Converium, the Swiss-based reinsurance group, spun off by Zurich Financial Services at the end of 2001, posted an 11.1 percent decline in net profit for the first quarter of 2003 of $25.5 million, compared to $28.7 million in the same period last year. Operating profits also fell from $39.1 million to $26.4 million.
Gross premiums written rose more than 25 percent during the period from $940 million to $1.26 billion, while the group’s non-life combined ratio decreased to 98.3 percent during the period, compared to 102.4 percent for the first quarter of 2002.
The results fell below analysts’ Q1 net profit consensus estimates of $32 million. Converium explained that the “financial results for the first quarter 2003 were driven by the continuing strong performance in non-life underwriting, the disappointing result of Converium Life, the impact of the implementation of Converium’s global tax concept as well as the current conditions in the capital markets.”
It noted that “current conditions in the capital markets, particularly the high volatilities in the global equity markets, and the historically low interest rates, resulted in the first quarter of 2003 in impairments of US$ 15.8 million, and a reduction of the average annualized total investment income yield (pre-tax) by 2.5 percentage points to 2.9%.”
CEO Dirk Lohmann commented:”The reshuffling of the reinsurance league table continues as we expected. Outside the United States and with the exception of property cat lines we rarely run into the new markets established in Bermuda. Local market expertise and access to the decision makers of the direct insurers matter. The 2003 renewals so far are clear evidence that Converium is fully established as an independent leading global reinsurer and is emerging as a winner out of the shake out-situation in our industry.”
The company said it had renewed approximately 70 percent of its non-life premium volume during the January 1 and April 1 renewal seasons “and experienced combined increases in rates and shares of approximately 29% (3) on the renewed business.”
Lohmann indicated he was “very pleased by the development of our non-life operations,” especially the “combined ratio of 98.3% and no material net adverse developments from prior years are the clear result of our re-underwriting efforts and the reserve actions we took in the last years.”
He said, however that he was “personally disappointed by the continuous emergence of additional reserve requirements for our GMDB-book – business underwritten several years ago. Particularly, since our new life business is developing favorably.” CFO Martin Kauer added that, “Several years ago, we stopped writing life businesses with embedded investment risk. Converium is currently working on strategies that would allow the mitigation of the investment risks embedded in its GMDB-book.”
Kauer also indicated: “The low interest rates are clearly reflected in our investment results, but we also apply current yield curves when pricing the business. The allocation to equities has been tactically significantly reduced to 7% of total invested assets or below 25% of shareholder’s equity. This level corresponds to the lower range of the optimal equity allocation recommended by our ALM-analysis. Our investment returns, in accordance with our passive management policy, are in line with the respective benchmarks.”
He noted that “Since year-end 2002, Converium’s book value per share increased by 3.4% to US$ 45.03 as per March 31, 2002. Our claims supporting capital of US$ 2.2 billion enables us to benefit from today’s hard reinsurance market.”
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