SEC’s $10.5m penalty for insurer and ex-CFO over faulty disclosures
18 Jun 2020
International insurance company AmTrust Financial Services and its former CFO have agreed to pay a combined $10.5m (£8.4m) to settle charges brought by the Securities and Exchange Commission (SEC), over failure to disclose material facts about how the company estimated its insurance losses and reserves
18 Jun 2020
According to the US regulator, AmTrust and ex- CFO Ronald Pipoly Jr. failed to properly disclose the company’s process for reporting management’s best estimate of loss reserves in its filings with the SEC.
While the company and its finance chief disclosed the general actuarial process for estimating loss reserves, they failed to disclose that Pipoly made consolidated accounting adjustments that did not properly consider the actuarial analyses and diverged from the company’s actuarial estimates.
In addition, AmTrust failed to disclose the specific factors or assumptions supporting Pipoly’s judgmental adjustments, and failed to maintain sufficient supporting documentation for management’s best estimate.
AmTrust and Pipoly allegedly also failed to disclose the loss contingencies created by Pipoly’s judgmental adjustments to the company’s historical experience.
According to the SEC, by the end of 2015, Pipoly’s total adjustments exceeded $300m and impacted all of AmTrust’s reporting segments.
David Peavler, director of the SEC’s Fort Worth regional office, said: ‘Disclosures regarding an insurance company’s loss reserve process allow investors to judge the reliability of the company’s numbers.
‘As we allege, AmTrust never disclosed that Pipoly repeatedly deviated from the reserving processes described in the company’s filings, and changed the company’s actuarially determined reserves estimates.’
Without admitting or denying the SEC’s allegations, AmTrust and Pipoly have agreed to permanent injunctions against future violations of these provisions and to pay penalties of $10.3m and $75,000, respectively.