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Converium on track to announce capital plans

Swiss reinsurer in crisis Converium confirmed last week (20 August) that it is on track for a 31 August announcement detailing actions it will take to shore up its capital base in the aftermath of last month’s shock $385mn reserve charge and profits warning that resulted in a second quarter loss (see Insider Week No.132).

On 27 July the Zurich-based firm and former reinsurance arm of Zurich Financial Services (ZFS) revealed that it had appointed an independent firm of actuaries to conduct a review into reserves for the Zurich and New York businesses.

Last week’s statement added that a detailed announcement will be made at the end of August, revealing the outcome of the review and the resulting capital measures.

In its recent interim results, which reported a $300mn second quarter net loss, the reinsurer said it will probably have to raise between $250mn and $400mn of capital to plug the gaps in its balance sheet.

Since it was spun-off from parent ZFS in a 2001 IPO, the reinsurer has been forced to bolster reserves on a number of occasions, with property casualty reserves increased in 2001, 2002, and now 2004, and life reserves boosted in 2001, 2002 and 2003.

The latest action is targeted at prior-year adverse development on the group’s 1997-2001 book of US casualty business, with umbrella, professional liability and surplus lines casualty the prime causes.

AM Best and Standard & Poor’s both responded to the reserve charge by downgrading Converium from A to A-, while Moody’s placed the reinsurer on review for a possible downgrade.

Analysts and ratings agencies have raised questions over the group’s management and its handling of the affair – which resulted in its share price plummeting by more than 50 percent. Much work needs to be done to restore confidence in the market ahead of Monte Carlo, Baden-Baden and the crucial renewals season if Converium is to avoid becoming this year’s SCOR story.

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