Best: No Rating Change on Max Re

A.M. Best Co. commented that the financial strength ratings of “A-” (Excellent) and the issuer credit ratings of “a-” of Bermuda-based Max Re Ltd. and its rated subsidiaries “remain unchanged following yesterday’s announcement that Max Re’s CEO Robert J. Cooney has resigned and for a second time this year the company will be restating its earnings for fiscal years 2001 through 2005 and the prior two quarters of 2006” (See IJ Website Oct. 31).

Best noted: “These actions are due to further developments related to Max Re’s previous internal investigation concerning the improper accounting treatment relating to two finite retrocessional contracts. In May 2006, the company concluded that there was sufficient risk transfer in each of the contracts in question. However, based on new information recently afforded to Max Re, it appears the previous conclusion may have been incorrect.”

The rating agency confirmed that it “understands that Max Re intends to take a conservative position on this matter by writing down any derived earnings benefit from these contracts for which the cumulative effect to shareholders’ equity is expected not to exceed $10 million.”

The bulletin added that, “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.

“The current Max Re ratings are unchanged at this time as A.M. Best views these actions to be prudent and the current management team has sufficient depth to direct and maintain the current business strategy. However, should there be any further regulatory and/or economic ramifications to arise from this matter, A.M. Best will reevaluate the status of its current assigned ratings to Max Re.”