Converium To Reserve Additional $100M

By Steve Tuckey

NU Online News Service, Aug. 31, 4:15 p.m.EDT?Troubled Swiss reinsurer Converium Holdings AG willreserve up to an additional $100 million as well as run off itsNorth American unit in an attempt to firm ratings and fix itsbalance sheet.[@@]

In a press release and follow-up conference call, the companysaid that a Tillinghast review of the company's reserves hadindicated a reserve shortfall of $219 million.

In addition, the company will run off Converium ReinsuranceNorth America and replace it essentially with a new unit known asConverium Insurance North America (CINA) that will be bolsteredwith $350 million of additional capital and granted a parentalguarantee from Zurich-based Converium AG.

"These steps will represent the most painful part of theprocess," said company Chief Executive Officer Dirk Lohmann. "Therewill be a loss of jobs in North America."

But he said there would be no changes in top management of theNorth American operation, asserting that many of the problems dealtwith market conditions in general, rather than specific companyactions.

The company will seek to commute business from the old CRNAunit, but Mr. Lohmann said there could be no guarantees that itwould not fail.

"In the interests of our shareholders we have to be cautious,"he said.

On July 27 the company announced a reserve strengthening of $385million, along with a six-month net loss of $594.3 million. Themove was described as one to address pre-IPO legacy business of thecompany's U.S. casualty covers.

Company officials disputed about $50 million of the Tillinghastshortfall estimate focusing in on the area of the directors andofficers and errors and omissions covers in 2002 following thesharp rate hikes in the aftermath of the Enron-WorldComscandals.

The company said it plans on a rights offering worth $420million underwritten by a syndicate led by Credit Suisse FirstBoston and J.P. Morgan. The move is seen as necessary to obtain thekey A-level ratings from Standard & Poor's and Moody's for thenew North American operation.