Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of March, 2006
CONVERIUM HOLDING AG
------------------------------------------
(Translation of registrant's name into English)
Baarerstrasse 8
CH-6300 Zug
Switzerland
-------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
------- -------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
------- -------
If "Yes" is marked, indicate the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- Not Applicable
Converium Holding Ltd, Zug
Zug, Switzerland - February 28, 2006 - Converium publishes the restated
financial information for the periods from 1998 through 2004, and for each of
the quarters from March 31, 2003 through June 30, 2005. The Company also
provides its third quarter 2005 results including comparative 2004 information
and segment data.
Content
A) Restatement of accounts pages 2 - 15
B) Financial information for the three and nine months
ended September 30, 2005 pages 16 - 30
A) Restatement of accounts
Restatement of accounts
On November 4, 2005, Converium announced its plan to restate prior period
financial statements. This decision was taken in light of findings of an
extensive internal review, overseen by the Audit Committee with the assistance
of independent outside counsel.
On December 19, 2005, Converium reported on the status of the internal review,
restatement of accounts and third quarter results. At that time, Converium
provided unaudited restated financial information for its December 31, 2004 and
June 30, 2005 balance sheets.
As a result of the review and as indicated in its December 19, 2005 press
release, Converium today provides restated financial information for the periods
from 1998 through 2004, as well as for each of the quarters from March 31, 2003
through June 30, 2005. Converium expects to file shortly an amended Form 20-F/A
reflecting the restatement adjustments and their impact on previous disclosures
and financial statements.
While additional information regarding the restatement will be provided in the
Form 20-F/A, a summary of the nature and impact of the restatement is provided
below.
Background to the Restatement: internal review
Ongoing investigations of the insurance and reinsurance industry and
non-traditional insurance and reinsurance products are being conducted by U.S.
and international regulators and governmental authorities, including the U.S.
Securities and Exchange Commission and the New York Attorney General.
On March 8, 2005, MBIA issued a press release stating that MBIA's audit
committee undertook an investigation to determine whether there was an oral
agreement with MBIA under which MBIA would replace Axa Re Finance as a reinsurer
to CRNA by no later than October 2005. The press release stated that it appeared
likely that MBIA made such an agreement or understanding with Axa Re Finance in
1998. Thereafter, on April 19, 2005, CRNA received subpoenas from the U.S.
Securities and Exchange Commission and the Office of the New York Attorney
General seeking documents related to certain transactions between CRNA and MBIA.
Converium has also received additional inquiries from the Securities and
Exchange Commission and other governmental authorities in Europe regarding
non-traditional insurance and reinsurance products and/or the restatement of its
financial statements. The inquiries are ongoing and Converium is fully
cooperating with the governmental authorities.
In view of the industry investigations and the events relating to MBIA described
above, Converium engaged independent outside counsel to assist it in a review
and analysis of certain of its reinsurance transactions, including the MBIA
transaction. The internal review, which was overseen by the Audit Committee,
addressed issues arising from the ongoing governmental inquiries and Converium's
own decision to review certain additional items. The internal review involved
the assessment of numerous assumed and ceded transactions including
structured/finite risk and other reinsurance transactions and encompassed all
business units of Converium, a review of hundreds of thousands of e-mails,
attachments to e-mails and other documents and interviews of all current members
of the Global Executive Committee and the Board of Directors, as well as certain
former members of senior management and other employees of Converium. The Audit
Committee believes that the scope and process of the internal review has been
sufficient to determine whether Converium's assumed and ceded transactions were
improperly accounted for as reinsurance, rather than as deposits. After
discussing the findings of Converium's extensive internal review with
independent outside counsel, the Audit Committee determined that the accounting
corrections below were appropriate and authorized the Restatement of Converium's
financial statements as of and for the years ended December 31, 2004 through
1998. As part of this process, the Audit Committee has involved its independent
group auditors, PricewaterhouseCoopers Ltd. For further information regarding
these accounting adjustments, see Note 3 to our 2004 consolidated financial
statements included in "Item 8. -- Financial Information -- A. Consolidated
Statements and Other Financial Information," and "Item 5. -- Operating and
Financial Review and Prospects -- A. Operating Results". Financial information
for each of the quarters ended March 31, 2003 through June 30, 2005 has also
been restated. All amounts included herein have been adjusted to reflect the
Restatement. Previously published financial statements regarding any of the
above periods should no longer be relied upon.
2
As noted above, Converium is fully cooperating with the governmental
authorities, and is in the process of sharing the results of its internal review
with the relevant authorities. Although the internal review was extensive, the
ongoing governmental inquiries, or other developments, could result in further
restatements of Converium's financial results in the future and could have a
material adverse effect on Converium.
Restatement overview
As a result of the internal review, Converium concluded that the accounting for
a number of reinsurance transactions needed to be corrected and that its
financial statements and selected financial and other data should be restated.
The Restatement of reinsurance contracts relates primarily to the US GAAP
requirement that in order to qualify for reinsurance accounting treatment,
reinsurance agreements transfer significant risk, as required by SFAS 113. Cash
flows under reinsurance contracts that transfer significant risk are recognized
as premiums and losses. Reinsurance contracts that do not transfer significant
risk are not reported as premiums and losses, but are instead accounted for
using deposit accounting, with cash flows recognized as deposit assets or
liabilities with associated other income or expense. Converium also restated its
accounting for income taxes and certain other items.
The tables below show the reconciliation of the previously reported income
statements and balance sheets to the restated versions, broken out by respective
adjustment category as of and for the years ended December 31, 2004, 2003, 2002,
2001, 2000, 1999 and 1998.
