HAMILTON, Bermuda--The departure of Robert J. Cooney from the helm of Max Re Capital Ltd. following a reopened probe into the reinsurer's accounting for some finite risk contracts may help Max Re move on from a troublesome period, but the loss of the well-known executive could ultimately hurt the company, observers say.

While the move may mean that Max Re can move ahead with a clean slate, Mr. Cooney was a skilled leader with valuable industry contacts, they say.

Mr. Cooney--who founded Hamilton, Bermuda-based Max Re in 1999 after serving as president and chief operating officer of XL Insurance Ltd.--resigned as Max Re's chairman and chief executive last week. He also stepped down from the boards of the company and each of its subsidiaries, though he will be available as a consultant until Dec. 31, Max Re said in a statement.

W. Marston Becker, a Max Re director since 2004, was appointed by the company's board to step in as chairman and acting chief executive officer.

Max Re also said that its executive vp and chief risk officer, Peter A. Minton, has assumed the additional role of chief operating officer, while Angelo Guagliano--executive vp of Max Re's operating subsidiary, Max Re Ltd., and president of Max Re Ltd.'s insurance division--has assumed the role of chief underwriting officer for all of the company's insurance and reinsurance operations.

"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," Mr. Cooney said in the statement. "I am confident that Max Re will continue to succeed and grow under the new management team put in place."

Mr. Cooney's exit coincides with Max Re's reopening of an internal investigation earlier this year into finite risk retrocessional contracts written by the reinsurer in 2001 and 2003 (BI, April 3).

That probe, conducted by the reinsurer's audit and risk management committee, was concluded in May 2006 and found that the three contracts in question did not violate federal accounting rules, and contained enough risk transfer to meet Financial Accounting Standards Board criteria to be booked as reinsurance. However, Max Re still decided to restate its results for several years.

Last week, Max Re said the finite risk probe was being relaunched after new data pointed towards the possibility of an oral side agreement that was applied to two of the three contracts in order to negate risk transfer.

The new information was provided by the counterparty on those two contracts, said Keith S. Hynes, Max Re's executive vp and chief financial officer. Mr. Hynes declined to identify the counterparty, but described it as "an investment-grade, A-rated reinsurance company."

"The available evidence does not allow for a definitive conclusion as to the existence of such an oral agreement," but "because some of the evidence suggests such an agreement, the company believes there is an insufficient basis to conclude that there was risk transfer with respect to these two contracts," Max Re said in a statement.

Accordingly, the company for a second time within a year is restating its earnings for the years 2001 through 2005, as well as for the first half of 2006 (BI, June 5). The restatement's effect on prior earnings is not expected to exceed $10 million, Max Re said.

Mr. Hynes declined to comment on whether Mr. Cooney's departure was related to the possible side agreement. "Bob volunteered to resign, and the board concluded that given the circumstances, it was in the best interest of the company for him to resign," Mr. Hynes said.

According to Cliff Gallant, an analyst at Keefe Bruyette & Woods Inc. in New York, Mr. Cooney's departure has potential benefits as well as disadvantages for Max Re going forward.

"The reality is that (the finite issue) is a distraction for the company, and I think his departure means that the attention will be focused away from the company and on the individual," Mr. Gallant said.

At the same time, Mr. Gallant said: "Bob Cooney was a very good CEO, had a lot of relationships and was a good leader for the company."

In his absence, the company could see some difficulty in retaining underwriters, Mr. Gallant said. "Anytime you lose a senior executive like Bob, that's a risk you face. The new CEO is going to have to make sure he reaches out to these people."

Daniel Farrell, a New York-based insurance analyst at Fox-Pitt, Kelton Inc., in a research note to investors said, "the major concerns in the near term are possible action (fines, penalties) taken by the SEC or potential for further management departures down the line."

"While the resignation of Mr. Cooney is a more significant issue than the economic ramifications of the earnings restatement, his resignation is interpreted to be a proactive measure to mitigate any potential future regulatory sanctions," Oldwick, N.J.-based A.M. Best Co. Inc. said in a statement.

Chicago-based Fitch Ratings placed its A financial strength rating of Max Re Ltd. and its Dublin-based subsidiaries, Max Re Europe Ltd. and Max Insurance Europe Ltd., under review pending an assessment of "any adverse impact on the company's franchise, reputation, competitive or financial position as a result of the company's further restatement."

Fitch also noted that it would need to evaluate "Mr. Becker and the management team's ability to continue to successfully execute the company's business strategy."

July 1999: Robert J. Cooney says he will leave XL Insurance Ltd. to form a Bermuda-based reinsurer.

January 2000: Max Re, which raised more than $300 million in capital, opens.

November 2004: New York Attorney General Eliot Spitzer and other regulators probe insurers' use of finite risk products.

March 2006: Max Re informs the SEC of potential problem with three finite risk retrocessional contracts written in 2001 and 2003; announces it may restate earnings for 2001 through 2005.

May 2006: Based on internal review, Max Re decides to restate results, although audit committee finds the three contracts did not violate federal accounting rules and contained enough risk transfer. The restatement, reducing shareholder equity at the end of 2005 by $18.3 million, is well below the original estimate.

October 2006: Max Re reopens internal probe due to information regarding two of the three contracts, raising the possibility of an oral agreement that would negate risk transfer. It said it plans to restate earnings by no more than $10 million. Management changes include exit of Mr. Cooney, chairman and CEO.