Converium reports heavy loss
Swiss reinsurer Converium has posted a second-quarter net loss of $660 million (SFr835.5 million), a week after issuing a profit warning.
The Zurich-based company also announced on Tuesday that it would probably end the year in the red.
“It will be very hard to make a profit,” said chief executive Dirk Lohmann.
Converium confirmed that it would be turning to investors to raise capital to help it cover a $385 million hole in its reserves, drained by rising casualty claims in the United States.
“Based on the information available, Converium expects to increase its capital base by $250 million to $400 million in order to maintain strong capitalisation,” the company said in a statement.
Last week’s profit warning sent its stock plummeting by more than 50 per cent and dealt a severe blow to market confidence in the company’s management.
The shock news wiped $1 billion off the reinsurer’s market value and sparked talk of management changes.
But board chairman Peter Colombo on Tuesday backed Lohmann and the executive committee.
“It is the board’s view that the course of action proposed by the CEO and the Global Executive Committee is in the best interest of our shareholders,” he said.
Lingering uncertainty
With uncertainty over the exact size and shape of the capital increase set to linger until late next month, analysts said the company’s share price could remain under pressure.
“The uncertainty has not been swept away. Confidence is dented [and] contrary to recent speculation, management is not stepping down,” noted analyst Georg Marti at Zurich Cantonal Bank.
“So in the near term, a massive price recovery is not likely.”
At the end of trading on Tuesday, the stock was up more than eight per cent at SFr29.90, but was still well down on its 52-week high of SFr73.75.
Analysts, however, drew some comfort from the fact that the likely capital increase fell short of the $300-600 million expected.
They also said that underlying business – without the reserve increases – had been strong, with adjusted net income rising to $89 million in the second quarter from $66 million in the first.
Credit rating
Last week credit rating agency Standard and Poor lowered its long-term rating on Converium from A to A-.
Chief financial officer Martin Kauer said Converium would be cutting its risk exposure on the investment and reinsurance side to prevent further downgrades.
He also sought to allay market fears that the reinsurer, which split from Zurich Financial Services in 2001, did not have a firm grip on its book of policies or the likelihood of claims on those policies.
“We are convinced that our reserve position is okay, that we are adequately reserved,” said Kauer.
swissinfo with agencies
Converium posted net income of $65.7 million (SFr81 million) in the first quarter.
It reported a $660 million net loss in the second quarter.
It is proposing a capital increase of $250-400 million.
Converium has a staff of 800 in 22 offices around the globe.
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