Converium today informs on the external reserve review and resulting capital measures

Tuesday, 31. August 2004 07:00

* Converium's Board of Directors has approved a proposal to
recommend to shareholders the raising of additional capital of the
CHF equivalent of US$ 420 million by way of a share issue. The
offering will be underwritten by a bank syndicate led by Credit
Suisse First Boston and JP Morgan subject to customary conditions.
An invitation to an Extraordinary General Meeting and details of
the share issue will follow shortly.

* An independent review conducted by Tillinghast confirms
that Converium's net reserves as of June 30, 2004, for the segments
reviewed, are within a reasonable range of actuarial estimates. As
a result of information gained from the Tillinghast analysis
Converium will consider an adjustment to its reserve position
during the third quarter of 2004 to increase its carried reserves.

* To provide additional comfort as regards the Company's
reserve position, Converium has acquired a stop-loss, a
retrospective retrocession cover from National Indemnity, a
Standard & Poor's "AAA" rated member of the Berkshire Hathaway
group of insurance companies. The stop-loss provides additional US$
150 million cover against potential adverse reserve development of
underwriting years 2003 and prior for all business written by
Converium AG, Converium Reinsurance (North America) Inc., and
Converium Insurance (North America) Inc.

* The restructuring of Converium's asset portfolio and the
commutation of prior years' business has reduced its capital
requirement by more than US$ 100 million.

* Converium's operations in North America will be
restructured. Converium Reinsurance (North America) Inc. will be
placed into orderly run-off. The underwriting of North American
Specialty Lines long-tail risks will be transferred to Zurich.
Converium Insurance (North America) will become the ongoing carrier
in North America under a revised business plan. The capital base of
this company will be enhanced.

External actuarial review confirms Converium's reserves to be within
a reasonable range of actuarial estimates for the segments reviewed

In order to obtain an external review of its overall reserve
position, Converium commissioned the actuarial consulting firm
Tillinghast-Towers Perrin ("Tillinghast") to perform an independent
actuarial review of its non-life reserves as of June 30, 2004 in
respect of the Zurich and New York originated businesses. These
reserves amount to US$ 6.8 billion and represent 94.9% of Converium's
total reserves. Tillinghast's analysis was based on data available at
the time Converium issued its second quarter 2004 financial
statements supplemented by recent commutations. Tillinghast have
relied on the accuracy and completeness of this data and information
provided for their analysis. Tillinghast note that there is inherent
uncertainty with any estimation of loss reserves. Actual results may
vary from the estimates.

As a result of their independent review, Tillinghast have concluded
that Converium's overall net reserves as of June 30, 2004, in total,
for the segments reviewed, are below their point estimate, but fall
within a range of reasonable actuarial estimates. Tillinghast's point
estimate for the relevant businesses exceeds Converium's carried
reserves as of June 30, 2004 by US$ 212.9 million or by approximately
3.2%. Converium's equity as of June 30, 2004 was US$ 1.35 billion.
The Tillinghast review was performed on Converium's overall net
reserves for the segments of business analyzed. Tillinghast have not
expressed an opinion on the reserves at the statutory entity level.

Converium is taking Tillinghast's study under consideration and,
following a detailed analysis of the specific recommendations, will
consider making adjustments to carried reserves in the third quarter
2004 to reflect the new information received. Current estimates of
anticipated adjustments indicate that a further strengthening of
overall net reserves by between US$ 50 million and US$ 100 million
may be appropriate in order to bring Converium's carried reserves
closer to Tillinghast's point estimate. The precise amount of reserve
increase and the resulting financial impact on Converium's
consolidated financial statements is dependent upon ongoing
commutation discussions. Since June 30, 2004, Converium has commuted
US$ 176.8 million in loss reserves related to prior years' business
assumed by its North American operation, Converium Reinsurance (North
America) Inc. Currently, Converium Reinsurance (North America) Inc.
is in negotiations with several clients for offers of commutations,
and it is pursuing these diligently. A successful conclusion of such
commutations may result in a further reduction in the difference
between Tillinghast's point estimate and the Company's current level
of reserves. The inability to conclude any additional commutations
between now and the end of the third quarter would result in the
reserve adjustment coming in at the higher end of the range indicated

