A New York law firm has filed a class-action lawsuit against Meadowbrook Insurance Group, accusing the company of not disclosing to investors adverse facts about its operations and prospects.
The lawsuit was filed in U.S. District Court for the Southern District of New York on Aug. 15. It came a day after the company filed its quarterly financial statement with the U.S. Securities and Exchange Commission, which it had delayed to calculate goodwill impairment.
The two-count lawsuit seeks certification as a class action on behalf of investors that bought Meadowbrook stock between July 30, 2012 and Aug. 8, 2013, and monetary damages for alleged violations of the Securities Exchange Act of 1934. Meadowbrook representatives were not immediately available for comment.
Meadowbrook recently saw its Best's Financial Strength Rating changed to B++ (Good) from A- (Excellent) (Best's News Service, Aug. 5, 2013). The downgrade was a triggering event for potential goodwill impairment, the company said in a regulatory filing. Following the ratings action, Meadowbrook also made moves to partner with State National Insurance Co. to handle a portion of Meadowbrook's business that requires A-rated paper.
Meadowbrook in its financial statement filing said it needed to make a non-cash goodwill impairment charge of $115.4 million. The lawsuit says that wipes out nearly all of the company's goodwill on its balance sheet. Goodwill impairment is the difference between the carried goodwill and the company's hypothetical fair value less the fair value of the tangible net assets and less the estimation of identifiable intangible assets. Intangible assets include its agent relationships, licenses, and trademarks, among other things.
Meadowbrook recently reported a $11.5 million second-quarter net loss in late July. The loss stemmed from an unexpected reinsurance arbitration award, adverse development on prior accident-year reserves and an above-average level of storms, the company said (Best's News Service, July 31, 2013).