Consolidated statements of (loss) income
(US$ million)
Year ended December 31 2004 2003
As As
previously Reinsurance Taxes Other As previously Reinsurance Taxes Other As
reported transactions Items restated reported transactions Items restated
---------------------------------------------------------------------------------------------
Revenues
Gross premiums written 3,840.9 -17.2 - 155.0 3,978.7 4,223.9 -28.4 - 104.9 4,300.4
-------------------------------- -------------------------------------------- -----------------------------------------------
Less ceded premiums written -287.9 70.6 - -35.3 -252.6 -396.9 96.9 - -77.7 -377.7
-------------------------------- -------------------------------------------- -----------------------------------------------
Net premiums written 3,553.0 53.4 - 119.7 3,726.1 3,827.0 68.5 - 27.2 3,922.7
-------------------------------- -------------------------------------------- -----------------------------------------------
Net change in unearned premiums 132.1 24.0 - - 156.1 -150.5 -4.4 - -0.0 -154.9
----------------------------------------------------------------------------- -----------------------------------------------
Net premiums earned 3,685.1 77.4 - 119.7 3,882.2 3,676.5 64.1 - 27.2 3,767.8
-------------------------------- -------------------------------------------- -----------------------------------------------
Net investment income 311.6 - - 1.1 312.7 233.0 - - 1.4 234.4
-------------------------------- -------------------------------------------- -----------------------------------------------
Net realized capital gains
(losses) 46.5 - - - 46.5 18.4 - - - 18.4
----------------------------------------------------------------------------- -----------------------------------------------
Other (loss) income -2.6 3.5 - -9.1 -8.2 2.7 17.5 - -2.7 17.5
-------------------------------- -------------------------------------------- -----------------------------------------------
Total revenues 4,040.6 80.9 - 111.7 4,233.2 3,930.6 81.6 - 25.9 4,038.1
-------------------------------- -------------------------------------------- ----------------------------------------------
Benefits, losses and expenses
Losses, loss expenses and life
benefits -3,263.1 -44.7 - -34.7 -3,342.5 -2,674.2 -85.9 - - -2,760.1
----------------------------------------------------------------------------- -----------------------------------------------
Acquisition costs -842.5 9.9 - -79.8 -912.4 -803.2 -16.6 - -12.2 -832.0
-------------------------------- -------------------------------------------- -----------------------------------------------
Other operating and
administration expenses -217.9 - - -1.9 -219.8 -197.8 - - -4.7 -202.5
----------------------------------------------------------------------------- -----------------------------------------------
Interest expense -33.1 - - - -33.1 -31.0 - - - -31.0
-------------------------------- -------------------------------------------- -----------------------------------------------
Impairment of goodwill -94.0 - - - -94.0 - - - - -
-------------------------------- -------------------------------------------- -----------------------------------------------
Amortization of intangible
assets -9.9 - - - -9.9 - - - -1.8 -1.8
-------------------------------- -------------------------------------------- -----------------------------------------------
Restructuring costs -2.7 - - - -2.7 - - - - -
-------------------------------- -------------------------------------------- -----------------------------------------------
Total benefits, losses and
expenses -4,463.2 -34.8 - -116.4 -4,614.4 -3,706.2 -102.5 - -18.7 -3,827.4
----------------------------------------------------------------------------- -----------------------------------------------
(Loss) income before taxes -422.6 46.1 - -4.7 -381.2 224.4 -20.9 - 7.2 210.7
-------------------------------- -------------------------------------------- -----------------------------------------------
Income tax (expense) benefit -338.2 -17.1 152.2 1.8 -201.3 -39.3 -10.2 13.2 3.5 -32.8
-------------------------------- -------------------------------------------- -----------------------------------------------
Net (loss) income -760.8 29.0 152.2 -2.9 -582.5 185.1 -31.1 13.2 10.7 177.9
-------------------------------- -------------------------------------------- -----------------------------------------------
Consolidated statements of income
(US$ million)
Year ended December 31 2002
As
previously Reinsurance Taxes Other As
reported transactions Items restated
------------------------------------------
Revenues
Gross premiums written 3,535.8 -163.3 - -0.1 3,372.4
----------------------------------------------------------------------------- ------------------------------------------
Less ceded premiums written -213.6 76.4 - - -137.2
----------------------------------------------------------------------------- ------------------------------------------
Net premiums written 3,322.2 -86.9 - -0.1 3,235.2
----------------------------------------------------------------------------- ------------------------------------------
Net change in unearned premiums -156.7 -1.0 - - -157.7
------------------------------------------------------------------------------------------------------------------------
Net premiums earned 3,165.5 -87.9 - -0.1 3,077.5
----------------------------------------------------------------------------- ------------------------------------------
Net investment income 251.8 - - - 251.8
----------------------------------------------------------------------------- ------------------------------------------
Net realized capital gains (losses) -10.3 - - - -10.3
------------------------------------------------------------------------------------------------------------------------
Other (loss) income -1.2 32.8 - - 31.6
----------------------------------------------------------------------------- ------------------------------------------
Total revenues 3,405.8 -55.1 - -0.1 3,350.6
----------------------------------------------------------------------------- ------------------------------------------
Benefits, losses and expenses
Losses, loss expenses and life benefits -2,492.0 1.0 - -0.1 -2,491.1
------------------------------------------------------------------------------------------------------------------------
Acquisition costs -666.7 23.9 - -4.0 -646.8
----------------------------------------------------------------------------- ------------------------------------------
Other operating and administration expenses -173.3 - - -5.1 -178.4
------------------------------------------------------------------------------------------------------------------------
Interest expense -16.4 - - - -16.4
----------------------------------------------------------------------------- ------------------------------------------
Total benefits, losses and expenses -3,348.4 24.9 - -9.2 -3,332.7
------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 57.4 -30.2 - -9.3 17.9
----------------------------------------------------------------------------- ------------------------------------------
Income tax benefit (expense) 49.4 2.5 -34.7 0.7 17.9
----------------------------------------------------------------------------- ------------------------------------------
Net income (loss) 106.8 -27.7 -34.7 -8.6 35.8
----------------------------------------------------------------------------- ------------------------------------------
3
Historical combined statements of loss
(US$ million)
Year ended December 31 2001 2000
As As
previously Reinsurance Taxes Other As previously Reinsurance Taxes Other As
reported transactions Items restated reported transactions Items restated
----------------------------------------------------------------------------------------
Revenues
Gross premiums written 2,881.2 -34.4 - - 2,846.8 2,565.8 -18.7 - - 2,547.1
------------------------------------ ----------------------------------------- ----------------------------------------------
Less ceded premiums written -398.6 204.5 - - -194.1 -569.8 203.4 - - -366.4
------------------------------------ ----------------------------------------- ----------------------------------------------
Net premiums written 2,482.6 170.1 - - 2,652.7 1,996.0 184.7 - - 2,180.7
------------------------------------ ----------------------------------------- ----------------------------------------------
Net change in unearned premiums -187.4 -16.8 - - -204.2 -134.5 8.3 - - -126.2
------------------------------------------------------------------------------ ----------------------------------------------
Net premiums earned 2,295.2 153.3 - - 2,448.5 1,861.5 193.0 - - 2,054.5
------------------------------------ ----------------------------------------- ----------------------------------------------
Net investment income 228.7 - - 6.2 234.9 176.0 - - - 176.0
------------------------------------ ----------------------------------------- ----------------------------------------------
Net realized capital gains (losses) -18.4 - - - -18.4 83.7 - - - 83.7
------------------------------------------------------------------------------ ----------------------------------------------
Other (loss) income -5.8 14.9 - -6.2 2.9 29.3 13.9 - - 43.2
------------------------------------ ----------------------------------------- ----------------------------------------------
Total revenues 2,499.7 168.2 - - 2,667.9 2,150.5 206.9 - - 2,357.4
------------------------------------ ----------------------------------------- ----------------------------------------------
Benefits, losses and expenses
Losses, loss expenses and life
benefits -2,300.5 -160.1 - - -2,460.6 -1,604.5 -281.1 - - -1,885.6
------------------------------------------------------------------------------ ----------------------------------------------
