Converium returns to profit

Converium seems to haved turned around its fortunes. Converium

Swiss reinsurer Converium has reported a net profit of $68.7 million (SFr89.47 million) in 2005 after recording a loss of nearly $600 million the previous year.

Although the result was hit by heavy claims from hurricanes in the United States and the costs of an accounting review, it was still better than analysts had expected.

The group is still recovering from a heavy loss in 2004 when it discovered a $500-million hole in claims reserves.

Converium teetered on the brink of collapse and was forced to raise emergency capital. The turmoil caused its chief executive to step down and the group only appointed a definitive successor this year.

The average in a Reuters poll of 14 analysts was for net profit to come in at $43.3 million in 2005.

“Based on the underlying quality of our ongoing business, the stability of prior accident years’ loss reserves and the progress in running-off […] liabilities, we have been able to absorb significant catastrophe losses,” said Inga Beale, the group’s new chief executive.

“I am proud that Converium managed to make a profit in what was one of the toughest years in the history of the insurance industry.”

A number of natural events, including winter storm Erwin, flooding in Europe and hurricanes Katrina, Rita and Wilma, had a negative net pre-tax impact of $164.8 million.

However, this was compensated in part by a satisfactory underwriting performance of ongoing operations. This segment achieved a total income of $173.8 million.

Ratio

Converium’s combined ratio – an industry term gauging profitability – rose 1.1 points to 107.2 per cent.

The higher the ratio stands above 100 per cent, the bigger an insurer’s underwriting loss. A result below 100 per cent indicates the degree of profitability, and without natural catastrophes Converium’s ratio would have been 99.5 per cent.

The group earned a total gross premium of $1.994 billion in 2005, down from $3.978 billion the previous year, reflecting the discontinuation of loss-making operations.

Converium is looking to sell off its North American business that was the source of most of its financial troubles in 2004.

Beale, who took over the group six weeks ago, is optimistic about the coming year. “I […] believe that 2006 will see further progress towards Converium’s sustainable recovery,” she added.

Converium was not the only reinsurer to take a hit from the US storms. Rival Swiss Re saw its net profit take a tumble last year as the firm was hit by the costliest United States hurricane season on record.

swissinfo with agencies

Key facts

Gross premiums written in 2005: $1.994 billion.
Ongoing non-life combined ratio: 107.2%.
Total investment return: $312 million.
Net income: $68.7 million.
Earnings per share: $0.47
Return on equity: 4%.
Total invested assets plus cash: $7.281 billion.

In brief

In March 2001, Zurich Financial Services announced that it would exit the reinsurance business by way of a spin-off or an IPO, leading to the creation of Converium.

In October 2003, Converium introduced a new management structure centred on global functional areas, replacing an organizational structure previously based on geography.

Due to higher than expected US losses, primarily related to the underwriting years 1997 to 2001, Converium bolstered its reserves in 2004.