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UPDATE 1-Shares in Brazilian reinsurer IRB down 8.4% after asset manager questions financial statements

(Adds details on Squadra letter to investors, context)

SAO PAULO, Feb 3 (Reuters) - Shares in Brazilian reinsurer IRB Brasil Resseguros SA were down 8.4% on Monday after asset management firm Squadra Investimentos released a letter to its investors saying the reinsurer’s gains may be overstated.

IRB, in a securities filing, denied any irregularity in its financial statements and said the asset manager is shorting its stock. It said it is considering potential legal measures against Squadra.

Squadra said in its letter to investors on Sunday that IRB’s shares are overpriced because its current profitability is not sustainable and is much higher than that of its competitors. It added that its funds were hit in 2018 and 2019 by shorting IRB shares.

IRB shares have risen nearly 200% since May 2018, when Squadra took the short position.

Still, Squadra fell short of accusing IRB of fraud, saying the way the reinsurer posts its earnings is not against laws and regulations.

Squadra said in its 30-page letter that it had already discussed its accounting views’ with IRB’s management in November, but that the company did not agree with it.

IRB, Brazil’s largest reinsurer, is part of the Sao Paulo stock index and has among its shareholders Brazil’s top-two largest private-sector lenders Banco Bradesco SA and Itau Unibanco Holding SA. Its market capitalization is around $10 billion.

Reporting by Paula Laier and Carolina Mandl Editing by Chizu Nomiyama and Dan Grebler

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