In order to provide additional comfort as regards the reserve
position, Converium entered into a retrospective retrocession
agreement with National Indemnity Company, a Standard & Poor's
AAA-rated member of the Berkshire Hathaway group of insurance
companies. The retrospective retrocession agreement includes two
layers, a US$ 150 million out-of-the-money layer, and a US$ 235
million in-the-money layer. The out-of-the money layer provides an
additional US$ 150 million of cover against potential adverse reserve
development on the underwriting years 2003 and prior, for all
business written by Converium AG, Converium Reinsurance (North
America) Inc. and Converium Insurance (North America) Inc. The cover
of US$ 150 million attaches US$ 100 million in excess of the net
reserves carried by these legal entities as of June 30, 2004. The
retrocession also includes an in-the-money layer, a cession on a
discounted basis of US$ 235 million of net reserves carried by these
legal entities as of June 30, 2004. The out-of-the money cover will
be accounted for on a risk transfer basis, respectively the
in-the-money layer on a deposit accounting basis. The reinsurance
charge for this retrocession is US$ 20 million. Converium has
retained the right to commute the transaction on July 1, 2009, or
thereafter at mutually agreeable terms.

Converium is to raise US$ 420 million through a share issue to be

Against the backdrop of the reserve strengthening of US$ 384.7
million in the second quarter of 2004, the Company announces a share
issue of the CHF equivalent of US$ 420 million that will be
underwritten, subject to customary conditions, by a syndicate of
banks led by Credit Suisse First Boston and JPMorgan in order to
restore the Company's strong capitalization and protect its

Details of the share issue will be made available shortly along with
specific information on an Extraordinary General Meeting in which
shareholders will be asked to approve the proposed capital increase.
It is expected that the Extraordinary General Meeting will be held
prior to the end of September and that the share issue will close by
mid October 2004.

Converium is to implement additional measures to de-risk its balance

In order to secure the strong capitalization needed to successfully
execute Converium's strategy and protect the interests of its
stakeholders, the Company has taken steps to de-risk its balance
sheet, which results in reduced capital requirements from a solvency
and rating agency perspective. Converium has analyzed various options
and has determined to take the following actions in addition to the
share offering:

* Establish run-off unit and seek commutations wherever
adequate. Converium is in the process of establishing a unit to
ensure an orderly run-off of business written by its Converium
Reinsurance (North America) Inc. business unit. Included within the
scope of an orderly run-off will be the entertainment of offers of
commutation where adequate. Commutations can accelerate the
realization of profit inherent in long-tail reserves by
crystallizing outstanding claims reserves into payments, which are
discounted to reflect the time value of money. Since commutation
payments essentially reflect a discounted present value of future
cash flows, future investment income earned will decline as the
assets backing those reserves are liquidated to make payments. In
addition, commutations reduce the amount of reserves carried on
Converium's balance sheet and therefore reduce the capital required
to address reserve risk from a solvency perspective.

* Reduce volatile lines of business. In the United States,
Converium will substantially reduce its exposure to lines of
business which are capital intensive due to their high volatility.
This would include so-called national account writers of lead
umbrella and excess & surplus lines, as well as heavy commercial
auto lines written on an excess basis. In addition, Converium
anticipates that it will significantly reduce its writings of
directors' & officers' liability where it believes that a weakening
in market and policy conditions would make it more challenging to
achieve adequate risk-adjusted profitability targets.

* Reduce investment portfolio risks. Since June 30, 2004,
Converium has adjusted its asset allocation and lowered its
exposure to investments in equity securities by almost US$ 500
million. This will reduce its equity exposure to below 4% of total
invested assets from approximately 10% as of June 30, 2004. These
sales generated net realized capital gains of approximately US$
17.6 million, which will be recorded in the third quarter of 2004.
The proceeds of this divestiture will be invested in highly liquid
and highly rated fixed-income instruments. As equity securities
generally have a greater volatility associated with them than other
assets such as highly rated fixed-income instruments, they require
a higher capital charge. The sale of equities will therefore have a
beneficial impact by reducing Converium's capital requirements. In
addition, in order to protect shareholders' equity from potential
future interest rate rises, Converium has lowered the modified
duration of its fixed-income portfolio from 3.8 as per June 30,
2004 to 3.6. Sales relating to this reduction in duration generated
net realized capital losses of less than US$ 2.0 million.
Fixed-income securities with a lower duration generally exhibit
lower interest rate sensitivity than longer-term bonds.
Furthermore, since June 30, 2004 Converium has increased the OECD
government bonds portfolio classified as held-to-maturity by US$
300 million. In total, the measures taken to reduce investment
risks provide Converium with a capital relief of up to US$ 100

