David Ezekiel, chairman of the Association of Bermuda International Companies (ABIC), said the ongoing probe being carried out by New York Attorney General Eliot Spitzer into questionable practices in insurance had left the industry with damaged credibility.

But he did not believe that Bermuda insurance workers should be unduly worried about their job security as the blitz of bad publicity continued.

This week, Mr. Spitzer launched a scathing attack on procedures in the insurance industry when he told a US Senate subcommittee that the network of brokers and insurers "essentially creates a secret cartel based on hidden payments and preferential treatments".

In his speech, Mr. Spitzer also turned the spotlight on Bermuda when he told a US Senate subcommittee that the island's insurance operations created "numerous opportunities for secrecy and insider dealings" and required "close attention".

Mr. Spitzer has called for more US Federal oversight of the insurance industry in the light of the alleged abuses he has uncovered and he received support from Connecticut Attorney General Richard Blumenthal.

Mr. Blumenthal told a US Senate panel this week: "The bright light that Congress can shine on this morass of corrupt and corrosive practices could be absolutely critical."

Mr. Ezekiel stressed the investigation had shown insurance had industry-wide problems.

"There is widespread damage taking place to the credibility of the insurance industry at the moment," Mr. Ezekiel said. "It's clear that the industry has a huge problem. Once the ball starts rolling, there's going to be a lot more to come.

"As painful as it's going to be ? and it is going to be very painful for some of these companies ? I believe we will end up stronger, with organisations that are much more secure and which have heeded the warnings coming out of all this.

"At the end of the day, the main beneficiary of this is going to be the customer. It is clear from some of the practices that have been revealed that the customer may not have been given all the options available."

Seventeen insurance employees have been forced out or suspended since Mr. Spitzer filed a suit against Marsh & McLennan, the world's biggest insurance brokers, last month.

Five executives have so far pleaded guilty ? two each from American International Group and Zurich Financial Services AG and one from an American subsidiary of Bermuda's ACE ? to charges related to the inquiry.

The investigation has centred on the relationship between brokers and insurance companies and has uncovered evidence of practices such as bid rigging to keep prices high and payments between insurers and brokers so companies get business "steered" their way.

Yesterday, Bermuda-based reinsurers Platinum Underwriters Holdings Ltd. announced it had received a subpoena from the Securities and Exchange Commission (SEC) for documents relating to loss mitigation insurance products. Platinum said it also "expects to receive a similar request from the Attorney General for the state of New York" and "intends to fully co-operate in responding to all such requests".

Platinum was launched two years ago as the reinsurance arm of the US-based St. Paul Group of Companies.

A subsidiary of Bermuda-based XL Capital, XL America, Inc. was also served with a subpoena last month by Mr. Spitzer's office, seeking information about insurance sales practices. The company said it would co-operate fully with the Attorney General and "as a matter of prudence" had launched an internal review into issues raised by Mr. Spitzer.

A spokesman for Mr. Spitzer's office yesterday declined to comment on how Bermuda-based companies involved in the investigation were co-operating.

He said: "We do not comment on subpoenas and we do not make pre-judgements."

Asked whether the probe was likely to expand any further, the spokesman said: "Given the scope it is covering, I would expect the investigation will go on for some time yet."

Mr. Ezekiel predicted that all insurers and reinsurers would face increased scrutiny in future.

"I think the increased scrutiny will come, especially for the Bermuda companies that are listed in the US ? but I don't see that as any separate scrutiny over and above that that will be given to any insurer with a US connection of a sort.

"I think there is going to be a lot more investigation into anything that doesn't totally pass the smell test."

But the ABIC chairman did not believe that Bermuda specifically had been damaged any more by Mr. Spitzer's probe than any other jurisdiction.

"Until some really specific events happen that indicate that something different was done off-shore than on shore, I don't see any damage being done to Bermuda," Mr. Ezekiel said.

"As we have seen, there have been enough people in the US caught up in this net. I think it's going to be seen as an industry problem as opposed to a problem in any geographical area."

Mr. Spitzer told US lawmakers this week: "One area that requires close attention is the extent to which insurance brokers and insurance companies have sought to evade state regulation by locating their operations in Bermuda and other off-shore havens. This makes the states' job of supervising these companies far more difficult and creates numerous opportunities for secrecy and insider dealings. Since 2001, there has been a reported huge transfer of insurance capital and underwriting activity to Bermuda, and more recently the Cayman Islands. Many of these off-shore entities are either owned in part or operated by the insurance brokers themselves. Marsh helped to create the Bermuda-based ACE Ltd., XL Capital Ltd., Mid Ocean Re and Axis, while AON has sponsored LaSalle Re and Endurance.

"This sets the stage for conflicts of interest, steering and self-dealing in insurance and reinsurance markets that we are just beginning to understand. And this is not to mention the numerous and profound tax implications of permitting US insurers to accrue investment earnings in favourable off-shore havens."

Mr. Ezekiel questioned the suggestion that the brokers could exert a major influence on the running of the companies they helped to set up on the island.

"It is clear that Marsh and AON played a part in the formation of these new companies. But from there he is making a leap.

"Based on everything I know about these companies, they are run by boards that act in the best interests of the company and I would be surprised if one shareholder could influence the actions of a board in any untoward way."

Asked if Bermuda insurance workers should be concerned about job security, Mr. Ezekiel said: "I don't think there is a need for widespread worry.

"If some of the allegations are proven and if that results in a loss of revenue for any companies, then those companies may have to look at making job cuts.

"If one looks at the example of companies currently involved, they have had to stop a certain billing process and that means a loss of income.

"As a result there have been job cuts. But when a company with a world-wide operation cuts 3,000 jobs, I would imagine those cuts would be spread around many different locations."

We asked the Ministry of Finance for a reaction to Mr. Spitzer's comments relating to Bermuda. The Ministry replied with the following statement: "The Ministry of Finance is monitoring the developments in the New York Attorney General's investigation into certain facets of the insurance sector in the United States. The Ministry has noted his testimony to the US Senate committee and has no further comment at this time."

The ACE employee who pleaded guilty to charges relating to Mr. Spitzer's probe and was later fired by the company is Patricia Abrams, who worked in the Philadelphia unit of ACE USA.

Abrams is the unnamed ACE vice-president that Mr. Spitzer mentions in his Marsh & McLennan suit regarding a rigged insurance premium bid.

According to the Marsh complaint, an unnamed vice-president sent an e-mail on December 17, 2002, to Marsh Global Broking's Excess Casualty division, quoting an annual premium of $990,000 for a policy for Fortune Brands Inc., a holding company engaged in the manufacture of home, office, liquor and golf products.

Later that day, the bid was revised to $1.1 million so ACE would be less competitive, allowing Marsh to award the business to another insurance company, American International Group Inc., which was in on the bid rigging, the complaint said.

Mr. Spitzer highlighted the relationship between brokers and insurance when he told lawmakers: "Contingent commissions and side-dealings between brokers and insurance companies also distort competition by turning insurance markets into an insiders' club, where business is steered to a select few insurance carriers who are willing to pay for these opportunities.

"Those carriers who enter into these agreements with brokers are usually assured that they will become a 'partner' or a 'favoured nation', which are euphemisms for getting preferential, and sometimes criminal favouritism."

We invited a comment from XL Capital but received no response by press time.