Converium Posts $49.2 Million Pre-tax Q2 Net Income

Swiss-based Converium bounced back from a $61.8 million first quarter loss to post a profit of $49.2 million before taxes. Pre-tax operating income was $60.7 million and net income amounted to $70.8 million. The company said, “all business segments contributed to the quarter’s positive result.”

CEO Terry Clarke, who replaced Dirk Lohmann in February, commented: “I am very pleased that Converium has swung back to a positive result in the second quarter of 2005. We have seen a favorable development of prior year loss reserves for both the ongoing and the run-off operation. For the third consecutive quarter, prior year reserve movements have been minor. In addition, our ongoing operations, which continue to be affected by a temporarily inflated cost base, remain profitable. I am confident that the second quarter marks a turning point on our way to full recovery. We now start to reap the benefits from the relentless efforts of our staff to put Converium back on track.”

Converium’s second quarter earnings announcement also highlighted the following factors:
— The encouraging result reflects a solid technical underwriting performance, supported by the absence of any major catastrophic events, and a strong total investment result. Net income further increased as a result of an income tax benefit.
— Prior year loss reserves have remained stable. For three consecutive quarters there were only minor loss reserve movements.
— Converium remains confident about the economic profitability of its ongoing business. The non-life combined ratio, excluding an administration expense ratio of 8.8 percent, was 93.6 percent. This is a satisfactory result given the large share of proportional and medium- to long-tail business in Converium’s portfolio.
— Converium’s results are only partially reflective of the cost reduction measures initiated in March 2005. Their effect continues to be offset by costs resulting from staff retention plan and expenses which Converium considers vital investments to facilitate a fast rebound.
— In the second quarter Converium generated a total investment result of US$ 86.8 million, resulting in an average annualized total investment income yield (pre-tax) of 4.3 percent on average total invested assets of $8.0709 billion.

Converium seems to be weathering its “perfect storm” – increased reserves, ratings downgrades – which hit in July of 2004. The problems led to a $420 million capital increase and the loss of half its business, following the ratings downgrades. The company’s gross premiums written for the first half of 2005 declined by 55.2 percent in comparison to the same period in 2004 – to $1.0795 billion from $2.4112 billion.

The announcement duly noted: “The decrease in gross premiums written, net premiums written, and net premiums earned in the second quarter of 2005 (by 64.8 percent, 65.1 percent and 39.3 percent compared to the same period in 2004) reflects the reduction in business volume caused by the placement of Converium Reinsurance (North America) Inc. (CRNA) into orderly run-off in 2004 and the impact of the ratings downgrades which prompted clients to cancel their business or reduce their shares with Converium. Despite the decrease in premiums, there was still some growth in the Agribusiness, Aviation and Accident & Health lines of business resulting from increased shares in existing business and new client relationships.”

The full report is available on the company’s Website at: