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PEMBROKE, Bermuda--The U.S. Securities and Exchange Commission on Tuesday approved RenaissanceRe Holdings Ltd.'s proposed $15 million settlement of securities fraud charges stemming from a bogus two-part finite reinsurance deal in 2001.
The effect of the deal--struck with Inter-Ocean Reinsurance Co. Ltd., a finite risk reinsurer now in runoff--was to smooth and defer $26.2 million of Pembroke, Bermuda-based RenaissanceRe's income from 2001 to 2002 and 2003, regulators alleged in a complaint against the company.
RenaissanceRe acknowledged previously that the two transactions were improperly accounted for as insurance and failed to transfer enough risk to meet accounting standards, and subsequently restated three years worth of earnings.
Under the settlement, RenaissanceRe will pay a civil penalty of $15 million and a $1 disgorgement of ill-gotten gains, enter a final judgment that permanently enjoins the company from future violations of federal securities laws, and retain an independent consultant to review and make recommendations "concerning the adequacy of RenRe's internal controls, audit department and compliance function," the SEC said in a statement.
"This is yet another action arising from our ongoing investigation of the misuse of finite reinsurance products to commit securities fraud," said Mark K. Schonfeld, director of the SEC's Northeast regional office, in a statement. "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."
The reinsurer neither admitted nor denied wrongdoing as part of the agreement.
"We are pleased to have put this difficult chapter in our company's history behind us," said Neill A. Currie, RenaissanceRe's chief executive officer, in a statement. "Throughout the settlement process, a transition of leadership at the company and a volatile market environment, our company continued to serve its clients and deliver value to shareholders on an uninterrupted basis."
The reinsurer previously provided for the $15 million monetary penalty.
The settlement does has no effect on civil fraud charges pending in a Manhattan court against three former top RenassanceRe executives--former Chairman and CEO James N. Stanard, former Controller Martin J. Merritt and former Senior Vp Michael W. Cash--for their alleged roles in orchestrating the Inter-Ocean deal.