Bermuda-based ESG Re Limited announced today that Deloitte & Touche has withdrawn its audit reports related to “the year ended December 31, 2001 and review reports related to the quarters ended September 30, 2001, March 31, 2002 and June 30, 2002.” It added that “those reports and the related financial statements should not be relied on.”
The international accounting firm had already resigned as the company’s auditors before issuing a third quarter statement, mainly over the treatment of a “co-reinsurance contract” concluded with ACE Limited in November 2001. This current announcement also specifies that Deloitte & Touche ” notified the Company that this withdrawal relates to the Company’s accounting treatment for its co-reinsurance contract with ACE Limited.”
ESG indicated that by the terms of the agreement “ACE would assume approximately 50% of the risks in respect of the Company’s North America Medical business directly from the customer, with the Company assuming the remaining 50% of the risk. However, under SFAS 113, the premiums written during the retroactive period were deemed to be 100% written by the Company with the co-reinsurance to ACE treated as a retroactive retrocession arrangement (ACE reinsuring the Company and not the customer for approximately 50% of the risk).”
“In accounting for this retroactive transaction, we did not show premiums earned, and related losses and loss adjustment expenses and acquisition costs in our reported revenues and expenses, in respect of the ACE share of the risks in the retroactive period, during the third and fourth quarters of 2001 and the first and second quarters of 2002. Consistent with SFAS 113, we did not recognize any of the profits of the ACE share of the reinsurance contract in our statement of operations and hence, there was no impact on our reported net income or net loss in any affected period,” it continued.
The accounting firm’s withdrawal appeared to indicate that it did not agree with the company’s treatment of the ACE contract. ESG said that it had been “investigating the proper accounting and financial statement presentation for the ACE transaction at the date of D&T’s resignation. ”
It has now engaged BDO International as auditors, and indicated that it was working with the accountants “to determine the proper reporting of these adjustments.” It added that it is “prepared to restate prior periods, if necessary, when BDO International completes its audit and/or review of the affected periods.”
Was this article valuable?
Here are more articles you may enjoy.