Converium boss says new strategic plan “on way”
The chief executive of troubled Swiss reinsurer Converium says a new strategic plan to address the company's financial crisis will be unveiled shortly.
Dirk Lohmann said on Tuesday that the company was working actively on a range of options and did not want to “come out with anything half-baked”.
Shares in Converium fell by nearly 20 per cent on Monday after its credit rating was downgraded.
They recovered to reach nearly SFr20 on Tuesday, but analysts say the company is still trading at well below its book value, which they estimate as being at least SFr30.
At its height this year, Converium shares were trading for more than SFr70.
The latest slide in the share price came after rating agency Standard & Poor’s announced on Friday that it was cutting the company’s credit rating from A- to BBB, the second-lowest investment grade rating.
Converium, which was spun off from Zurich Financial Services in 2001, is expected to scale back its operations and focus on its European business as part of a major restructuring programme.
“The worst-case scenario has come true – they are rethinking their business model,” said René Locher, an analyst at Kepler Equities.
Another London-based analyst, who asked not to be named, said Converium had been dealt “a mortal blow”.
Some analysts predict that the firm’s long-term survival may now depend on whether it can strike a takeover deal with a competitor.
Downgraded
Last week the company appointed board member Terry Clarke as managing director.
His role will be to “actively assist” chief executive Dirk Lohmann – sparking speculation that the CEO’s days are numbered.
Two other agencies, Moody’s and AM Best, have already downgraded Converium’s credit rating.
Analysts say the downgrading represents a major blow for the firm, as many reinsurance clients demand a top rating as a precondition for doing business.
The move adds to fears that the company, one of the top ten reinsurance firms worldwide, may have to kiss goodbye to its status as a major global player.
No new business
Converium said it would stop taking on new business in the United States and has dropped plans for a capital injection into its US unit.
A senior official also said the cancellation of a planned $420 million (SFr528 million) capital hike for the company could no longer be ruled out.
Converium has upset the markets several times in recent months.
A profit warning in July sent stock plummeting by more than 50 per cent. The company also unveiled plans to raise up to $400 million to plug its reserves.
A week later, the company posted a $660 million second-quarter loss and predicted it would end the year in the red.
One month later, it said the share issue would be to the tune of $420 million – well above its previous highest estimate – and added that it intended to boost reserves by a further $100 million.
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Converium, which split from Zurich Financial Services in 2001, is one of the top ten reinsurers worldwide.
In addition to a stock price collapse, its rating has been downgraded by three major rating agencies.
An ‘A’ credit rating is crucial for reinsurers to win business – and key to Converium’s ability to mend its balance sheets.
Converium’s stock has lost two-thirds of its value this year, following a string of financial disappointments, which culminated in a credit downgrading on Friday.
At its height this year, Converium shares were trading for more than SFr70.
Analysts point out that French reinsurer Scor lost more than a third of its business after a similar downgrading last year.
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