Acquisition costs -508.1 -8.8 - - -516.9 -454.4 -27.2 - - -481.6
------------------------------------ ----------------------------------------- ----------------------------------------------
Other operating and administration
expenses -146.4 - - - -146.4 -116.0 - - - -116.0
------------------------------------------------------------------------------ ----------------------------------------------
Interest expense -24.2 - - - -24.2 -17.1 - - - -17.1
------------------------------------ ----------------------------------------- ----------------------------------------------
Amortization of goodwill -7.8 - - - -7.8 -7.3 - - - -7.3
------------------------------------ ----------------------------------------- ----------------------------------------------
Total benefits, losses and expenses -3,037.0 -168.9 - - -3,205.9 -2,199.3 -308.3 - - -2,507.6
------------------------------------------------------------------------------ ----------------------------------------------
Loss before taxes -537.3 -0.7 - - -538.0 -48.8 -101.4 - - -150.2
------------------------------------ ----------------------------------------- ----------------------------------------------
Income tax benefit (expense) 169.9 -0.3 12.8 - 182.4 19.5 28.2 -9.6 - 38.1
------------------------------------ ----------------------------------------- ----------------------------------------------
Net (loss) income -367.4 -1.0 12.8 - -355.6 -29.3 -73.2 -9.6 - -112.1
------------------------------------ ----------------------------------------- ----------------------------------------------
Historical combined statements of income
(US$ million)
Year ended December 31 1999 1998
As As
previously Reinsurance Taxes Other As previously Reinsurance Taxes Other As
reported transactions Items restated reported transactions Items restated
--------------------------------------------------------------------------------------
Revenues
Gross premiums written 1,928.7 -18.6 - - 1,910.1 1,458.8 -6.1 - - 1,452.7
------------------------------------ ----------------------------------------- --------------------------------------------
Less ceded premiums written -358.5 17.5 - - -341.0 -213.7 4.9 - - -208.8
------------------------------------ ----------------------------------------- --------------------------------------------
Net premiums written 1,570.2 -1.1 - - 1,569.1 1,245.1 -1.2 - - 1,243.9
------------------------------------ ----------------------------------------- --------------------------------------------
Net change in unearned premiums -168.7 1.0 - - -167.7 -17.7 0.5 - - -17.2
------------------------------------------------------------------------------ --------------------------------------------
Net premiums earned 1,401.5 -0.1 - - 1,401.4 1,227.4 -0.7 - - 1,226.7
------------------------------------ ----------------------------------------- --------------------------------------------
Net investment income 214.0 - - - 214.0 255.4 - - - 255.4
------------------------------------ ----------------------------------------- --------------------------------------------
Net realized capital gains (losses) 76.3 - - - 76.3 78.9 - - - 78.9
------------------------------------------------------------------------------ --------------------------------------------
Other income 22.1 2.1 - 1.2 25.4 24.8 0.7 - 2.1 27.6
------------------------------------ ----------------------------------------- --------------------------------------------
Total revenues 1,713.9 2.0 - 1.2 1,717.1 1,586.5 - - 2.1 1,588.6
------------------------------------ ----------------------------------------- --------------------------------------------
Benefits, losses and expenses
Losses, loss expenses and life
benefits -1,138.7 -0.6 - - -1,139.3 -917.3 0.5 - - -916.8
------------------------------------------------------------------------------ --------------------------------------------
Acquisition costs -340.3 -0.7 - -1.3 -342.3 -340.7 0.3 - -2.1 -342.5
------------------------------------ ----------------------------------------- --------------------------------------------
Other operating and administration
expenses -112.8 - - - -112.8 -127.9 - - - -127.9
------------------------------------------------------------------------------ --------------------------------------------
Interest expense -17.5 - - - -17.5 -16.1 - - - -16.1
------------------------------------ ----------------------------------------- --------------------------------------------
Amortization of goodwill -6.2 - - - -6.2 -6.2 - - - -6.2
------------------------------------ ----------------------------------------- --------------------------------------------
Total benefits, losses and expenses -1,615.5 -1.3 - -1.3 -1,618.1 -1,408.2 0.8 - -2.1 -1,409.5
------------------------------------------------------------------------------ --------------------------------------------
Income before taxes 98.4 0.7 - -0.1 99.0 178.3 0.8 - - 179.1
------------------------------------ ----------------------------------------- --------------------------------------------
Income tax expense -40.6 -0.3 - - -40.9 -62.0 -0.3 - - -62.3
------------------------------------ ----------------------------------------- --------------------------------------------
Net income 57.8 0.4 - -0.1 58.1 116.3 0.5 - - 116.8
------------------------------------ ----------------------------------------- --------------------------------------------
4
Condensed Consolidated balance sheets
(US$ million)
2004 2003
As As
previously Reinsurance Taxes Other As previously Reinsurance Taxes Other As
reported transactions Items restated reported transactions Items restated
----------------------------------------------------------------------------------------
Assets
Invested assets
Held-to-maturity securities:
Fixed maturities 850.4 - - - 850.4 500.4 - - - 500.4
------------------------------- ------------------------------------------- --------------------------------------------
Available-for-sale securities:
Fixed maturities 4,834.8 - - - 4,834.8 4,428.2 - - - 4,428.2
------------------------------- ------------------------------------------- --------------------------------------------
Equity securities 399.4 - - - 399.4 840.2 - - -5.3 834.9
------------------------------- ------------------------------------------- --------------------------------------------
Other investments 281.4 - - -2.2 279.2 173.5 - - -21.3 152.2
------------------------------- ------------------------------------------- --------------------------------------------
Short-term investments 117.3 - - - 117.3 55.8 - - -0.1 55.7
------------------------------- ------------------------------------------- --------------------------------------------
Total investments 6,483.3 - - -2.2 6,481.1 5,998.1 - - -26.7 5,971.4
------------------------------- ------------------------------------------- --------------------------------------------
Funds Withheld Asset 1,305.1 - - - 1,305.1 1,530.6 - - - 1,530.6
------------------------------- ------------------------------------------- --------------------------------------------
Total invested assets 7,788.4 - - -2.2 7,786.2 7,528.7 - - -26.7 7,502.0
------------------------------- ------------------------------------------- --------------------------------------------
Other assets
Cash and cash equivalents 680.9 - - - 680.9 280.8 - - - 280.8
------------------------------- ------------------------------------------- --------------------------------------------
Premiums receivable 1,812.0 8.8 - 11.4 1,832.2 2,008.3 -72.2 - -282.0 1,654.1
Reserves for unearned premiums,
retro 111.6 -72.1 - 15.7 55.2 - -88.8 - 198.1 109.3
--------------------------------------------------------------------------- --------------------------------------------
Reinsurance assets:
Underwriting reserves 1,226.2 -357.1 - 68.8 937.9 1,718.6 -472.5 - -152.0 1,094.1
------------------------------- ------------------------------------------- --------------------------------------------
Insurance and reinsurance
balances receivable 233.5 -94.2 - 0.0 139.3 224.0 -183.2 - - 40.8
--------------------------------------------------------------------------- --------------------------------------------
Funds held by reinsureds 1,721.3 -78.9 - 95.3 1,737.7 1,374.0 -121.2 - 42.1 1,294.9
------------------------------- ------------------------------------------- --------------------------------------------
Deposit assets 137.0 33.4 - - 170.4 - 58.8 - - 58.8
------------------------------- ------------------------------------------- --------------------------------------------
Deferred policy acquisition
costs 484.7 -0.8 - -1.2 482.7 380.1 -0.8 - - 379.3
------------------------------- ------------------------------------------- --------------------------------------------
Deferred income taxes 78.3 -67.2 61.6 7.1 79.8 345.1 21.2 -5.8 4.2 364.7
------------------------------- ------------------------------------------- --------------------------------------------
Other assets 335.4 -35.1 58.2 0.1 358.6 495.0 -39.8 - 46.4 501.6
------------------------------- ------------------------------------------- --------------------------------------------
Total assets 14,609.3 -663.2 119.8 195.0 14,260.9 14,354.6 -898.5 -5.8 -169.9 13,280.4
------------------------------- ------------------------------------------- --------------------------------------------
Liabilities and shareholders'
equity
Liabilities
Reinsurance liabilities
Unpaid losses and loss expenses 8,915.6 -115.2 - 107.9 8,908.3 7,842.8 -127.8 - 164.7 7,879.7
------------------------------- ------------------------------------------- --------------------------------------------
Reserves for life benefits,
gross 407.1 - - - 407.1 483.5 - - -139.2 344.3
