Risk Management

Finite-risk Probe Halts Assurant Buyback

The insurer leaves $261 million unspent as the SEC's investigation into its use of finite insurance continues.
Stephen TaubSeptember 6, 2007

Assurant, Inc. abruptly halted its stock buyback program as a result of the Securities and Exchange Commission’s probe into its use of finite insurance.

The decision takes off the table some $261 million the company had already slated for buybacks, and Assurant said it does not plan to start a new buyback program any time soon. The company bought back $312.6 million in stock this year before calling a halt.

The company said that in light of the ongoing SEC investigation, “it is prudent” to extend the normal quarterly blackout period for company stock transactions, which restricts the company’s ability to initiate a new stock repurchase program.

“We remain focused on disciplined capital management to assure value for our shareholders,” said J. Kerry Clayton, Assurant’s interim president and chief executive officer.

Assurant’s stock Thursday dropped 1.8 percent on the news on a day the overall market was up.

In May 2005, Assurant — formerly called Fortis — announced it had received a subpoena from the SEC seeking documents relating to “certain loss mitigation insurance products.” The subpoena came amid a wider investigation into finite-insurance practices. Indeed, other companies involved in finite-insurance probes that received subpoenas that year included XL Capital, Genworth Financial, and Frankfurt-based Hannover Re AG.

Last month, Assurant said it fired the two executives who were linked to an SEC investigation into finite insurance. The two — Michael Steinman, former senior vice president and chief actuary, and Dan Folse, former vice president-risk management — were put on administrative leave after they received Wells notices from the SEC in July.

In July, president and CEO Robert B. Pollock, CFO Philip Bruce Camacho, and Adam Lamnin, CFO of Assurant Solutions/Assurant Specialty Property, also received Wells notices and were placed on administrative leave.

The company previously disclosed that its board formed a special committee of non-management directors to continue evaluating the matter and to recommend appropriate actions. Assurant also said it continues to believe the SEC’s investigation involves a catastrophe reinsurance contract the company had with one reinsurer that began more than a decade ago, expired in 2004, and was not renewed.

As CFO.com reported when the scandal first broke more than two years ago, critics view finite insurance as an accounting scheme to manipulate earnings. In those cases, a “substantial” amount of risk is transferred, allowing the transaction to be booked as insurance. At that point, the underlying asset can be removed from the policyholder’s balance sheet.

Last year, American International Group agreed to pay $126 million to settle Department of Justice and SEC charges that it sold products that helped PNC Financial Services Group Inc. and Brightpoint inflate earnings via the use of finite insurance.

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