Insurance company Assurant placed its CEO and CFO, as well as a divisional CFO, on leave Tuesday after it became clear that the three executives are likely to face charges stemming from the Securities and Exchange Commission’s investigation into the company’s use of finite insurance.
Assurant said that president and CEO Robert B. Pollock, CFO Philip Bruce Camacho, and Adam Lamnin, executive vice president and chief financial officer of Assurant Solutions/Assurant Specialty Property, have each received a “Wells notice” from the Commission’s Division of Enforcement.
The Wells notices are an indication that that the SEC staff plans to recommend a civil enforcement action against these individuals for violating various provisions of the federal securities laws. Under SEC procedures, the executives will have an opportunity to respond before the SEC staff make a formal recommendation that the commission bring charges against them.
CFO.com was unable to reach the executives individually, and Assurant spokesman Drew Guthrie said it would be inappropriate for them to comment in light of the ongoing investigation.
The announcement prompted Standard & Poor’s Ratings Services to put the company and its subsidiaries on CreditWatch, suggesting a potential downgrade. Placing five executives on leave “raises concerns about management effectiveness,” S&P credit analyst Shellie Stoddard said in a press release, adding that the company’s “growing reputational issues could impair large credit-partner/client relationships” and have a negative effect on the company’s revenue and earnings.
Assurant’s Guthrie declined to comment directly on the rating action, saying he had not seen the announcement, but told CFO.com that “Assurant has a strong financial foundation and will continue to build on that foundation.” He added that “It is important for people to know that this investigation does not change our focus on conducting our business and serving our customers.”
CFO.com reported earlier in the month that two employees of Assurant Solutions/ Assurant Specialty Property, Michael Steinman and Dan Folse, also received Wells notices. Steinman and Folse were also placed on leave Tuesday.
The full Board will meet again on Wednesday to appoint interim successors to Pollock and Camacho. Until these successors are named, the remaining members of Assurant’s Management Committee will continue to manage the company’s businesses and operations.
Assurant’s stock dropped more than 11 percent on the news on a day the overall markets were strong.
The company said the Board has formed a Special Committee of non-management directors and will continue the Board’s work of evaluating the situation.”We will continue to cooperate with the SEC to try to resolve this issue in a timely manner,” Guthrie told CFO.com.
In May 2005, Assurant, formerly called Fortis, announced that it received a subpoena from the SEC seeking documents relating to “certain loss mitigation insurance products.” At the time, officials assured investors that the company intended to fully cooperate with the SEC’s request. The subpoena came amid a wider investigation into finite insurance practices. Other companies that received subpoenas related to finite insurance in 2005 included XL Capital, Genworth Financial, and Frankfurt-based Hannover Re AG.
Finite insurance arrangements most often involve a corporation that is willing to pay a premium nearly big enough to cover all the expected losses. The payment is held in a special account with the insurance carrier. If subsequent losses are less than the premium, the carrier returns the difference to the corporation that bought the insurance; if losses are greater than the premium, the corporation pays an additional premium to the carrier.