Converium: Jan. Renewals Down 50%

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By Caroline McDonald

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NU Online News Service, Feb. 17, 3:06 p.m.EST?Swiss reinsurer Converium, which was hit with ratingsdowngrades in September, said its January business renewals weredown 50 percent, a drop that was not unexpected, a London analystsaid.[@@]

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Converium, which was downgraded by Standard & Poor's,Moody's and A.M. Best just prior to the Rendez-Vous Septembre, theannual reinsurance clients meeting in Monte Carlo, said it expectstotal gross premiums written for 2005 to exceed U.S. $2billion.

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"We weren't expecting a complete meltdown of the franchise,"Marcus Rivaldi, S&P analyst covering Converium told NationalUnderwriter. He added, however, that "We always knew there would bequite a fall in premium income between 2004 and 2005 as a result ofthem closing down their North American subsidiary and the impact ofthat closure on the franchise worldwide."

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S&P, he said, expected a drop in renewals around 50 percent,"and that seems to have played out. And we also knew from exampleslike SCOR, [which moved out of the "A" range in July 2003] thatthere would be an impact from clients scaling back.

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Mr. Rivaldi said there were a number of factors that wereexpected to play in Converium's favor, however.

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? A lot of clients have been with Converium since the beginning,leaving would be difficult because finding "that capacity, roughly$4 billion in capacity overnight would be a challenge."

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? Many clients don't want to put all their eggs in onebasket.

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? In Continental Europe, there are practices where tactics canbe used to effectively remove the credit risk.

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S&P originally dropped Converium's rating to a"triple-B-minus" and has since raised it to a "triple-B-plus," hesaid. The rating currently is a stable outlook, which is a positivemovement, he noted. "What we've seen today is in line with ourexpectations of a "triple-B-plus" stable rating.

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Converium reported that of its renewable non-life businessvolume (excluding Converium Reinsurance--North America Inc.--whichis in orderly run-off) 63 percent was successfully maintained.

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In Europe, Asia and Latin America Converium retained 70 percentof directly written non-life premiums and 55 percent of brokerednon-life premiums up for renewal. The company said it succeeded inmaintaining 87 percent of its treaty direct client relationshipsand 56 percent of its treaty broker relationships.

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Converium also said it established a significant number of newdirect client and broker relationships.

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Following the January renewals, Converium reported totalin-force expected premium income (non-life and life) of $2.35billion, which is inclusive of $839 million in non-life and lifebusiness--up for renewal later this year. Given the nature of thebusiness still renewable, the company said it expects total grosspremiums written in calendar year 2005 to exceed $2 billion andtotal gross premiums written in underwriting year 2005 ofapproximately $2 billion.

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In January, Converium renewed non-life contracts of $1.2billion, about 63 percent of the business which was up for renewal(excluding Converium Reinsurance North America Inc., which is inorderly run-off).

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Converium noted its current financial strength ratings triggeredsubstantial cancellations and share reductions. At the same time,the company said its continued focus on underwriting profitabilitycaused it to decline about 5 percent of renewablebusiness. This decrease of renewed volume waspartially offset by premium growth of $282 million due to rate orshare increases as well as new or restructured business.

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Converium's standard property-casualty reinsurance segmentrenewed $673 million of business, representing a business retentionratio of 63 percent. The company said its specialty lines segmentrecorded an identical retention ratio of 63 percent and acorresponding renewal volume of U.S. $570 million.

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In the property, aviation and marine lines of business,Converium said it preserved its franchise by retaining 68 percent,72 percent and 74 percent, respectively, of renewable business.

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In its future core markets of Europe, Latin America and Asia,Converium said it retained 60 percent, 94 percent and 71 percent,respectively, of its non-life business up for renewal in January.Converium said it continued to write selective U.S.property-casualty business from Zurich.

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More specifically, Converium said its franchise has provenparticularly strong and resilient in Germany, the world's thirdlargest p-c market, with a business retention ratio of 95 percent.In the Middle East region Converium consolidated its position witha net growth of 3 percent of bound renewals.

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Converium noted that January renewals were characterized byheightened competition and plentiful capacity, which put pressureon rates, terms and conditions in certain markets. Overall marketconditions, however, remained attractive.

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