IRB Brasil Re placed under review with negative implications as top executives depart

AM Best has placed under review with negative implications the financial strength rating of A (Excellent) of Brazil's major reinsurer IRB Brasil Resseguros SA over concerns about effective governance after the departures of two key executives.

The rating actions follow the resignation of IRB's CEO and CFO on March 4, 2020. Subsequently, IRB issued a press release stating that its board of directors appointed a new executive as CFO and interim CEO.

The ratings agency has raised concerns about the effectiveness of IRB’s governance and believes that the company will remain challenged while replacing two key executives.

IRB's board of directors has upheld the decision by its Statutory Board to initiate an investigation to identify the exact circumstances of the disclosure of information by IRB executives regarding its shareholder base, which AM Best believes adds additional uncertainty to the situation.

The resignations came soon after Warren Buffett’s Berkshire Hathaway denied investing in the company. On March 3, Berkshire issued a statement clarifying that it has never been and does not intend to become a shareholder in IRB.

"There have been recent stories in the Brazilian press that Berkshire Hathaway Inc. is a shareholder of IRB Brasil Re. Those stories are incorrect," Berkshire said in the statement. "Berkshire Hathaway Inc. is not currently a shareholder of IRB, it has never been a shareholder of IRB and it has no intention of becoming a shareholder of IRB."

According to a Bloomberg report, IRB shares have plummeted to the lowest intraday level since July 2018 following these events.

The factor that could lead AM Best to remove the under review with negative implications status is the successful management transition while maintaining the company’s existing levels of risk-adjusted capitalization and operating performance as well as any potential impact on the company’s business profile.

A rating factor that could lead AM Best to remove the under review status and downgrade IRB's ratings is a material deterioration of IRB's risk-adjusted capitalization, operating performance, business profile, or enterprise risk management caused by any management change at the company.