Strong capitalization necessary to protect the Converium franchise

A successful capital raising complemented by the various measures to
reduce the capital required by the business will be instrumental in
maintaining Converium's strong franchise. By restoring its capital
adequacy the Company expects to preserve a strong financial strength
rating, which is a prerequisite for retaining and gaining access to
reinsurance business, as it is a key criteria used by clients and
intermediaries to assess counterparty risk. A strong financial
strength rating is particularly important in some of Converium's more
profitable lines, i.e. in specialty lines such as aviation & space
and credit & surety.

Converium is committed to the further development of its successful
efforts in building a lasting franchise in Standard Property &
Casualty Reinsurance as well as in various specialty lines, either as
a leading reinsurer or through its ongoing development and expansion
of strategic alliances.
Against this backdrop Converium will continue to execute its
strategy, which is focused on:

* applying state-of-the art cycle management practice,
especially in the more price-sensitive Standard Property & Casualty
Reinsurance segment,

* profitably growing the Company's high-margin and
expertise-intensive specialties book of business, especially in the
areas of aviation, agribusiness, credit & surety and professional
liability in Europe, and

* expanding its Life & Health Reinsurance segment.

In implementing its strategy the Company remains committed to
underwriting for profit. As regards pricing, Converium's after-tax
target return for each line of business is 11% plus the higher of 4%
or the local risk-free rate (i.e. at least 15% in total) on allocated
risk-based capital in each market. Meeting these targets requires a
constant management of the underwriting cycle including the avoidance
of under-priced business.

North American business to be reorganized

While the overall strategy of the Company remains unchanged,
Converium intends to implement changes to the way it is executed. In
conjunction with the Company's goals to reduce exposure to highly
capital-intensive lines of business in the US, Converium will
discontinue the local writing of long-tail specialty lines
reinsurance from North America. Going forward, these lines will be
written using Converium AG, Zurich, and its Bermuda branch as
carrier. These steps are expected to result in a reduction of North
American gross premium volume by up to US$ 500 million.

This new approach will be implemented by taking the following
measures subject to regulatory approval:

* Converium Reinsurance (North America) Inc., ("CRNA"), will be
placed into orderly run-off and Converium will seek to commute
CRNA's liabilities wherever adequate. The statutory surplus for
CRNA as of 30 June, 2004 was US$ 394.1 million.

* Converium intends to increase the shareholders' equity of
Converium Insurance (North America) Inc., ("CINA"), by US$ 350
million. CINA will be made a direct operating subsidiary of
Converium Holdings (North America) Inc., ("CHNA"). As a result of
these actions, CINA's policyholders' surplus will be increased to
over US$ 400 million. It is intended that CINA will become the
issuing carrier for future local underwriting of Standard Property
& Casualty Reinsurance, aviation insurance, agribusiness
insurance/reinsurance, accident & health reinsurance and workers'
compensation reinsurance.

* In order to emphasize the core status of CINA within
Converium, CINA will be granted a parental guarantee from Converium
AG, Zurich.

Dirk Lohmann, CEO, said: "These organizational changes reflect a
series of painful lessons learned from prior year casualty
underwriting in the United States. A centralization of underwriting
responsibilities for the long-tail specialty lines is expected to
facilitate the implementation of rigorous and globally consistent
underwriting standards." He continued: "In addition, we believe that
this course of action and the proposed changes to the legal entity
structure will help ensure that Converium can continue to offer its
clients and producers in North America a Converium entity with the
highest financial strength rating possible."

Peter Colombo, Chairman of the Board of Directors, stated: "The Board
of Directors has initiated and unanimously approved the course of
action taken by management. We believe that the proposed capital
increase is in the interest of our shareholders as it will help
safeguard Converium's strong franchise. The planned size of the share
issue takes into account an independent assessment of Converium's
reserve position as well as the various measures which reduce the
Company's capital requirements. The Board will carefully monitor the
implementation of the comprehensive and balanced set of financial,
organizational and strategic measures announced today."

