The Securities and Exchange Commission (SEC) has charged insurance company AmTrust Financial Services and Ronald E. Pipoly Jr., its former chief financial officer, with failing to disclose material facts about how the company estimated its insurance losses and reserves for 2015 and prior years.
Without admitting any wrongdoing, AmTrust and Pipoly have agreed to pay a combined $10.5 million to settle the SEC’s charges.
The SEC complaint alleges that AmTrust and Pipoly disclosed the company’s general actuarial process for estimating loss reserves, but 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.”
According to the SEC, by the end of 2015, Pipoly’s total adjustments exceeded $300 million and impacted all of AmTrust’s reporting segments. The SEC review covered reporting from March 16, 2010 through February 29, 2016.
In a statement to the media, AmTrust maintained that the “alleged conduct does not relate to our insurance companies and will not have any impact on our policyholders.”
Asked to further explain, the company added that the SEC settlement “pertained to the disclosure of accounting methods only and was not related to the actual operations of any AmTrust insurance companies.”
AmTrust and Pipoly have agreed to permanent injunctions against future violations of these provisions and to pay civil penalties of $10.3 million and $75,000, respectively. Pipoly also has agreed to disgorge $140,000 and pay $22,499 in prejudgment interest, the SEC said.
The settlements with AmTrust and Pipoly are subject to court approval.
The SEC complaint says that 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 also allegedly failed to disclose the loss contingencies created by Pipoly’s judgmental adjustments to the company’s historical experience.
Pipoly was named CFO in 2005. In June, 2017, AmTrust named Adam Karkowsky, who had served as AmTrust’s executive vice president for Strategic Development and Mergers & Acquisitions since March 2011, to replace Pipoly Jr. as CFO. Last December, Karkowsky was promoted to president but has continued to also serve as CFO.
In 2018, AmTrust completed plans to become a private company.
The SEC’s complaint, filed in federal court in the Southern District of New York, charges AmTrust and Pipoly with violating antifraud, record keeping and internal control provisions of federal securities laws.
AmTrust’s statement to the media noted that it admitted no wrongdoing and that it is glad to put the matter behind it.
AmTrust said it is “financially strong” and looks forward to “continuing to provide outstanding commercial insurance and risk solutions and services.”
*This story ran previously in our sister publication Insurance Journal.