------------------------------- ------------------------------------------- --------------------------------------------
Insurance and reinsurance
balances payable 585.9 - - -2.4 583.5 - -108.8 - 313.4 204.6
--------------------------------------------------------------------------- --------------------------------------------
Reserves for unearned premiums,
gross 1,312.3 -80.4 - 15.8 1,247.7 1,467.4 -73.5 - 21.1 1,415.0
--------------------------------------------------------------------------- --------------------------------------------
Other reinsurance liabilities 110.4 -57.0 - 17.4 70.8 1,087.3 -73.1 - -910.0 104.2
------------------------------- ------------------------------------------- --------------------------------------------
Funds held under reinsurance
contracts 379.3 -237.8 - 53.3 194.8 529.8 -399.0 - 42.1 172.9
--------------------------------------------------------------------------- --------------------------------------------
Deposit liabilities 348.5 8.0 - - 356.5 - 22.4 - 335.8 358.2
------------------------------- ------------------------------------------- --------------------------------------------
Deferred income taxes 157.2 -69.7 -6.8 1.1 81.8 158.3 1.6 14.3 - 174.2
------------------------------- ------------------------------------------- --------------------------------------------
Accrued expenses and other
liabilities 281.7 - - 2.8 284.5 311.6 -2.9 - -2.5 306.2
--------------------------------------------------------------------------- --------------------------------------------
Debt 391.1 - - - 391.1 390.6 - - 2.5 393.1
------------------------------- ------------------------------------------- --------------------------------------------
Total liabilities 12,889.1 -552.1 -6.8 195.9 12,526.1 12,271.3 -761.1 14.3 -172.1 11,352.4
------------------------------- ------------------------------------------- --------------------------------------------
Shareholders' equity
Common stock 554.9 - - - 554.9 253.0 - - - 253.0
------------------------------- ------------------------------------------- --------------------------------------------
Additional paid-in capital 1,430.6 - - -70.1 1,360.5 1,326.7 - - -70.1 1,256.6
------------------------------- ------------------------------------------- --------------------------------------------
Treasury stock -7.7 - - - -7.7 -10.0 - - - -10.0
------------------------------- ------------------------------------------- --------------------------------------------
Unearned stock compensation -7.5 - - - -7.5 -6.1 - - - -6.1
------------------------------- ------------------------------------------- --------------------------------------------
Total accumulated other comprehensive income:
Accumulated other comprehensive
income -6.7 - -1.0 - -7.7 - - - -1.2 -1.2
--------------------------------------------------------------------------- --------------------------------------------
Net unrealized gains on
investments, net of taxes 116.7 - -11.7 0.2 105.2 145.3 - 0.3 - 145.6
--------------------------------------------------------------------------- --------------------------------------------
Cumulative translation
adjustments 194.1 -7.9 5.3 -0.3 191.2 116.1 -5.1 -2.1 1.1 110.0
--------------------------------------------------------------------------- --------------------------------------------
Total accumulated other
comprehensive income 304.1 -7.9 -7.4 -0.1 288.7 261.4 -5.1 -1.8 -0.1 254.4
--------------------------------------------------------------------------- --------------------------------------------
Retained (deficit) earnings -554.2 -103.2 134.0 69.3 -454.1 258.3 -132.3 -18.3 72.4 180.1
------------------------------- ------------------------------------------- --------------------------------------------
Total shareholders' equity 1,720.2 -111.1 126.6 -0.9 1,734.8 2,083.3 -137.4 -20.1 2.2 1,928.0
------------------------------- ------------------------------------------- --------------------------------------------
------------------------------- ------------------------------------------- --------------------------------------------
Total liabilities and
shareholders' equity 14,609.3 -663.2 119.8 195.0 14,260.9 14,354.6 -898.5 -5.8 -169.9 13,280.4
--------------------------------------------------------------------------- --------------------------------------------
Note: The "As previously reported" figures at December 31, 2004 in the table
above, reflect the balances reported for the December 31, 2004 balance sheet in
the 2Q 2005 6-K.
5
Condensed Consolidated balance sheets
(US$ million)
2002 2001
As As
previously Reinsurance Taxes Other As previously Reinsurance Taxes Other As
reported transactions Items restated reported transactions Items restated
---------------------------------------------------------------------------------------
Assets
Invested assets
Held-to-maturity securities:
Fixed maturities - - - - - - - - - -
-------------------------------- -------------------------------------------- ------------------------------------------
Available-for-sale securities:
Fixed maturities 3,443.1 - - - 3,443.1 2,331.4 - - - 2,331.4
-------------------------------- -------------------------------------------- ------------------------------------------
Equity securities 530.8 - - -5.4 525.4 701.4 - - -63.3 638.1
-------------------------------- -------------------------------------------- ------------------------------------------
Other investments 177.3 - - 5.4 182.7 195.1 - - 63.5 258.6
-------------------------------- -------------------------------------------- ------------------------------------------
Short-term investments 318.0 - - - 318.0 89.5 - - -24.0 65.5
-------------------------------- -------------------------------------------- ------------------------------------------
Total investments 4,469.2 - - - 4,469.2 3,317.4 - - -23.8 3,293.6
-------------------------------- -------------------------------------------- ------------------------------------------
Funds Withheld Asset 1,648.1 - - - 1,648.1 1,598.5 - - - 1,598.5
-------------------------------- -------------------------------------------- ------------------------------------------
Total invested assets 6,117.3 - - - 6,117.3 4,915.9 - - -23.8 4,892.1
-------------------------------- -------------------------------------------- ------------------------------------------
Other assets
Cash and cash equivalents 361.5 - - 39.7 401.2 420.5 - - 49.7 470.2
-------------------------------- -------------------------------------------- ------------------------------------------
Premiums receivable 1,721.3 -46.6 - -584.0 1,090.7 1,015.1 -14.6 - -303.0 697.5
Reserves for unearned premiums,
retro - -70.8 - 94.7 23.9 - -55.0 - 78.9 23.9
----------------------------------------------------------------------------- ------------------------------------------
Reinsurance assets:
Underwriting reserves 1,627.7 -423.0 - -95.7 1,109.0 1,668.1 -445.8 - -78.9 1,143.4
-------------------------------- -------------------------------------------- ------------------------------------------
Insurance and reinsurance
balances receivable 239.9 -142.8 - -5.0 92.1 400.2 -104.3 - - 295.9
----------------------------------------------------------------------------- ------------------------------------------
Funds held by reinsureds 935.9 -76.4 - - 859.5 523.4 -40.2 - -28.4 454.8
-------------------------------- -------------------------------------------- ------------------------------------------
Deposit assets - 45.7 - - 45.7 - 52.6 - - 52.6
-------------------------------- -------------------------------------------- ------------------------------------------
Deferred policy acquisition
costs 264.9 -0.9 - - 264.0 217.9 -1.0 - - 216.9
-------------------------------- -------------------------------------------- ------------------------------------------
Deferred income taxes 391.8 28.8 -31.4 0.7 389.9 300.4 37.1 3.3 - 340.8
-------------------------------- -------------------------------------------- ------------------------------------------
Other assets 390.7 -60.2 - 33.7 364.2 245.0 - - 29.0 274.0
-------------------------------- -------------------------------------------- ------------------------------------------
Total assets 12,051.0 -746.2 -31.4 -515.9 10,757.5 9,706.5 -571.2 3.3 -276.5 8,862.1
-------------------------------- -------------------------------------------- ------------------------------------------
Liabilities and shareholders'
equity
Liabilities
Reinsurance liabilities
Unpaid losses and loss expenses 6,821.3 -130.0 - 185.6 6,876.9 5,710.5 -68.2 - - 5,642.3
-------------------------------- -------------------------------------------- ------------------------------------------
Reserves for life benefits,
gross 371.7 - - -185.6 186.1 252.0 - - 8.3 260.3
-------------------------------- -------------------------------------------- ------------------------------------------
Insurance and reinsurance
balances payable - -96.7 - 20.4 -76.3 - -12.7 - -18.6 -31.3
----------------------------------------------------------------------------- ------------------------------------------
Reserves for unearned premiums,
gross 1,170.7 -61.5 - - 1,109.2 968.7 -48.2 - - 920.5
----------------------------------------------------------------------------- ------------------------------------------
Other reinsurance liabilities 661.6 -60.8 - -527.7 73.1 315.9 -92.2 - -227.5 -3.8
-------------------------------- -------------------------------------------- ------------------------------------------
Funds held under reinsurance
contracts 429.5 -351.5 - - 78.0 430.8 -333.9 - -28.4 68.5
----------------------------------------------------------------------------- ------------------------------------------
Deposit liabilities - 58.1 - - 58.1 - 47.6 - - 47.6
-------------------------------- -------------------------------------------- ------------------------------------------
