Converium Confirms U.S. Operations Run-off ; Comments on Ratings Downgrades

September 13, 2004

Swiss-based reinsurer Converium expressed disappointment with Standard & Poor’s latest decision to lower the holding company’s ratings from “A-” to “BBB.” It also confirmed plans to place its U.S.-based subsidiary into run-off, and is considering other restructuring moves.

The rating agencies (A.M. Best, S&P and Moody’s) reacted negatively after Converium announced the results of an external reserve review, conducted by the actuarial consulting firm Tillinghast-Towers Perrin (See IJ Website Aug.31, Sept.2). Ratings on Converium Reinsurance (North America) Inc. (CRNA), its U.S. reinsurance subsidiary were cut dramatically, but S&P held off lowering the holding company’s ratings until last week, when it indicated they would be downgraded from “A-” to “BBB.”

Converium issued a bulletin expressing disappointment with the decision. It noted that the rating action “in conjunction with A.M. Best’s recent downgrading of Converium, has required changes to the Company’s global business plan which will be communicated shortly.” It added that “as a consequence of the rating action taken by Standard & Poor’s, Converium is reviewing all options with its banks concerning the proposed share issue announced on September 3, 2004.”

The reinsurer also confirmed that “in the wake of A.M. Best’s recent downgrading of Converium to “B++” the Company will not inject any additional capital into Converium Insurance (North America) Inc. (CINA) as originally planned.” The proceeds from the issuance of the new shares will “be used to strengthen the capitalization of Converium AG, Zurich, and Converium Ruckversicherung AG (Deutschland), Cologne, in order to protect the Company’s franchise outside the US.”

It also confirmed plans to “place its US operations into run-off, i.e. no longer write reinsurance from the US.” It will now write U.S. business from Converium AG, Zurich, and its Bermuda Branch.

“In this context, Converium is currently discussing fronting arrangements with third parties for the existing Global Aerospace Underwriting Managers Ltd. (GAUM) business written by CINA,” said the bulletin. “Converium is committed to ensure an orderly run-off of the reserves that the Company carries in its North American legal entities and will continue to negotiate commutations and to conduct claims and underwriting audits.”

The company also announced that “as a result of these developments,” Gary Prestia, member of Converium’s Global Executive Committee and Chief Technical Officer, has submitted his resignation as president of CRNA. “Converium regrets his decision to leave the Company and thanks Mr. Prestia for his valuable contribution to the Company. His successor will be Corcoran Byrne, currently General Counsel of CRNA,” the announcement concluded.

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