RenRe Receives SEC Wells Notice; Fitch Comments
The Insurance Journal
September 28, 2005
Bermuda-based RenaissanceRe Holdings Ltd. announced that it has received a "Wells Notice" from the staff of the U.S. Securities and Exchange Commission.
The SEC is investigating RenRe's "restatement of the Company's financial statements," said the announcement. A Wells Notice is a preliminary step, indicating that the SEC intends to recommend that a civil enforcement action be brought against the company named. It gives the company an opportunity to present a response to the allegations made against it in connection with the investigation before a formal action is commenced.
RenRe said: "The Company is engaged in discussions with the staff of the SEC concerning the possible resolution of these matters. As previously announced, the Company continues to cooperate with the SEC and other governmental agencies in their ongoing investigations. The Company is unable to predict the outcome of the investigations or whether its current efforts to resolve them will be successful."
Following the receipt of the Wells Notice, Fitch Ratings said that RenRe's ratings would remain on its Rating Watch Negative. "This includes Fitch's 'A-' long-term and senior debt ratings and 'BBB+' preferred stock rating on RenRe, as well as its 'A+' insurer financial strength rating on lead operating subsidiary, Renaissance Reinsurance Ltd. " the bulletin explained.
Fitch noted that it had originally placed RenRe's ratings on Rating Watch Negative following the company's July 25, 2005 announcement that Chairman and CEO James N. Stanard had received a similar Wells Notice.
Fitch explained: "Allegations under the Wells Notices are linked to a restatement of the company's financial results completed with the reporting of year-end 2004 related largely to an aggregate excess of loss reinsurance transaction with Inter-Ocean Reinsurance Company Ltd. (Inter-Ocean).
"Fitch views RenRe's Wells Notice receipt as increasing the likelihood that the company will incur fines or settlement costs, which if material, would likely lead to a rating downgrade. RenRe's ratings will also likely be downgraded if the company's management structure undergoes adverse changes that in Fitch's view are related to the Wells Notices.
"Fitch believes that there is a material possibility that Mr. Stanard may not be able to remain in his position in the long term. Further, Fitch believes that, given the size of RenRe's senior management team and Fitch's understanding of the active role played by Mr. Stanard, the impact on the company's franchise and reputation would be unclear should events evolve negatively."
Fitch said it would "resolve the Rating Watch pending further clarity on the Wells Notice and the broader investigations of RenRe's accounting restatement, and the impact on RenRe's management team and financial position. Fitch will also consider the quality of internal controls on a go-forward basis."