Deferred income taxes 133.9 -1.0 0.1 - 133.0 106.5 9.8 - - 116.3
-------------------------------- -------------------------------------------- ------------------------------------------
Accrued expenses and other
liabilities 333.9 - - -2.6 331.3 154.3 - - -19.5 134.8
----------------------------------------------------------------------------- ------------------------------------------
Debt 390.4 - - 2.5 392.9 197.0 - - 9.1 206.1
-------------------------------- -------------------------------------------- ------------------------------------------
Total liabilities 10,313.0 -643.4 0.1 -507.4 9,162.3 8,135.7 -497.8 - -276.6 7,361.3
-------------------------------- -------------------------------------------- ------------------------------------------
Shareholders' equity
Common stock 253.0 - - - 253.0 253.0 - - - 253.0
-------------------------------- -------------------------------------------- ------------------------------------------
Additional paid-in capital 1,330.9 - - -70.1 1,260.8 1,336.5 - - -70.1 1,266.4
-------------------------------- -------------------------------------------- ------------------------------------------
Treasury stock -3.3 - - - -3.3 - - - - -
-------------------------------- -------------------------------------------- ------------------------------------------
Unearned stock compensation -10.0 - - - -10.0 -27.1 - - - -27.1
-------------------------------- -------------------------------------------- ------------------------------------------
Total accumulated other comprehensive income:
Accumulated other comprehensive
income - - - - - - - - - -
----------------------------------------------------------------------------- ------------------------------------------
Net unrealized gains on
investments, net of taxes -53.3 - - 50.3 -3.0 30.3 - - -19.0 11.3
----------------------------------------------------------------------------- ------------------------------------------
Cumulative translation
adjustments 113.9 -1.7 - -50.3 61.9 -21.9 - - 19.1 -2.8
----------------------------------------------------------------------------- ------------------------------------------
Total accumulated other
comprehensive income 60.6 -1.7 - -0.0 58.9 8.4 - - 0.1 8.5
----------------------------------------------------------------------------- ------------------------------------------
Retained earnings (deficit) 106.8 -101.1 -31.5 61.6 35.8 - -73.4 3.3 70.1 -
-------------------------------- -------------------------------------------- ------------------------------------------
Total shareholders' equity 1,738.0 -102.8 -31.5 -8.5 1,595.2 1,570.8 -73.4 3.3 0.1 1,500.8
-------------------------------- -------------------------------------------- ------------------------------------------
-------------------------------- -------------------------------------------- ------------------------------------------
Total liabilities and
shareholders' equity 12,051.0 -746.2 -31.4 -515.9 10,757.5 9,706.5 -571.2 3.3 -276.5 8,862.1
----------------------------------------------------------------------------- ------------------------------------------
6
Historical combined balance sheets
(US$ million)
2000 1999
As As
previously Reinsurance Taxes Other As previously Reinsurance TaxesOther As
reported transactions Items restated reported transactions Items restated
---------------------------------------------------------------------------------
Assets
Invested assets
Held-to-maturity securities:
Fixed maturities - - - - - - - - - -
-------------------------------------- ---------------------------------------- ----------------------------------------
Available-for-sale securities:
Fixed maturities 2,236.2 - - - 2,236.2 2,098.9 - - - 2,098.9
-------------------------------------- ---------------------------------------- ----------------------------------------
Equity securities 611.0 - - - 611.0 557.3 - - - 557.3
-------------------------------------- ---------------------------------------- ----------------------------------------
Other investments 52.2 - - - 52.2 80.1 - - - 80.1
-------------------------------------- ---------------------------------------- ----------------------------------------
Short-term investments 115.1 - - - 115.1 83.8 - - - 83.8
-------------------------------------- ---------------------------------------- ----------------------------------------
Total investments 3,014.5 - - - 3,014.5 2,820.1 - - - 2,820.1
-------------------------------------- ---------------------------------------- ----------------------------------------
Funds Withheld Asset 1,335.2 - - - 1,335.2 1,412.7 - - - 1,412.7
-------------------------------------- ---------------------------------------- ----------------------------------------
Total invested assets 4,349.7 - - - 4,349.7 4,232.8 - - - 4,232.8
-------------------------------------- ---------------------------------------- ----------------------------------------
Other assets
Cash and cash equivalents 121.9 - - - 121.9 68.1 - - - 68.1
-------------------------------------- ---------------------------------------- ----------------------------------------
Premiums receivable 937.3 0.3 - - 937.6 590.3 -0.1 - - 590.2
Reserves for unearned premiums, retro - -44.3 - - -44.3 - -18.2 - - -18.2
------------------------------------------------------------------------------- ----------------------------------------
Reinsurance assets:
Underwriting reserves 1,292.9 -319.9 - - 973.0 772.2 -64.0 - - 708.2
-------------------------------------- ---------------------------------------- ----------------------------------------
Insurance and reinsurance balances
receivable 341.6 -53.8 - - 287.8 247.4 - - - 247.4
------------------------------------------------------------------------------- ----------------------------------------
Funds held by reinsureds 681.8 - - - 681.8 484.8 - - - 484.8
-------------------------------------- ---------------------------------------- ----------------------------------------
Deposit assets - 85.1 - - 85.1 - 57.7 - - 57.7
-------------------------------------- ---------------------------------------- ----------------------------------------
Deferred policy acquisition costs 184.6 2.2 - - 186.8 168.6 -1.1 - - 167.5
-------------------------------------- ---------------------------------------- ----------------------------------------
Deferred income taxes 165.2 27.2 - - 192.4 131.4 0.1 - - 131.5
-------------------------------------- ---------------------------------------- ----------------------------------------
Other assets 246.3 0.2 - -0.1 246.4 220.4 0.6 - -0.1 220.9
-------------------------------------- ---------------------------------------- ----------------------------------------
Total assets 8,321.3 -303.0 - -0.1 8,018.2 6,916.0 -25.0 - -0.1 6,890.9
-------------------------------------- ---------------------------------------- ----------------------------------------
Liabilities and shareholders' equity
Liabilities
Reinsurance liabilities
Unpaid losses and loss expenses 4,546.0 -41.9 - - 4,504.1 3,545.7 -63.4 - - 3,482.3
-------------------------------------- ---------------------------------------- ----------------------------------------
Reserves for life benefits, gross 162.0 - - - 162.0 193.7 - - - 193.7
-------------------------------------- ---------------------------------------- ----------------------------------------
Insurance and reinsurance balances
payable - - - - - - - - - -
------------------------------------------------------------------------------- ----------------------------------------
Reserves for unearned premiums, gross 774.4 -54.2 - - 720.2 629.7 -19.7 - - 610.0
------------------------------------------------------------------------------- ----------------------------------------
Other reinsurance liabilities 491.8 -65.4 - - 426.4 356.6 -3.2 - - 353.4
-------------------------------------- ---------------------------------------- ----------------------------------------
Funds held under reinsurance contracts 512.4 -127.2 - - 385.2 323.2 - - - 323.2
------------------------------------------------------------------------------- ----------------------------------------
Deposit liabilities - 58.4 - - 58.4 - 59.8 - - 59.8
-------------------------------------- ---------------------------------------- ----------------------------------------
Deferred income taxes 175.2 -1.6 9.6 - 183.2 157.0 -0.4 - - 156.6
-------------------------------------- ---------------------------------------- ----------------------------------------
Accrued expenses and other liabilities 374.2 1.2 - - 375.4 291.9 1.0 - - 292.9
------------------------------------------------------------------------------- ----------------------------------------
Debt 196.9 - - - 196.9 196.8 - - - 196.8
-------------------------------------- ---------------------------------------- ----------------------------------------
Total liabilities 7,232.9 -230.7 9.6 - 7,011.8 5,694.6 -25.9 - - 5,668.7
-------------------------------------- ---------------------------------------- ----------------------------------------
Shareholders' equity
Common stock - - - - - - - - - -
-------------------------------------- ---------------------------------------- ----------------------------------------
Additional paid-in capital - - - - - - - - - -
-------------------------------------- ---------------------------------------- ----------------------------------------
Treasury stock - - - - - - - - - -
-------------------------------------- ---------------------------------------- ----------------------------------------
Unearned stock compensation - - - - - - - - - -
-------------------------------------- ---------------------------------------- ----------------------------------------
Total accumulated other comprehensive income:
