2nd UPDATE:New York:Broker Contingent Commissions Likely Early 2010

The New York Insurance Department has taken a major step toward lifting a ban on some insurer-paid commissions for the three biggest insurance brokers, which could boost their earnings.

The insurance department's proposed Producer Compensation Transparency regulation imposes transparency rules that require insurance brokers to tell their customers whether they accept payments from insurers and if the payments are based on profitability or business volume, so-called contingent commissions. The new regulation could go into effect within 45 days. Even if the regulation goes into effect, the three largest brokers--Aon Corp. (AON), Marsh & McLennan Cos. (MMC) and Willis Group Holdings Ltd. (WSH)--would still be banned from taking contingent commissions because of agreements they all signed with New York's attorney general and officials in other states, though many expect those officials to release them from those agreements if the regulation goes into effect. "If and when the new regulation goes into effect, we will take whatever action might be appropriate in light of the change in the law," said an unsigned statement released by the New York Attorney General's Office Wednesday. The last step toward adopting the proposed regulation, which spells out the new disclosure rules for brokers was the publication of the proposed language on Dec. 2, which means it will could go into effect 45 days later, in January.

Matthew Gaul, special counsel at the insurance department, said the office has gone through an extensive comment and revision process for nearly 18 months, and that the required 45-day period for public comment is likely the last step before the regulation is adopted, perhaps with some minor changes.

"We plan to move quickly once we have the authority," he said Wednesday. He said some broker groups are opposed to the regulation on the grounds that it will be difficult to implement, but other broker groups have come to accept it, though are requesting some minor changes.

Connecticut Attorney General Richard Blumenthal said in a September interview he was in discussions with the brokers to bring back a "level playing field," with all brokers following the same rules. In a phone call Wednesday, Blumenthal said that to his knowledge, the situation had not yet changed.

Terry Fleming, a board member of the Risk and Insurance Management Society, which has criticized the commissions, said recently he expects attorneys general in key states to consider allowing the commissions for the biggest brokers once the regulation is adopted.

Keith F. Walsh, an analyst with Citigroup, called the likely change a "reversing of Spitzer's regulatory regime," referring to former New York Attorney General Eliot Spitzer, whose investigation into insurer-paid commissions led to the ban.

Walsh estimated in a note Wednesday that a return of the commissions could boost earnings per share by as much as 10% for Aon, Marsh and Willis.

Willis Group Chief Executive Joseph Plumeri has said the broker will not accept contingent commissions. Plumeri has said the commissions set up a conflict of interest for brokers, who serve as advocates for policyholders, but stand to receive an insurer-paid commission if the policy is more profitable. Shares of Aon closed up 4 cents cents to $37.92, Marsh closed up 7 cents to $21.61 and Willis closed up 1 cent to $26.81.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com

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