NEW YORK (Dow Jones) — Max Re Capital Ltd.’s decision to restate earnings to write off questionable contracts, and the resignation of its top executive, underscore the company’s conservative approach to resolving the contract issues, Max Re’s chief financial officer said on Monday. The Bermuda-based reinsurer announced on Sunday that it was postponing the release of third-quarter earnings due to a freshly reopened internal probe into whether two of its finite-risk “retrocessional” contracts included enough risk transfer to be counted as reinsurance, rather than loans. Classified as reinsurance, the contracts carry a lighter tax burden.

Also Sunday, Max Re said that Robert J. Cooney — the company’s founder, chairman, and chief executive — had resigned.

“We believe it is very aggressive action,” said Keith S. Hynes, the company’s chief financial officer, in an interview on Monday.

“From a financial perspective, we have basically written off the contracts as if they never existed,” Hynes said. “And on the management side, Bob Cooney volunteered his resignation and the board took what is considered the most conservative, aggressive response to put this issue behind it.”

Hynes added that Max Re expects to report its earnings within two to four weeks.

At issue are problematic deals the company first identified in March, when it said it was looking into three contracts written in 2001 and 2003. In May, the company said the internal probe was complete and that it would result in an $18.3 million cumulative reduction in shareholder equity.

But on Sunday, Max Re said that its investigation into two of those contracts, both from 2001, had been reopened. The company cited “additional information” that raised the possibility of the existence of an “oral agreement that would negate risk transfer,” the company’s press release said.

W. Marston Becker, a director of Max Re since April 2004, was named chairman and acting CEO. Board member George L. Estes III also resigned Sunday. Cooney will be “available on a consulting basis” until the end of the year, the company said.

Max Re said it will restate its financial statements for 2001 through the first half of 2006 “to reflect no risk transfer for these two contracts.”

The company said the cumulative adjustment from this restatement will be a reduction to retained earnings at June 30, 2006, of up to about $10 million, or approximately 0.8 percent of shareholders’ equity. That equates to 17 cents per share.

Max Re also said its auditor had not yet completed its review of the company’s financial information for the first nine months of 2006, but the company expects its third-quarter net income to be $25 million, or 40 cents a share. For the first nine months, it expects its income to be approximately $120 million, or $1.89 a share.

Cliff Gallant, an analyst with Keefe, Bruyette & Woods Inc., said the financial impact on Max Re is less of a concern than the impact of losing its CEO.

Also, the issue could hurt the company’s effort to hang on to key underwriting talent, Gallant said.

The CEO shift could pave the way for other changes, even giving Max Re an opening to consider a sale to a larger company, Gallant said.

Then again, “the stock is down, they have had a rough year, they may not want to sell when things are bad”, he said.

CFO Hynes said he could not comment on any sale rumours.