Accumulated other comprehensive income - - - - - - - - - -
------------------------------------------------------------------------------- ----------------------------------------
Net unrealized gains on investments,
net of taxes 18.8 - - - 18.8 16.9 - - - 16.9
------------------------------------------------------------------------------- ----------------------------------------
Cumulative translation adjustments 40.5 - - - 40.5 52.1 - - - 52.1
------------------------------------------------------------------------------- ----------------------------------------
Total accumulated other comprehensive
income 59.3 - - - 59.3 69.0 - - - 69.0
------------------------------------------------------------------------------- ----------------------------------------
Retained earnings (deficit) 1,029.1 -72.3 -9.6 -0.1 947.1 1,152.4 0.9 - -0.1 1,153.2
-------------------------------------- ---------------------------------------- ----------------------------------------
Total shareholders' equity 1,088.4 -72.3 -9.6 -0.1 1,006.4 1,221.4 0.9 - -0.1 1,222.2
-------------------------------------- ---------------------------------------- ----------------------------------------
-------------------------------------- ---------------------------------------- ----------------------------------------
Total liabilities and shareholders'
equity 8,321.3 -303.0 - -0.1 8,018.2 6,916.0 -25.0 - -0.1 6,890.9
------------------------------------------------------------------------------- ----------------------------------------
7
Historical combined balance sheets
(US$ million)
1998
As
previously Reinsurance Taxes Other As
reported transactions Items restated
----------------------------------------
Assets
Invested assets
Held-to-maturity securities:
Fixed maturities - - - - -
------------------------------------------------------------------------------- ----------------------------------------
Available-for-sale securities:
Fixed maturities 1,919.2 - - - 1,919.2
------------------------------------------------------------------------------- ----------------------------------------
Equity securities 487.3 - - - 487.3
------------------------------------------------------------------------------- ----------------------------------------
Other investments 116.7 - - - 116.7
------------------------------------------------------------------------------- ----------------------------------------
Short-term investments 115.1 - - - 115.1
------------------------------------------------------------------------------- ----------------------------------------
Total investments 2,638.3 - - - 2,638.3
------------------------------------------------------------------------------- ----------------------------------------
Funds Withheld Asset 1,259.8 - - - 1,259.8
------------------------------------------------------------------------------- ----------------------------------------
Total invested assets 3,898.1 - - - 3,898.1
------------------------------------------------------------------------------- ----------------------------------------
Other assets
Cash and cash equivalents 286.1 - - - 286.1
------------------------------------------------------------------------------- ----------------------------------------
Premiums receivable 520.1 -0.4 - - 519.7
Reserves for unearned premiums, retro - -4.4 - - -4.4
------------------------------------------------------------------------------------------------------------------------
Reinsurance assets:
Underwriting reserves 499.0 - - - 499.0
------------------------------------------------------------------------------- ----------------------------------------
Insurance and reinsurance balances receivable 164.8 - - - 164.8
------------------------------------------------------------------------------------------------------------------------
Funds held by reinsureds 436.0 - - - 436.0
------------------------------------------------------------------------------- ----------------------------------------
Deposit assets - 66.8 - - 66.8
------------------------------------------------------------------------------- ----------------------------------------
Deferred policy acquisition costs 118.3 -1.0 - - 117.3
------------------------------------------------------------------------------- ----------------------------------------
Deferred income taxes 109.3 -0.1 - - 109.2
------------------------------------------------------------------------------- ----------------------------------------
Other assets 259.2 - - - 259.2
------------------------------------------------------------------------------- ----------------------------------------
Total assets 6,290.9 60.9 - - 6,351.8
------------------------------------------------------------------------------- ----------------------------------------
Liabilities and shareholders' equity
Liabilities
Reinsurance liabilities
Unpaid losses and loss expenses 2,988.1 -0.5 - - 2,987.6
------------------------------------------------------------------------------- ----------------------------------------
Reserves for life benefits, gross 312.7 - - - 312.7
------------------------------------------------------------------------------- ----------------------------------------
Insurance and reinsurance balances payable - - - - -
------------------------------------------------------------------------------------------------------------------------
Reserves for unearned premiums, gross 450.1 -4.9 - - 445.2
------------------------------------------------------------------------------------------------------------------------
Other reinsurance liabilities 353.2 -3.1 - - 350.1
------------------------------------------------------------------------------- ----------------------------------------
Funds held under reinsurance contracts 305.8 - - - 305.8
------------------------------------------------------------------------------------------------------------------------
Deposit liabilities - 68.7 - - 68.7
------------------------------------------------------------------------------- ----------------------------------------
Deferred income taxes 185.6 -0.3 - - 185.3
------------------------------------------------------------------------------- ----------------------------------------
Accrued expenses and other liabilities 268.4 0.5 - - 268.9
------------------------------------------------------------------------------------------------------------------------
Debt 196.7 - - - 196.7
------------------------------------------------------------------------------- ----------------------------------------
Total liabilities 5,060.6 60.4 - - 5,121.0
------------------------------------------------------------------------------- ----------------------------------------
Shareholders' equity
Common stock - - - - -
------------------------------------------------------------------------------- ----------------------------------------
Additional paid-in capital - - - - -
------------------------------------------------------------------------------- ----------------------------------------
Treasury stock - - - - -
------------------------------------------------------------------------------- ----------------------------------------
Unearned stock compensation - - - - -
------------------------------------------------------------------------------- ----------------------------------------
Total accumulated other comprehensive income:
Accumulated other comprehensive income - - - - -
------------------------------------------------------------------------------------------------------------------------
Net unrealized gains on investments, net of taxes 100.2 - - - 100.2
------------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustments 16.7 - - - 16.7
------------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income 116.9 - - - 116.9
------------------------------------------------------------------------------------------------------------------------
Retained earnings 1,113.4 0.5 - - 1,113.9
------------------------------------------------------------------------------- ----------------------------------------
Total shareholders' equity 1,230.3 0.5 - - 1,230.8
------------------------------------------------------------------------------- ----------------------------------------
------------------------------------------------------------------------------- ----------------------------------------
Total liabilities and shareholders' equity 6,290.9 60.9 - - 6,351.8
------------------------------------------------------------------------------------------------------------------------
The table below shows the impact of the above adjustments on basic (loss)
earnings per share for the years ended December 31, 2004 through 1998.
----------------------------------------------- ---------- --------- ----------- --------- --------- -------- --------
(US$) 2004 2003 2002 2001 2000 1999 1998
----------------------------------------------- ---------- --------- ----------- --------- --------- -------- --------
Basic (loss) earnings per share as previously (12.00) 2.33 1.34 (4.61) (0.73) 1.46 2.93
reported
----------------------------------------------- ---------- --------- ----------- --------- --------- -------- --------
Adjustments to basic (loss) earnings per 2.81 (0.09) (0.89) 0.15 (2.07) - -
share
----------------------------------------------- ---------- --------- ----------- --------- --------- -------- --------
Basic (loss) earnings per share as restated (9.19) 2.24 0.45 (4.46) (2.80) 1.46 2.93
----------------------------------------------- ---------- --------- ----------- --------- --------- -------- --------
See Note 25 to our 2004 consolidated financial statements included in Form
20-F/A for additional information on (loss) earnings per share.
