A.M. Best Co. announced that it has “affirmed the financial strength rating of A (Excellent) of the Swiss-based Converium Group and its core subsidiaries. “Based,” said Best, “on Converium’s excellent capitalisation, improving performance, enhanced profile in certain reinsurance classes and conservative investment strategy.”
It also assigned a “stable” outlook to the ratings, and noted that on August 22, 2003 it had revised the debt rating on Converium’s $200 million senior unsecured notes due in October 2023 to “bbb” from “a-“, “as a result of a change in A.M. Best’s debt rating criteria.” Best noted that an offsetting factor is “the potential for further adverse development in Converium’s consolidated net technical reserves.”
Best said it “expects Converium’s prospective risk-adjusted capital to be maintained at an excellent level based on conservative assumptions for performance in 2003 and 2004,” despite being under some pressure. It warned that “Failure to maintain a consolidated capital base at a level commensurate with the current financial strength rating would trigger an immediate review of Converium’s ratings.”
The rating agency also indicated that it “expects Converium’s consolidated non-life combined ratio to be below 100% in 2003 and 2004 (subject to normal loss experience), based on profitable growth in net written premium in current favourable underwriting conditions. Converium’s underlying performance improved in 2002, despite the impact of adverse reserve development and has continued this trend in the first half of 2003. The half year 2003 net non-life combined ratio is 99%.”
Best also noted that Converium “has successfully raised its profile in liability reinsurance business written outside North America and in certain specialty lines, including aviation and space, agribusiness and other weather-related products.” This has resulted in substantial growth “in the volume of business written in Converium’s target areas. For example, in Converium’s Zurich business segment, liability net premium written increased 68.3% in 2002 to USD 381.4 million.”
Commenting on the “technical reserves” warning, Best said it “believes there continues to be potential for further adverse development in Converium’s consolidated net technical reserves, largely as a result of uncertainty surrounding the appropriate level of reserves required for casualty business written in the United States between 1997 and 2000.” In 2003 and 2004 Best indicated that it expects that any adverse development would “be more than offset by improvement in the performance of calendar year business written. At year-end 2002, Converium reported consolidated adverse non-life reserve development of USD 148.5 million, which follows deterioration of USD 123.6 million in 2001.”
Best said it “is currently reviewing the core status of all Converium’s rated subsidiaries,” and listed the following “core holdings” to which the ‘A’ Excellent rating applies, as: Converium Ltd, Switzerland; Converium Rueckversicherung (Deutschland) AG, Germany; Converium Reinsurance (North America) Inc., and Converium Insurance (North America) Inc.
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