Embattled Swiss reinsurer Converium Holdings AG has reported a $116.3 million third quarter loss in financial statements released today.
The company said the results reflect “the continuing satisfactory underlying performance of its in-force book and a number of previously announced extraordinary charges. The main items are an additional reserve strengthening of US$ 96.4 million net based on an in-depth analysis of Tillinghast’s actuarial review, losses of US$ 95.8 million from an unusual cumulation of hurricanes and typhoons and a US$ 20.0 million expense for a retrospective stop-loss retrocession cover purchased from National Indemnity Company.”
“Adjusted for the reserve action and natural catastrophes, Converium recorded a third quarter non-life combined ratio of 96.0%, which testifies to the favorable performance of the Company’s more recent underwriting years. In addition, investment activities continued to exhibit very satisfactory results, with total investment income yield improving further to 4.9%.”
The company listed other third quarter financial highlights as follows:
— Operating loss: US$ -125.0 million
— Impact from reserve strengthening and hurricanes/typhoons: US$ -192.2 million
— Net loss: US$ -116.3 million
— Gross premiums written: US$ 1,033.3 million
— Non-life combined ratio: 117.3%
— Impact from reserve strengthening and hurricanes/typhoons: 21.3%
— Adjusted non-life combined ratio: 96.0%
— Total investment income yield: 4.9%
— Shareholders’ equity: US$ 1,275.1 million
— Cash flows: US$ 21.1 million
“The business written by Converium in the underwriting years 2002, 2003, and 2004 continued to show a satisfactory performance, both for the non-life segments as well as for the Life & Health Reinsurance segment. Excluding prior years’ reserves, the non-life combined ratio was 106.6 percent (including a 10.6 percent impact by hurricanes and typhoons) for the third quarter 2004, respectively 98.3 percent for the first nine months of 2004,” the bulletin continued.
The company also set out the arrangements it has made to fund its withdrawal from the U.S. market, including additions to its reserves. It noted: “Since June 30, 2004, Converium has commuted approximately US$ 265.0 million in loss reserves related to prior years’ business assumed by the Company’s North American operation, Converium Reinsurance (North America) Inc. (CRNA), with a corresponding reduction in cash and invested assets. Currently, CRNA is in negotiations with several clients for additional offers of commutation, and is pursuing these diligently. The third quarter reserve adjustment of US$ 96.4 million net takes into account recent commutations. In general, commutations can accelerate the realization of profit inherent in long-tail reserves by crystallizing outstanding claims reserves into payments, which are discounted to reflect the time value of money. Since commutation payments essentially reflect a discounted present value of future cash flows, future investment income earned will decline as the assets backing those reserves are liquidated to make payments.”
It also cited the retrospective stop-loss retrocession cover from National Indemnity Company, as additional financial protection. In addition Converium said it “has reached an agreement in principle on the main terms of a new US$ 1.6 billion credit facility, comprising a US$ 1.5 billion tranche for letter-of-credit issuance and a US$ 1 billion stand-by revolving credit tranche with its principal international relationship banks. The parties intend to finalize the transaction by mid-November 2004. This facility will replace the existing syndicated credit line of US$ 0.9 billion that was signed in July 2003.”
The report concluded that Converium believes “that its ‘BBB+’ rating from Standard & Poor’s and the availability of adequate letter-of-credit facilities will support Converium’s efforts to maintain its franchise in its European, Asian and Latin American target markets and to retain relationships with key clients and intermediaries in the upcoming January 2005 renewals.”
A complete version of the qurterly report is avaiable on the company’s Web site at: www.converium.com.
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