* * * * * * *

Conference call details

Converium will hold a conference call for the investment community
and is pleased to invite you to participate. This call will be
webcast live on the Internet at Please dial in 10
to 15 minutes before and ensure that you have Real Media PlayerTM or
Windows Media PlayerTM.

The conference call will be held on Tuesday, August 31, 2004

at 3:00 p.m. Central European Time (CET)
2:00 p.m. Greenwich Mean Time (GMT)
9:00 a.m. Eastern Standard Time (EST)
6:00 a.m. Pacific Standard Time (PST)

call +41 (0) 91 610 5600 Europe
+44 (0) 207 107 0611 UK
+1 (1) 866 291 4166 Toll Free USA only
+1 866 519 5086 Toll Free Canada
+1 866 519 5087 Toll Free Mexico

and quote "Converium"

For those of you unable to participate actively in this conference
call, an audio recording will be available one hour after the event
for 24 hours. The number to dial and the access code are as follows:

+44 (0) 207 866 4300 from UK
+41 (0) 91 612 4330 from Europe
+1 412 317 0088 from North America

followed by the access code 450 #

A few hours after the event the full webcast with Q&A will be
available for a period of one month on


Michael Schiendorfer Zuzana Drozd
Media Relations Manager Head of Investor Relations

Phone: +41 (0) 1 639 96 57 Phone: +41 (0) 1 639 91
Fax: +41 (0) 1 639 76 57 20
Fax: +41 (0) 1 639
71 20

About Converium

Converium is an independent leading global multi-line reinsurer known
for its innovation, professionalism and service. Today Converium
ranks among the top ten professional reinsurers and employs
approximately 850 people in 23 offices around the globe. Converium
is organized into three business segments: Standard Property &
Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance.
Converium's net losses for the September 11, 2001 terrorist attacks
in the United States are capped at US$ 289.2 million by its former
parent, Zurich Financial Services. Converium has minimal A&E
exposures. Converium has an "A -" rating (negative outlook) from
both Standard & Poor's and A.M. Best Company.

Important Disclaimer

This document contains forward-looking statements as defined in the
U.S. Private Securities Litigation Reform Act of 1995. It contains
forward-looking statements and information relating to the Company's
financial condition, results of operations, business, strategy and
plans, based on currently available information. These statements
are often, but not always, made through the use of words or phrases
such as 'expects', 'should continue', 'believes', 'anticipates',
'estimates' and 'intends'. The specific forward-looking statements
cover, among other matters, the reinsurance market, the outcome of
insurance regulatory reviews, the Company's operating results, the
rating environment and the prospect for improving results, the amount
of capital required and impact of its capital improvement measures,
including the restructuring of our U.S. business and its reserve
position. Such statements are inherently subject to certain risks and
uncertainties. Actual future results and trends could differ
materially from those set forth in such statements due to various
factors. Such factors include general economic conditions, including
in particular economic conditions; the frequency, severity and
development of insured loss events arising out of catastrophes, as
well as man-made disasters; the outcome of our regular quarterly
reserve review, our ability to raise capital and the success of our
capital improvement measures, the ability to obtain applicable
regulatory approval for our capital improvement measures, the ability
to exclude and to reinsure the risk of loss from terrorism;
fluctuations in interest rates; returns on and fluctuations in the
value of fixed-income investments, equity investments and properties;
fluctuations in foreign currency exchange rates; rating agency
actions; changes in laws and regulations and general competitive
factors, and other risks and uncertainties, including those detailed
in the Company's filings with the U.S. Securities and Exchange
Commission and the SWX Swiss Exchange. The Company does not assume
any obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise.

Please note that the company has made it a policy not to provide any
quarterly or annual earnings guidance and it will not update any past
outlook for full year earnings. It will however provide investors
with perspective on its value drivers, its strategic initiatives and
those factors critical to understanding its business and operating

This document does not constitute or form part of an offer or
solicitation of an offer, an invitation to subscribe for or purchase
any securities. In addition, the securities of the company to be
issued in any share offering have not and will not be registered
under the United States securities laws and may not be offered, sold
or delivered within the United States or to US persons absent
registration under or an exemption from the registration requirements
of the United States securities laws.
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