Bermuda-based Max Re Capital Ltd. announced that its Audit and Risk Management Committee has “reopened its previously announced internal investigation with respect to two of the three contracts originally in question and has contacted the Securities and Exchange Commission. The internal investigation, which had concluded in May 2006, was initiated to consider whether three finite risk retrocessional contracts were properly accounted for by the Company, principally with respect to whether they contain sufficient risk transfer to meet the requirements of Financial Accounting Standard No. 113.”
Max Re first announced that it was reviewing the three contracts earlier this year (See IJ Website March 27. Although there were some delays, the Company eventually said it had resolved the any problems, filed its 10-Q report and avoided a delisting from the NASDAQ Exchange. (See IJ Website May, 2, 22 and 31, June 16). It has now in dicated that those filings have been reopened, pending the results of the probe.
Max Re said its “Audit and Risk Management Committee received from the counter-party to these two contracts additional information that was unknown and unavailable at the conclusion of the initial internal investigation. The Committee immediately reopened the investigation to determine whether, in light of this additional information, these two contracts, which were entered into in 2001, still satisfied the risk transfer requirements of Financial Accounting Standard No. 113.”
Fitch Ratings reacted to the announcement by putting Max Re’s ratings on “credit watch/negative” (See related article).
Max Re raised the possibility that the additional information could show the “existence of an oral agreement that would negate risk transfer.” While the bulletin notes that “the available evidence does not allow for a definitive conclusion as to the existence of such an oral agreement,” the possibility that it might exist has had some immediate consequences. Max Re has not only launched the reinvestigation, but has also accepted the resignation of longtime Chairman and CEO Robert J. Cooney, who also resigned from the Board of Directors of the Company and each of its subsidiaries
Cooney will remain “available on a consulting basis to the Company until December 31, 2006,” said the announcement. Max Re’s Board has appointed W. Marston Becker as Chairman and acting CEO effective immediately. He has served as a director of Max Re Capital Ltd. and Max Re Ltd. since April 2004, and is currently an advisor/consultant in the insurance industry and also Chairman and General Partner of West Virginia Media Holdings, which he co-founded in 2001. He has also served as Chairman and CEO of the run-off for LaSalle Re Holdings Limited, a Bermuda insurance company. Becker was Chairman of the Board and CEO of Trenwick Group Ltd., a Bermuda insurance company, from August 2002 until January 2005. He was also Vice Chairman and a director of Royal & SunAlliance USA, from 11/1999 to 12/2000, following their acquisition at Orion Capital Corporation, where from 1997 to 1999 he served as its Chairman of the Board and CEO.
Cooney made the following comment: “After founding and leading Max Re for seven years, I have submitted my resignation because I believe it is in the best interests of the Company to do so. I am confident that Max Re will continue to succeed and grow under the new management team put in place.”
The Company also announced that Peter A. Minton, Executive VP and Chief Risk Officer, has assumed the additional role of Chief Operating Officer and Angelo Guagliano, Executive VPP of the Company’s operating subsidiary, Max Re Ltd., and President of Max Re Ltd.’s Insurance Division, has assumed the role of Chief Underwriting Officer.
“Max Re appreciates the significant contributions by Bob Cooney in leading our organization,” Becker commented. “He leaves a legacy of superior underwriters and insurance professionals committed to excellence, as represented by Angelo Guagliano and Peter Minton.”
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