Reinsurer RenaissanceRe Settles Securities Fraud Charges

sec.gov, Feb 14, 2007

The Securities and Exchange Commission filed settled securities fraud charges against RenaissanceRe Holdings Ltd. (RenRe), a property catastrophe reinsurance company, for creating a sham reinsurance transaction that had no economic substance and no purpose other than to smooth and defer over $26 million of earnings from 2001 to 2002 and 2003. In effect, the transaction enabled RenRe to create a "cookie jar" into which it put excess revenue in one good year, to be pulled out in a future year to increase income.

In settling the Commission's charges, RenRe agreed to an injunction, to retain an independent consultant, and to pay a $15 million civil penalty, among other things.

In September 2006, the Commission charged RenRe's former chairman and chief executive officer, James N. Stanard, RenRe's former controller, Martin J. Merritt, and a former senior vice president of RenRe's principal reinsurance subsidiary, Michael W. Cash. Those charges remain pending in federal court in Manhattan.

Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "This is yet another action arising from our ongoing investigation of the misuse of finite reinsurance products to commit securities fraud. In this case, 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." Read more at sec.gov