8
Details of the Restatement
The Restatement corrects errors in the Company's accounting for assumed and
ceded reinsurance transactions, its accounting for income taxes and certain
other items. Some of the adjustments relate to both the timing and recognition
of revenues and expenses and affect the comparison of period-to-period results.
Although some of the restated items do not affect previously reported net income
or consolidated shareholders' equity, they do affect both the consolidated and
business segment reporting of certain line items within the income statement and
balance sheet. See the Schedule of Segment Data and Note 7 to our 2004
consolidated financial statements included in the Form 20-F/A for additional
information on Converium's business segments as restated. We have set forth
below, a summary of the impact of the Restatement on certain of Converium's
consolidated statement of income and balance sheet accounts affected by the
Restatement.
Overall impact of correction to the accounting treatment of certain assumed and
ceded transactions
The effect of the correction to the accounting treatment of certain assumed and
ceded transactions on certain of Converium's consolidated statement of income
and balance sheet accounts is as follows:
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Increase (decrease) for the years ended 2004 2003 2002 2001 2000 1999 1998
December 31,
(US$ million, except per share amounts)
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Selected consolidated statement of income
accounts:
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Gross premiums written -17.2 -28.4 -163.3 -34.4 -18.7 -18.6 -6.1
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Net premiums written 53.4 68.5 -86.9 170.1 184.7 -1.1 -1.2
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Net premiums earned 77.4 64.1 -87.9 153.3 193.0 -0.1 -0.7
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Losses, loss expenses and life benefits -44.7 -85.9 1.0 -160.1 -281.1 -0.6 0.5
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Acquisition costs 9.9 -16.6 23.9 -8.8 -27.2 -0.7 0.3
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Income (loss) before taxes 46.1 -20.9 -30.2 -0.7 -101.4 0.7 0.8
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Net income (loss) 29.0 -31.1 -27.7 -1.0 -73.2 0.4 0.5
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Basic earnings (loss) per share (US$) 0.46 -0.39 -0.35 -0.01 -1.83 0.01 0.01
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Increase (decrease) as of December 31,
(US$ million)
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Selected consolidated balance sheet accounts:
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Reinsurance assets (including reserves for -523.4 -744.5 -636.6 -605.1 -418.0 -82.2 -4.4
unearned premium)
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Funds held by reinsureds -78.9 -121.2 -76.4 -40.2 - - -
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Other assets -35.1 -39.8 -60.2 - 0.2 0.6 -
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Reinsurance liabilities (including -195.6 -310.1 -288.2 -129.1 -96.1 -83.1 -5.4
reserves for unearned premiums)
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Funds held under reinsurance contracts -237.8 -399.0 -351.5 -333.9 -127.2 - -
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
Shareholders' equity -111.1 -137.4 -102.8 -73.4 -72.3 0.9 0.5
------------------------------------------------ --------- ---------- --------- --------- --------- ---------- ---------
9
Detailed discussion of the primary transactions or categories of assumed and
ceded transactions affected by the Restatement is provided below.
1. In 1998, Zurich Reinsurance (North America) Inc., now CRNA, entered into a
series of transactions comprised of two assumed contracts with MBIA - an excess
of loss contract (the "Excess Contract") and a quota share contract (the "Quota
Share Contract") - and a retrocession of substantially all of the liability
under these assumed contracts to third parties.
Based upon its consideration of the overall transaction economics and in light
of information revealed during the internal review, the Company determined that,
at inception, these transactions did not transfer sufficient risk to qualify for
reinsurance accounting.
Accordingly, the Company has corrected the accounting treatment of both the
Excess Contract and the Quota Share Contract, as well as the retroceded
contracts, from reinsurance to deposit accounting.
2. In late 2003, the Company entered into a Guaranteed Minimum Death Benefit
("GMDB") Stop Loss Reinsurance Agreement ("the GMDB Contract") with a third
party which provided coverage of $75,000,000 in excess of reserves for losses
arising out of GMDB reinsurance contracts bound or issued by the Company prior
to January 1, 2003. The GMDB Contract was accounted for as if it had transferred
sufficient risk to qualify for reinsurance accounting treatment. However, as a
result of a related ceded property catastrophe contract with the same party, and
a "master profit sharing agreement" with the same party linking both of the
foregoing contracts, and certain other related transactions, the Company has now
determined that the initial risk transfer analysis did not include evaluation of
the entire arrangement between the parties and that there are transactions that
involved other parties and payments to the third parties. The Company has now
determined that at inception there was insufficient risk transfer such that the
conditions for reinsurance accounting under SFAS 113 had not been met.
Accordingly, the Company has corrected the accounting treatment of the GMDB
Contract and the property catastrophe agreement from reinsurance to deposit
accounting. Reinsurance accounting has been retained for that portion of the
risk that was transferred to a separate third party.
The Company entered into a Combined Excess of Loss Reinsurance Agreement (the
"CEL Agreement") with another third party, effective October 1, 2001 for a
three-month period and subsequently renewed the CEL Agreement for calendar years
2002, 2003 and 2004, respectively. In 2003, coverage for GMDB liability was
added to the CEL Agreement. Based upon evidence from the internal review, the
Company determined that the initial risk transfer analysis did not include
evaluation of the entire arrangement between the parties and that there is a
likelihood that a side agreement was consummated. The Company has now determined
that at inception there was insufficient risk transfer such that the conditions
for reinsurance accounting under SFAS 113 had not been met. Accordingly, the
Company has corrected the accounting treatment for these transactions from
reinsurance to deposit accounting.
3. From at least 1998 on, subsidiaries of ZFS have provided and continue to
provide coverage to CRNA, including stop-loss coverage relating to losses
attributable to the settlement of litigation with the Unicover Pool, 100% quota
share coverage of certain structured/finite risk contracts, and aggregate excess
of loss coverage in respect of CRNA's 2001 accident year losses. In turn, the
subsidiaries of ZFS have ceded a substantial portion of these liabilities to
third parties. On a stand-alone basis, CRNA has accounted and continues to
account for its cession to ZFS subsidiaries as reinsurance accounting. However,
as part of the transactions pursuant to which Converium was formed, Converium AG
accepted the financial benefits and risks (including the risk that all or any
portion of the reinsurance would not be recovered from those third parties)
relating to these ZFS transactions. Therefore, in its consolidated financial
statements, Converium has accounted for and continues to account for the
cessions by the subsidiaries of ZFS to third parties as if the cessions were
made directly from CRNA to the third parties.
Converium treated these retroceded contracts as if they transferred sufficient
risk to qualify for reinsurance accounting. However, based on certain related
agreements involving those third parties, documentation concerning the overall
relationship between the parties and the conduct of the parties after the
contracts were entered into, the Company concluded that the risk transfer
analysis did not include evaluation of the entire arrangement between the
parties, including transactions that involved other parties and payments to the
third parties. Based upon evidence from the internal review, the Company
determined that the initial risk transfer analysis did not include evaluation of
the entire arrangement between the parties and that there is a reasonable
possibility of side agreements. The Company has now determined that at inception
there was insufficient risk transfer such that the conditions for reinsurance
accounting under SFAS 113 had not been met. Accordingly, the Company has
corrected the accounting treatment for these ceded transactions from reinsurance
to deposit accounting. Certain portions of these transactions that transferred
sufficient risk to qualify for reinsurance accounting have not been restated.
