Bermuda-based RenaissanceRe revealed today that it received a notice from the Securities and Exchange Commission that the agency may bring a civil action against the company for improper accounting.
The company said it was negotiating in hopes of avoiding that outcome.
SEC filing of a Wells Notice with RenaissanceRe follows the company's July announcement that both Chief Executive Officer James Stanard and Michael Cash, a senior vice president who resigned from the company, were the subject of Wells Notices.
In February RenaissanceRe began restating financial results from the 2001-to-2004 periods because of errors involving finite reinsurance transactions that failed to meet accounting standards for a proper amount of risk transfer.
The net impact of the corrections was to raise 2001 income by $20.6 million, lower 2002 income by $21.9 million, and increase 2003 income by $1.3 million. The newly adjusted incomes for those periods would now be: $606.3 million for 2003, $342.9 million for 2002, and $184.6 million for 2001.
In addition to possible SEC action RenaissanceRe legal problems include a stockholder suit that, in addition to Mr. Stanard and Mr. Cash, names as defendants William Riker, CEO of the Glencoe Holdings Group subsidiary; John Lummis, Renaissance chief operating officer and chief executive officer; and senior executive Martin Merritt.
RenaissanceRe's shares fell 9 percent after it was disclosed that Mr. Stanard was given a Wells Notice. The week before that announcement, Mr. Cash, a Bermuda citizen, resigned rather than accept subpoena service and the company stock fell 3 percent.
Under the SEC's procedures, the Wells Notice indicates that the staff of the SEC intends to recommend that the SEC bring a civil enforcement action against the company alleging violations of federal securities laws, RenaissanceRe said.
Recipients of Wells Notices have the opportunity to respond to the SEC staff before any formal recommendation is made and the company said it is "engaged in discussions with the staff of the SEC concerning the possible resolution of these matters."
The reinsurer noted it cannot predict the outcome of the SEC investigations or whether its current efforts to resolve them will be successful.
RenaissanceRe Holdings Ltd. is a global provider of reinsurance and insurance. Its reinsurance segment consists of catastrophe reinsurance, specialty reinsurance and joint ventures and other investments managed by its subsidiary RenaissanceRe Ventures Ltd.
The firm's individual risk business involves primary insurance and quota share reinsurance.
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