In the latest SEC investigation into finite insurance, Bermuda-based reinsurer RenaissanceRe has been issued with a civil enforcement action against its CEO, James Stanard, and former senior vice president of specialty reinsurance Michael Cash.
Stanard, the chairman and CEO of RenaissanceRe, has been issued with the SEC’s ‘Wells Notice’ in connection with an investigation into the company’s restatement of financial results in February of this year.
The restatement of the company’s 2001 to 2003 results was issued to address errors in accounting that inflated or understated income. The subsequent SEC investigation looked into whether finite insurance transactions at the company were little more than disguised loans.
Finite insurance transactions are deals between insurers and reinsurance firms to transfer a portion of a projected claim. A number of recent investigations have looked into whether finite insurance has been used to allow ‘reinsured’ companies to hide poor financial health.
The ‘Wells’ notice received by James Stanard has also been issued to Renaissance’s former vice president, Michael Cash. Cash resigned earlier this month after refusing to accept a subpoena form the SEC. The Wells notice informs its recipients that the SEC plans to recommend enforcement actions and gives them the opportunity to respond before any action is recommended.
RenaissanceRe said that it intends to cooperate with the SEC investigation, while James Stanard, who continues to work for the company, will also cooperate with SEC authorities in their probe.
The RenaissanceRe investigation is the latest in a line of similar inquiries into similar transactions at other insurance companies. The SEC, federal prosecutors and New York Attorney General Eliot Spitzer have launched a wide-ranging investigation into the misuse of finite insurance transactions between companies such as American International Group (AIG) and GeneralRe, a division of Berkshire Hathaway, which allowed AIG to manipulate its financial results. That investigation led to several former GeneralRe executives being criminally charged.