NEW YORK—Assurant Inc. has entered into a $3.5 million agreement with the U.S. Securities and Exchange Commission to settle charges that it used a 2004 finite reinsurance contract to improperly book a $10 million payment as a reinsurance recovery instead of a return of a deposit.

The SEC said that as a result of the improper accounting, the New York-based insurer overstated its net income for the quarter ended Sept. 30, 2004, by $6.4 million, or 9.4%.

According to the SEC, Assurant failed to properly account for $10 million that one if its units, Assurant Solutions, obtained from American Re-Insurance Co. in 2004's third quarter under a reinsurance policy that originated in 1992 and was renewed annually through 2004.

The SEC said in its complaint that the arrangement consisted of a written policy as well as an oral side agreement that “the parties referred to as their "handshake' agreement.

“Although the terms of the written treaty purported to transfer the risk of certain losses from Assurant Solutions to Am Re under certain conditions, the terms of the oral "handshake' agreement effectively negated the transfer of risk,” the SEC complaint stated.

The complaint said the two parties agreed Assurant Group would pay Am Re back in full for any losses the reinsurer experienced under the treaty.

After Assurant incurred losses during the 2004 hurricane season, it improperly recorded the $10 million payment it received from Am Re as a reinsurance recovery when “it was effectively a return of Assurant's own money,” said the complaint.

The settlement agreement, which also enjoins Assurant from violating certain provisions of federal securities laws, is subject to court approval.

In 2007, Assurant announced it had placed Assurant's president and CEO, Robert B. Pollock, on administrative leave after he received a Wells notice from the SEC related to the investigation into the finite reinsurance contracts. A Wells notice is a letter from the SEC stating it intends to begin enforcement proceedings against the recipient.

Mr. Pollock was reinstated in 2008, however, after the insurer said its own “special committee” had completed a review in which the company's board concluded Assurant would be best served if he returned to his leadership responsibilities.

Assurant said it has been informed by SEC staff that the regulator does not intended to pursue any charges or other action against any current Assurant executives, and that it believes it is also unlikely the SEC will pursue any actions against former employees who also received Wells notices in 2007.

Mr. Pollock said in as statement last week that he is pleased the matter is resolved. Assurant, which noted the SEC made no allegation of fraud on its part, said it neither admits nor denies the agency's allegations.

Credit rating agency Standard & Poor's Corp. in New York said the company's ratings are unaffected by the settlement.

In response to a query about American Re, which is now Princeton, N.J.-based Munich Re America Inc., the SEC spokesman said he could not comment on any actions not discussed in the SEC release.

A Munich Re America spokeswoman had no comment.