Converium Holding Ltd. today reported a catastrophe-driven third-quarter loss of $6.9 million and released revised financial results for prior periods, admitting to inappropriately accounting for some reinsurance deals, which included unwritten agreements.
The Zug, Switzerland-based reinsurer, which last week named Inga Kristine Beale to replace Terry Clarke as chief executive officer effective next year, said last month the restatement was coming following an extensive internal review after subpoenas and regulatory probes concerning non-traditional insurance and reinsurance products.
Converium's restatement changes its second-quarter 2005 report to reflect an increase in shareholders equity of $69.3 million to $1.72 billion and a $14.6 million increase for the final quarter of 2004 to $1.73 billion.
Although the restatement on shareholders equity for the second quarter 2005 is positive, equity for periods prior to December 2004 "will decrease materially," the company said.
Converium said, as result of the incorrectly listed reinsurance deals, "information relating to these transactions was restated to be recorded as deposits or on a retroactive basis, as appropriate."
In some cases, the company said, these transactions "involved written or oral agreements, understandings or discussions relating to risk expectations that were not appropriately reflected in the accounting treatment at the time of origination.
"Arrangements of this type would have reduced or eliminated the anticipated risk transfer on which the original accounting was based. In other cases, the internal review did not conclusively establish whether such arrangements existed but the restatement was deemed advisable in light of evidence suggesting a reasonable possibility of such arrangements."
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Peter C. Colombo, Converium chairman of the board and audit committee commented: "Based on our rigorous internal review, we do not have any reason to believe that there are any other transactions that require restatement. Of course, we cannot exclude the possibility that further action will be necessary as the governmental inquires will continue and we intend to cooperate with the regulators."
For the third quarter of 2005, Converium reported a loss before taxes of $ 1.3 million, pre-tax operating income of $ 22.1 million, and a net loss of $ 6.9 million.
The company said its 2005 third quarter of was impacted by the U.S. hurricanes and European floods in the amount of $74.2 million and costs of $9.5 million associated with our organizational and operational restructuring.
Converium said there was a positive impact from commutations carried out in the 2005 third quarter of $39 million as well as net positive development of prior years' loss reserves in the amount of $ 11.3 million. In addition, the quarter was positively impacted by the reduction of administration expenses due to the realization of cost management measures adopted early in 2005 as well as solid investment results.
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In the third quarter of 2005, Converium recorded gross premiums written, net premiums written, and net premiums earned of $ 482.6 million, $ 432.4 million and $605.2 million, respectively, which were in line with expectations.
Converium said its premium figures reflect the reduction in business volume caused by the placement of Converium Reinsurance (North America) Inc. (CRNA) into orderly run-off in 2004 and the impact of the ratings downgrades in the same year.
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Overall, the company said it believes its gross premiums written target of approximately $2 billion for the 2005 calendar year is achievable.>
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Converium said for the nine months ended Sept. 30, it had net income of $34.5 million. Nine-month gross premium was $1.6 billion.
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