Converium posts a heavy annual loss

Converium argues that its reserves are now stable Keystone

The troubled Swiss reinsurance business Converium has reported a loss of $760.8 million (SFr886.7 million) in 2004, worse than market expectations.

But the company tried to reassure investors by saying it did not expect to add further to its loss reserves and would continue to stand alone as a reinsurer.

Converium, which has its headquarters in Zurich, was forced to raise $420 million in new capital last year to plug an almost $500 million hole in its loss reserves discovered in July.

This triggered credit rating downgrades and forced Converium to stop writing business in the United States.

Gross written premiums in 2004 came in at $3.84 billion, a figure that the company expects to be halved this year.

Analysts in a Reuters poll had on average expected a full-year net loss of $724 million.

Clearly unsatisfactory

“Converium’s financial results for 2004 are clearly unsatisfactory,” commented CEO Terry Clarke, who last week took over from the embattled Dirk Lohmann.

“We recorded major net reserve strengthening and significant claims arising from natural catastrophes.”

Clarke also said in a statement that the company had taken “resolute measures” to tidy up certain accounting procedures.

“These steps are reflective of Converium’s commitment to operational prudence and accuracy and will help us steer the company back on a track of steady profitability,” he said.

“I also feel encouraged by the fact that Converium’s overall reserve situation appears to have stabilised,” he added.

Financial result

The company statement said that the financial result was not only a reflection of strengthening loss reserves but also included losses arising from hurricanes, typhoons and the south-east Asia tsunami ($154.5 million).

In mid-February Converium commented that January renewals were in line with expectations.

Against this background, the board of directors supported the company continuing as a “stand-alone multi-line reinsurance company”, based on its current business model, which had proven profitable outside North America.

Converium, which is not proposing a dividend, is to adjust its cost base to the expected smaller business volume to try to remain cost-competitive.

The statement explained that management planned to cut administrative expenses to a ratio of about 6.5 per cent of net premiums written in 2006, a measure that would mean “unavoidable” redundancies in all major locations. It did not elaborate.

Converium shares have risen this year by about ten per cent, after falling almost 70 per cent over the past 12 months.

swissinfo with agencies

Key facts

Converium was split off from Zurich Financial Services in 2001.
The company said that last week’s dismissal of CEO Dirk Lohmann was meant to “restore confidence”.
Converium is seeking a replacement for Chief Financial Officer Martin Kauer, who left in February.
The firm employs more than 700 people in 20 offices around the globe.

In brief

Converium made a loss of $760.8 million in 2004, mainly because of having to plug a gap in its loss reserves.

The company said on February 17 that it expected premiums to exceed $2 billion this year.

The board has said it is determined to maintain Converium as an independent entity.

However, cutting costs will mean “unavoidable” redundancies.