Swiss-based Converium announced a $61.8 million loss for the first quarter of 2005, compared to a $65.7 percent profit in the same period last year. It also recorded a pre-tax operating loss (which excludes gains/losses on investments) of $47.8 million, compared to a $77.9 million profit in the first quarter of 2004.
Converium, however, is not the same company that it was a little over a year ago. Following significant reserve strengthening and the decision to sell off or put into run-off most of its U.S. related business, the company has shrunk substantially. Lower ratings -S&P now rates Converium as “BBB+,” i.e. below “A” grade – have also contributed to the downsizing. Gross premiums written in Q1 2005 (which includes January treaty renewals) were $717.5 million, compared to $1.3836 billion in the same quarter of 2004, a 48.1 percent drop.
Converium said that for its ongoing operations, i.e. excluding the U.S. run-off, “the segment loss amounts to $21 million and the non-life combined ratio to 115.7 percent. This result reflects losses from winter storm Erwin ($32.5 million adding 6.1percentage points to the ongoing non-life combined ratio); a negative impact on the technical result from the commutation of retrocession agreements ($38.7 million or 7.2 percentage points); net strengthening of prior years’ loss reserves ($10.4 million, including late developments of $10.9 million relating to 2004 hurricanes) and costs associated with Converium’s restructuring ($10.1 million).”
The full earnings report and then explanatory financial notes can be obtained on the company’s Website at: www.converium.com.
Despite the rough first quarter, newly appointed CEO Terry Clarke remained upbeat. He noted: “Converium’s financial results for the first quarter are disappointing. They are driven by losses arising from natural catastrophes and commutations of various retrocession contracts. The commutations reflect my unconditional commitment to operational prudence and strict risk management standards. Acts of God, however, are a constant phenomenon in the risk business and should, therefore, be assumed to occur from time to time producing volatility in results.”
Clarke added, however: “All in all, I feel encouraged by the continuing profitability of our underlying ongoing business, particularly as the current, non-sustainable administrative expense base will come down significantly in the wake of the cost cutting measures initiated in March. I am also pleased about our reserve situation, which continues to be stable.”
Topics Profit Loss
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