Converium Gives Details on Reserves, Plans to Raise $200 Million

Swiss-based Converium Group announced details of the $70.3 million in additional reserves it expects to fund for Converium North America during the fourth quarter. It also plans to raise an additional $200 million through the issuance of a “hybrid bond.”

The need for additional provisions for prior years’ liability lines written by Converium North America between 1997 to 2000 were originally announced on October 28th, when Converium released its third quarter 2002 results. Analysts were somewhat surprised by the revelation that the company had increased overall reserves by $60 million, during the period and planned on increasing them by as much as $75 million in the fourth quarter. Yesterday’s announcement, however, indicated a slightly lower amount.

The bulletin said “Converium North America has finalized its loss reserve analysis that will result in the recording of additional provisions for losses on its commercial umbrella, miscellaneous casualty (particularly professional liability, nursing homes), medical errors & omissions liability, motor liability, and workers’ compensation lines of business of US$ 70.3 million net for the fourth quarter 2002, which are in addition to the US$ 47.0 million that were recorded during the third quarter 2002. ”

It stressed that these additional provisions are “the result of the continued emergence of increased reported losses versus expected losses related to prior years.” It gave the total amount as $117.3 million net, recorded in the second half of 2002, and gave details as follows:
-US$35.7 million for Commercial Umbrella, non-proportional written in UWY 1997 to 2000
– US$ 31.2 million for Miscellaneous Casualty, non-proportional written in UWY 1997 to 2000
– US$ 18.6 million for Medical Errors & Omissions Liability, non-proportional written in UWY 1997 to 2000
– US$ 17.0 million for Miscellaneous Casualty, proportional written in UWY 1997 to 1999
– US$ 16.8 million for Motor Liability, non-proportional written in UWY 1997 to 2000
– US$ 14.6 million for Workers’ Compensation, non-proportional written in UWY 1997 to 2000
– US$ 3.0 million for Motor Liability, proportional written in UWY 1999 to 2000
– Partially offsetting these additional provisions, the in-depth analysis of the liability book written by Converium North America also resulted in a reduction of US$ 19.6 million of the reserves of two large Workers’ Compensation-proportional accounts written in UWY 1998 to 2001 due to favorable loss-developments.

Converium CEO Dirk Lohmann, indicated that “The steps taken in the third and fourth quarter underline Converium management’s determination to confront emerging reserve issues in a forthright and proactive manner. As a result, I am confident that the underlying earnings power of our in-force business will manifest itself.”

The company also announced plans to issue a hybrid type of security in order to raise an additional $200 million, but indicated that it had not yet finalized the actual form the issue would take, nor in what markets it might be offered.

The new issue would be in addition to the $201.5 million Converium rrealized last week through the sale of guaranteed subordinated notes.

Topics USA Workers' Compensation Funding