After several weeks of indifferent news, troubled Swiss reinsurer Converium received welcome boosts from ratings agencies Standard & Poor's and Fitch, who both upgraded the reinsurer a notch on the strength of its successful $420mn right issue.
Standard & Poor's (S&P) was the first to react, announcing on 15 October that it was upgrading Converium's insurer financial strength rating from "BBB" to "BBB+", and removing it from CreditWatch.
The "BBB-" rating on the group's German and UK subsidiaries remains on CreditWatch with developing implications.
S&P credit analyst Marcus Rivaldi explained: "The rating actions follow the successful closing of the $420mn right issue recently launched by the Converium group and the expectation by Standard & Poor's that the group will maintain significant support from key cedents and brokers."
S&P added that, if Converium provides an "acceptably worded" guarantee to its German and UK subsidiaries, their ratings could be brought into line with the parent.
For its part, Fitch raised its insurance financial strength rating on the reinsurer from "BB+" to "BBB-" with a stable outlook.
Fitch explained: "The rating action, which is in line with guidance previously provided by the agency in its press release of 30 September 2004, reflects the group's enhanced levels of capitalisation and the improved competitive position of the company following the receipt of new capital."
When, as revealed in the September issue of The Insurance Insider, S&P double downgraded Converium from "A-" to "BBB" on the eve of the Monte Carlo Rendez-Vous, it hinted at a partial ratings reprieve for the reinsurer if it could restore confidence with a successful cash raise and keep hold of major cedents and brokers. The agency reiterated the pledge as it revised its CreditWatch implications on the reinsurer's Zurich-based parent from developing to positive ahead of the company's crucial 28 September extraordinary general meeting to approve the rights issue.
In Friday's statement, S&P added that Converium's competitive position remains good, despite developments over the last two months, and the impact of the group's US operation going into run-off.
Naturally the move went down well at Converium. In a statement the reinsurer said it was "pleased" with the decision. It added that the action "will help (Converium's) efforts to preserve its franchise in its European, Asian and Latin American target markets and to retain key commercial relationships".
Converium also said it expects to have completed the procedures to provide the necessary parental guarantees to have its German and UK subsidiaries rated in line with the parent.
But the impact of placing the North American business into run-off, and a significant loss of business elsewhere, will lead to a substantial fall in group income for 2005, predicted S&P.
This was echoed by Fitch, which highlighted the damage to the group's franchise and the sensitivity of reinsurance business to the credit quality of reinsurers - particularly that sourced through the broker network.
And despite the timely boost of the ratings upgrade, coming as it does in the build-up to the crucial renewals season, Converium is still faced with weighty challenges.
Market confidence in the reinsurer remains low, exemplified by UK motor insurer Admiral's recent use of a downgrade clause in a quota reinsurance arrangement with Converium, shifting the business to Gen Re and Axis Re Europe.
And investor confidence appears equally low, with the revelation that only 62.8 percent of shareholders voted in favour of the rights issue.
The company also faces the prospect of at least four shareholder class actions in the states, and the SEC has also launched an investigation into possible insider trading in Converium shares, which have collapsed in value since the reinsurer revealed its reserving shortfall on 20 July this year.