Brazilian reinsurer IRB Brasil Re has revealed that it is looking into a potential capital raise to sure up its liquidity margin and improve its cash position.
The company has hired bankers Banco Bradesco BBI SA and Banco Itaú BBA SA to structure the capital increase.
The move comes in response to an inspection currently being carried out by Brazil’s insurance regulator, which aims to verify the sufficiency of assets underpinning IRB’s technical provisions and regulatory liquidity.
IRB has been under particular scrutiny following a drop in share price earlier this year that came about due to confusion over a possible investment by Berkshire Hathaway, after which President José Carlos Cardoso and CFO Fernando Passos resigned.
Investigations into the company have since identified those responsible for spreading these rumours, while also uncovering “irregularities” in the payment of bonuses.
Additionally, IRB was ordered to come up with 1 billion reais ($194 million) to reimburse shareholders facing losses from the volatility in the company’s share price.
The controversies forced the company to twice delay the release of its Q1 results due to the need for corrections, IRB has now confirmed.
After being installed in March 2020, the new board of IRB identified several facts and indications that suggested that the opening balances the fiscal year 2020 were incorrect and should undergo adjustments.
A restatement process was then undertaken and the original financials were adjusted and approved by the board on June 29, after going through the Audit Committee and the Fiscal Council.
If given the green light, IRB’s capital raise would add to a trend of similar initiatives currently being implemented across the re/insurance industry, with companies such as RenRe, Hiscox, Beazley and Lancashire looking to take advantage of improved pricing conditions.