Remember the finite insurance scandal? It has become all but forgotten amid the options backdating troubles that have grabbed the corporate wrongdoing spotlight.
On Sunday, however, Max Re Capital announced that Robert J. Cooney has resigned as chairman and chief executive officer. In the same press release, the Bermuda insurance holding company said it will restate its financials for the five years ending 2005, and for the first two quarters of 2006, after it reopened a previously announced internal investigation of two of three finite insurance contracts. The company also said it notified the Securities and Exchange Commission about the new developments.
Max Re had announced in May that an investigation by its audit and risk management committee had concluded that three finite risk retrocessional contracts contained sufficient risk transfer to be accounted for as reinsurance. A retrocessional contract is reinsurance coverage bought by a reinsurance company to cover its own risks.
However, after Max Re recently received additional information from the counter-party to the suspect two contracts, it immediately reopened the investigation to determine whether—in light of the additional information—these contracts, which were entered into in 2001, still satisfied the risk transfer requirements of FAS 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts. The new information “was unknown and unavailable at the conclusion of the initial internal investigation,” noted a company statement.
Furthermore, the new information “raised the possibility of the existence of an oral agreement that would negate risk transfer,” the company said in the press release. Max Re added that based on the available evidence, it is unable to come to a definitive conclusion that an oral agreement existed. However, because some of the evidence suggests such an agreement, the company conceded there is “an insufficient basis” to conclude that there was adequate risk transfer in the two contracts.
As a result, Max Re decided to restate prior financial statements. Company officials assured investors that the reinsurer does not expect to revise retained earnings by more than $10 million, or roughly 0.8 percent of shareholders’ equity.
Max Re also announced that W. Marston Becker was named chairman and acting chief executive officer, effective immediately. Becker currently is an advisor/consultant in the insurance industry and also chairman and general partner of West Virginia Media Holdings, which he co-founded in 2001. Since 2002, he has also been chairman and CEO of the run-off for LaSalle Re Holdings, a Bermuda insurance company.