Following the latest announced business plan by Converium AG, A.M. Best Co. downgraded the financial strength rating to “B” (fair) from “B++” (very good) of Converium Insurance North America (CINA). Concurrently, Best downgraded the issuer credit rating to “b-” from “bb-” of Converium Holdings North America (CHNA) and the issuer credit rating to “bb” from “bbb” of CINA. Best also downgraded the debt rating to “b-” from “bb-“on CHNA’s $200 million 7.125 percent senior notes, due 2023 and originally issued by Zurich Reinsurance Centre Holdings Inc. The ratings have been removed from under review and assigned a negative outlook. The financial strength rating of “B-” (fair) and the issuer credit rating of “bb-” of Converium Reinsurance North America (CRNA) remain unaffected.
The rating downgrades are based on Converium management’s plan to cease underwriting at CINA. Converium has indicated that CINA operations will be dormant for the foreseeable future, with no immediate plans of business activity. Earlier, Converium announced that additional capital would not be contributed to CINA as was originally planned. The additional capital injection was intended to support previously planned ongoing U.S. business written through CINA. However, Converium’s current plan is to write all future ongoing U.S. business through Converium and its Bermuda branch.
The downgrading of CHNA’s debt rating is based on Converium’s decision to make CINA’s operations dormant and place CRNA’s operations into runoff. These actions leave CHNA without an actively operating subsidiary to support required interest payments. The negative outlook reflects Best’s opinion that Converium’s North American franchise has been dramatically weakened and any possible future efforts to re-establish a viable business plan for the U.S. subsidiaries will deplete capital and operational focus from the European parent.
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