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Late Filers and Earnings Restatements
Public companies late file their financials statements for a variety of reasons. Most commonly it is due to the extraordinary demands imposed by Sarbanes-Oxley (SOx) 404. However, there are additional areas of concern that can be discovered in the course of compliance with SOx. Factual misstatements of financial condition, whether accidental or intentional, are often uncovered, causing the need to restate earnings for some period of time in the past.
The demands placed on senior management to right this situation distract them from their primary function: running the business profitably on a going-forward basis. As a result, the very effort of trying to recast the past can actually have negative consequences on the future.
Underwriters of Director's and Officers (D&O) insurance quite rightly become unnerved by this set of circumstances. For one thing, most restatements contain downward revisions and will therefore lead to suits against the current and former directors and officers of the company. These suits turn into claims against the D&O policy. The natural response of underwriters when faced with claims under a current policy and the uncertain future of the company is to either refuse to renew/issue coverage, or to substantially increase costs and decrease coverage.
There is no magic wand that can be waived to make the negative impact of restatements go away. But in many cases a careful study of the Company, along with interviews with senior management, can lead to an analysis and conclusion that can calm the nervousness of underwriters when properly presented. The ability to do this well is uncommon among insurance brokers who are accustomed to simply pushing out applications into the marketplace to see what sticks.
But at Financial Specialty, we make our living by engaging in a detailed and thoughtful analysis of the problem and designing specific, creative solutions to address the unique problems of our clients. Client participation is always welcomed and usually required in order to achieve our mutual goals.
Financial Specialty differentiates ourselves by actively seeking out such challenging assignments because we think we're better at it than anyone else. Late filers and companies restating earnings need special talent to control the damage such activities can cause. Contact us to let us know how we may be of service.