Converium Comments on Capital Increase, Market Strategy and Options

September 23, 2004

Converium, the troubled Swiss-based reinsurer, has released a bulletin commenting on its plans and possible strategies in advance of an extraordinary general meeting (EGM), to be held on September 28, 2004. Shareholders are expected to approve a $420 million capital increase as well as plans to runoff its U.S.-based operations.

Converium said it has conducted a “careful examination of the company’s track record and franchise outside the United States,” and, based on that review, its Board “believes that the company has a viable business future as a professional reinsurer. In this context, Converium is considering a range of strategic options, which include a capital increase, a partnership, a strategic investment, or a combination thereof.”

The bulletin noted that the company has built profitable businesses in key markets in Europe, Asia-Pacific and Latin America. Converium was formed from a spin-off of Zurich Financial Services’ reinsurance operations in 2001. It conducted a successful initial public offering in December of 2001, and since then has generated net income in excess of $ 500 million – “excluding business underwritten by the North American entity.”

The company said that despite the set backs suffered in the U.S., “it continues to enjoy a strong and stable franchise among its customers in the remaining markets. An independent survey from Flashpoehler conducted in the first half of 2004 among European cedents indicates that Converium’s clients rank the company 3rd in terms of overall excellence among all reinsurers surveyed.” The company said it therefore believes it “can continue to extract value from this franchise for the benefit of shareholders. As a consequence, a going concern on a stand-alone basis based on a capital increase remains a viable option.”

It also said it is “committed to maintain maximum flexibility as regards strategic options. In considering all options to protect the company’s franchise and shareholders’ value, flexibility is an essential component of this process. A capital increase is a core ingredient in a number of these options. Converium is currently discussing a partnership or strategic investment with various parties. While some discussions are at a more advanced stage, additional time will be needed in order to diligently evaluate and compare all options when it comes to structures and terms. The progress of a number of discussions is dependent on assurances to the potential partners that the capital increase will be available.”

In a move aimed at reassuring both the shareholders and the financial markets Converium said, “the company will only execute a capital increase that makes sense from a shareholder value and rating perspective and on underwriting terms that are acceptable to the company.”

In this regard it confirmed that the “Board of Directors is proposing a flexible capital increase structure to the EGM Against this backdrop, the Board of Directors proposes that shareholders approve a capital structure allowing a capital increase of up to $420 million for:
— a discounted rights issue for existing shareholders and, if appropriate,
— a tranche for a strategic investment or partnership for which pre-emptive rights are excluded.
The Board will therefore seek shareholder approval of the proposed capital increase.

The bulletin noted that the Board would also continue to examine several remaining outstanding questions, but “having the capital increase approved will give the company the necessary flexibility to effectively evaluate all options. Not having approval will restrain Converium’s strategic and tactical flexibility and may ultimately force the company to consider alternatives which may not result in achieving an outcome that generates the best value for shareholders.”

Converium will hold a conference call for the investment community on Thursday, Sep. 23, 2004. A few hours after the event it will make the full webcast with Questions and answers available on its website – – for the next month.

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