Best Upgrades Converium After Shareholder Session

Best Upgrades Converium After Shareholder Session

By Caroline McDonald

NU Online News Service, Sept. 30, 1:19 p.m. EDT?Responding to actions at Swiss reinsurer Converium AG's shareholders meeting, that addressed reserve problems and capital conditions, the A.M. Best Co. yesterday announced an upgrade for the beleaguered company. [@@]

Best said it has affirmed the financial strength rating of "B-double-plus" and upgraded the issuer credit rating to "triple-B-plus" from "triple-B" of Converium AG ( Switzerland) and certain rated subsidiaries.

The "under review" status has been removed, and the outlook is stable for all ratings affected, according to A.M. Best.

Jose Sanchez-Crespo, general manager of the A.M. Best London office, told National Underwriter that the upgrade was in response to measures taken by Converium, including a significant reduction of premium of one of the companies in North America, which the company originally intended to continue trading.

"They will write a small proportion directly from Switzerland," he said. "Obviously it will not be the same volume they have been doing so the premium risk will be significantly reduced."

Also after their shareholder meeting, he said, Converium has been successful so far in getting approval for raising of $420 million, which has been underwritten by banks.

Two hundred and sixty-four shareholders representing 10,632,726 registered shares, or 26.58 percent of the outstanding share capital, were present or represented at Converium's Extraordinary General Meeting, Converium said in a statement. The capital increase was accepted by 62.8 percent of the votes cast.

The approved capital increase with pre-emptive rights has been fully underwritten, subject to customary conditions, by a syndicate of banks, Converium said. The subscription period for the rights issue is expected to begin next week.

A.M. Best said in a statement that the rating action follows shareholders' approval of Converium's fully underwritten CHF 533 million (US $420 million) rights issue and reflects A.M. Best's evaluation of the company's latest business plan, which incorporates an estimated reduction in net premium written of more than 50 percent in 2005. An offsetting factor in the rating is continuing risk from the company's reserves.

"Originally the $420 million was going to be primarily injected into the United States and now it will be injected into Switzerland," Mr. Sanchez-Crespo said. "So the raising of this money together with the premium reduction has stabilized the rating at a slightly higher level."

Still, he said, A.M. Best didn't see raising Converium back to an "A-minus" rating "because they still have the tail of the reserve. Some business is in runoff but they are reliable for those reserves," he said. "Premium reduction can be done very quickly, reserve risk reduction takes time."

Mr. Sanchez-Crespo said Converium's current rating shows the market that "although a lower security, a lot has been done in a short period of time to address all the problems."

Over time, he explained, the reinsurer could restore its rating. However, this depends on the market's acceptance of a lower rating level. "If the market is willing to renew business with them partially, if not fully, and if the business is quality, they could over time restore their credibility," he said.

How long this might take, he said is difficult to say. "The next renewal in Baden-Baden, Germany will be a good test for them." He added.