Troubled Swiss reinsurer Converium has been targeted with another class action lawsuit in the United States.This content was published on November 10, 2004 - 14:38
In the second class action suit filed against Converium this year, shareholders accused the company of not disclosing the extent of the crisis in its North American subsidiary.
A statement released on Wednesday by New York law firm Murray, Frank and Sailer said that Converium – formed from Zurich Re - “gave erroneous information concerning activities in US indemnity insurance”.
The law firm also placed an advertisement inviting those who invested in Converium between December 11, 2001 and July 20, 2004 to join the action before December 3 this year.
In July, Converium announced a gaping hole in reserves of $385 million (SFr452 million), a figure which has since been revised upwards. The problem forced the company to raise $420 million in fresh capital to stay afloat.
Plaintiffs allege that Converium, “contrary to representations”, failed to maintain adequate reserves to cover claims by North American policyholders.
It also says that reserve increases announced by Converium were insufficient and, as a result of the understatement of loss reserves, earnings and assets were consistently overstated.
The lawsuit comes at a particularly difficult time for Converium.
On July 20, the company issued a profit warning that sent its stock plummeting by almost 50 per cent.
At the same time it also unveiled plans to raise up to $400 million from investors to cover the gap in its reserves left by rising casualty claims in the US.
Then on September 2, following a review of Converium reserves, rating agencies Standard & Poor and A.M. Best lowered the ratings for Converium and its subsidiaries.
A month later, the company was hit with a class action suit by New York firm Schiffrin and Barroway, which levelled many similar allegations to this latest suit.
Converium chief financial officer, Martin Kauer, announced on November 4 that he would resign from his post, the first manager to bow to persistent pressure for a shake-up in the wake of the crisis.
The advertisement for potential claimants in the latest lawsuit caught shareholders off guard - company shares have lost more than 70 per cent of their value since the beginning of the year.
swissinfo with agencies
Converium ranks among the top ten professional reinsurers with $3.83 billion in insurance premiums written in 2003.
It employs a staff of 850 people in 23 countries.
It made a net profit of $185 million in 2003.
It reported a third quarter 2004 loss of US$116 million.
Converium, which has its headquarters in Zurich, has been hit with two New York-based class action lawsuits in as many months.
The lawsuits, on behalf of shareholders, allege Converium in US misled shareholders as to the severity of its financial crisis.
Converium has announced it will downscale US operations.
Share value has fallen 70 per cent over the year.
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