Wednesday, February 7, 2007

by David Scheer

USA (Bloomberg), WASHINGTON: RenaissanceRe Holdings, a Bermuda-based reinsurer, will pay $15 million to settle accusations it created an accounting "cookie jar" to help smooth earnings in bad years, the US Securities and Exchange Commission has said.

The company set aside excess revenue during a good year from which it could later artificially boost earnings, the SEC said in a statement on Tuesday. The misconduct helped the reinsurer defer $26 million of earnings between 2001 to 2003, the regulator said.

"RenRe essentially played a shell game with its revenue, hiding it in one year when it was not needed, only to reveal it in a later year when it would improve the bottom line," Mark Schonfeld, director of the SEC's regional office in New York, said in the statement.

More than a dozen insurers and reinsurers have been questioned in state and federal probes of contracts that can be used to smooth earnings. RenaissanceRe restated its earnings in February 2005. The company said last July it had proposed the $15 million penalty during talks with the SEC.

RenaissanceRe masked its improper accounting by breaking it into two transactions, both with Inter-Ocean Reinsurance Co., a Bermuda-based company then owned by 10 reinsurers.

The first contract involved a transfer of assets, parking $20 million at Inter-Ocean, the SEC said. The second contract, a reinsurance agreement, served only to refund the money.

The dealings had "no economic substance" and "enabled RenRe to create a 'cookie jar' into which it put excess revenue," the SEC said. Even when restating earnings RenaissanceRe misled investors by calling the transactions errors, the regulator said.

The company neither admitted nor denied wrongdoing in the settlement. It agreed to hire an outside consultant and pledged to take any steps recommended to strengthen its auditing and compliance departments.

RenaissanceRe fully cooperated during the investigations, Chief Executive Officer Neill Currie said.

"We are pleased to have put this difficult chapter in our company's history behind us," he said.

The SEC in September also sued three former executives at the company, including former CEO James Stanard, for allegedly overseeing the transactions. The case is still pending, the SEC said on Tuesday.

  Most popular articles: viewed, printed and e-mailed

  Printable version