)
St. Paul Travelers’ Life Insurance Operations (as defined by the Assurance to
which this Release is an exhibit).


                2. In the event that the total
payment referred to in paragraph 1 is not made for any reason, then this
RELEASE shall be deemed null and void, provided that any payments received by
RELEASOR shall be credited to St. Paul Travelers  in connection with any claims that RELEASOR
may assert against St. Paul Travelers, or that are asserted on behalf of
RELEASOR or by a class of which RELEASOR is a member, against St. Paul
Travelers.


                3. This RELEASE may not be
changed orally and shall be governed by and interpreted in accordance with the
internal laws of the State of New York, without giving effect to choice of law
principles, except to the extent that federal law requires that federal law
governs.  Any disputes arising out of or
related to this RELEASE shall be subject to the exclusive jurisdiction of the
Supreme Court of the State of New York or, to the extent federal jurisdiction
exists, the United States District Court for the Southern District of New York.


                4. Releasor represents and
warrants that the claims have not been sold, assigned or hypothecated in whole
or in part.


	
  Dated:

  	
   

  
	
  RELEASOR:

  	
   

  
	
  By:

  	
   

  
	
  Print Name:

  	
   

  
	
  Title:

  	
   

  



 



 42