Reacting to RenaissanceRe's revelation that the U.S. Securities and Exchange Commission is considering civil action against the reinsurer for security law violations, A.M. Best Co. said it had put the firm's ratings under review with negative implications.
Best acted after the company said yesterday it had received a Wells Notice from the SEC.
The Oldwick, N.J.-based rating firm said its action concerned the financial strength and debt ratings of the operating subsidiaries of RenaissanceRe Holdings Ltd., Bermuda==which include Renaissance Reinsurance Ltd., Glencoe Insurance Ltd., Lantana Insurance Ltd., Stonington Insurance Company and Stonington Lloyds.
Best noted that the group's chief executive officer, James Stanard, received a Wells Notice from the SEC in July, and said it continues to monitor the situation and expects ratings to remain under review pending an SEC resolution of the matter.
Best said DaVinci Reinsurance Ltd., Bermuda==partially owned by RenaissanceRe, and whose financial results are consolidated into RenaissanceRe==will also remain under review with negative implications.
DaVinci, Best said, is currently under review with negative implications as the rating firm evaluates its risk-adjusted capital position following Hurricane Katrina.
RenaissanceRe declined to comment on the Best announcement.
The company said yesterday it was negotiating with the SEC in hopes of avoiding a civil enforcement action.
In addition to Mr. Stanard and his company, the SEC issued a Wells Notice to Michael Cash, a Bermuda citizen who resigned as a senior vice president at Renaissance Re after refusing to accept an SEC subpoena.
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 a 10-K filing, RenaissanceRe said it determined Mr. Stanard and other executives made mistakes in its transactions with Inter-Ocean, a Bermuda-based finite risk reinsurer that is now in runoff.
In addition to possible SEC action, RenaissanceRe's 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 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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