10
4. Six transactions have been corrected because the Company has determined that,
at inception, they transferred insufficient risk to qualify for reinsurance
accounting and instead should be accounted for using deposit accounting. Some
are transactions in which the Company ultimately reassumed from third parties
all or virtually all of the long-tailed liability that it had ceded to third
parties. This subset of transactions involved cessions to a Bermuda reinsurer,
9.0% of which was and is owned by Converium, or to another reinsurer not subject
to US GAAP (and thus able to account for estimated ultimate losses on a
discounted to present value basis.) The restatement of these transactions
eliminates the entire effect of the reinsurance accounting, including (where
applicable) the inherent discount related to the ceded loss reserves.
All but one of these transactions expired or were commuted effective no later
than March 31, 2005, resulting in no impact on total shareholders' equity or net
income thereafter with respect to those expired or commuted contracts. In
particular, certain of the contracts with the Bermuda reinsurer were commuted in
2004 and the first quarter of 2005, resulting in net losses being reported in
those years, which are being reversed as a result of the Restatement. The impact
of these reversals on the previously reported (loss) income before taxes is US$
40.0 million in 2005 and US$ 15.7 million in 2004.
5. Of the other transactions that the Company has restated, (a) two ceded and
two assumed transactions appear to have involved clerical errors, where the
Company recognized the appropriate accounting treatment, but a different
accounting treatment was mistakenly entered into the Company's accounting
system; and (b) two involved assumed transactions as to which the Company
previously recognized that its original decision to use reinsurance accounting
instead of deposit accounting was in error, corrected the mistake in the period
in which it was identified, but did not adjust the prior year where the
quantitative impact of the errors was immaterial. Of the four transactions with
clerical errors, one was a ceded transaction where reinsurance accounting was
used in error instead of deposit accounting, one was a ceded transaction where
prospective reinsurance accounting was used in error instead of retroactive
reinsurance accounting, and two were assumed transactions where prospective
reinsurance accounting was used in error instead of retroactive accounting.
All but one of these transactions expired or were commuted effective no later
than March 31, 2005, resulting in no impact on total shareholders' equity or net
income thereafter, with respect to those expired or commuted transactions.
Income tax accounting restatements
For the years ended December 31, 2004 through 2000, the Company incorrectly
calculated deferred income taxes and the respective valuation allowance to
certain deferred tax assets. These valuation allowances have been recomputed and
adjustments of US$ 95.0 million and US$ 9.9 million have been reflected in the
related income tax expense and deferred income tax accounts for the years ended
December 31, 2004 and 2003, respectively. There was no impact in 2002.
In addition, for the year ended December 31, 2004, the Company incorrectly
recorded a full valuation allowance on the deferred tax asset in the amount of
US$ 58.2 million. This valuation allowance related to Converium's U.S.
operations arose from IRC Section 847, Special Estimated Tax Payments and was
reflected in the income tax expense, deferred income tax assets and other
assets. IRC Section 847 provides a mechanism that assures recoverability for the
tax asset (receivable) arising from the discounting of property and casualty
loss reserves for tax purposes. This provision allows a reinsurer to take a
special income tax deduction in the United States equal to the discount on post
1986 accident year and loss expense reserves while making "special" estimated
tax payments equal to the amount of the tax benefit derived from the "special"
deduction. The special estimated tax payments can be carried forward for 15
years to offset taxes arising from decreases in the "special" deduction and are
treated as regular estimated tax payments or refunded at the end of the
carryforward period.
In 2003, Converium filed a refund request for prior years' special estimated tax
payments covered under IRC Section 847. As a result of the claim, Converium
reclassified approximately US$ 58.2 million from deferred tax assets into other
assets. In 2004, however, the Internal Revenue Service denied the refund, and
consequently, Converium reversed the prior reclassification to current income
tax receivable. Subsequently, for the year ended December 31, 2004, the Company
incorrectly recorded a full valuation allowance against its net deferred tax
asset, which included the US$ 58.2 million referred to above. The Restatement
reverses the valuation allowance provided against the US$ 58.2 million as this
amount is expected to be recovered through future deductions in tax payments or
future refund requests. The deferred tax asset has been reclassified to other
assets.
11
In addition, for its Australian operations, Converium did not provide deferred
taxes for its temporary differences in accordance with SFAS No. 109, "Accounting
for Income Taxes" ("SFAS 109"). The restatement corrects its accounts and
results in an expense for the years ended December 31, 2004, 2003 and 2002 of
US$ 4.4 million, US$ 3.1 million and nil, respectively.
The effect of the Restatement related to income tax accounting on certain of
Converium's consolidated statement of income and balance sheet accounts is as
follows:
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Increase (decrease) for the years ended December 31, 2004 2003 2002 2001 2000
(US$ million, except per share amounts)
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Selected consolidated statement of income accounts:
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Income taxes -152.2 -13.2 34.7 -12.8 9.6
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Net income (loss) 152.2 13.2 -34.7 12.8 -9.6
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Basic earnings (loss) per share (US$) 2.40 0.17 -0.44 0.16 -0.24
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Increase (decrease) as of December 31,
(US$ million)
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Selected consolidated balance sheet accounts:
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Other assets 58.2 - - - -
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Deferred income tax assets 61.6 -5.8 -31.4 3.3 -
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Deferred income tax liabilities -6.8 14.3 - - 9.6
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Shareholders' equity 126.6 -20.1 -31.5 3.3 -9.6
------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
Correction of other items
In the Restatement, Converium corrected its financial statements for certain
other items. A summary of the correction of these items is as follows:
---------------------------------------------------- ------------------------ --- ------------------------------------
Increase (decrease) for the years ended December 31, Participation at
(US$ million, except per share amounts) Lloyd's Other corrections
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
2004 2003 2004 2003 2002
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
Selected consolidated statement of income accounts:
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
Gross premiums written 155.0 104.9 - - -
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
Income (loss) before taxes 3.2 - -7.9 7.2 -9.3
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
Net income (loss) 2.1 - -5.0 10.7 -8.6
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
Basic earnings (loss) per share (US$) 0.03 - -0.08 0.13 -0.11
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
Increase (decrease) as of December 31,
(US$ million)
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
Shareholders' equity 2.3 - -3.2 2.2
---------------------------------------------------- ------------- ---------- --- ------------- ------------ ---------
12
These corrections are comprised of the following items:
Participations at Lloyd's
o Gross presentation of syndicate transactions: Converium participates as a
member of a number of syndicates operating in the Lloyd's of London
insurance market. Converium has in prior financial statements reported its
participations in certain Lloyd's syndicate premium and loss activity on a
net basis. Subsequent accounting developments in the Lloyd's market have
led to the reporting of more detailed information to participants.
Converium has corrected the previously reported amounts.
o Reinsurance to close: Syndicates at Lloyd's are formed for a duration of
one calendar year. Two years after the conclusion of that year the
syndicate will typically transfer any remaining liabilities to a successor
syndicate by way of payment of a portfolio premium, known as a reinsurance
to close, "RITC". In previously reported financial statements, Converium
did not record the RITC in the correct reporting period; therefore,
Converium has adjusted the recording of the RITC so that it is now reported
in the proper period.
o Miscellaneous corrections: Corrections, which were originally concluded to
be immaterial, arising on the accounting for the Lloyd's participations
were previously reported in the financial statements in the period they
were identified. Through the Restatement, Converium is recording the
adjustments made in previous periods in the proper period.
Other corrections
Other corrections were also recorded in connection with the Restatement that
include miscellaneous immaterial items previously made in Converium's financial
statements in the periods they were identified. Through the Restatement,
Converium is recording these items in their proper periods.
In the second quarter of 2005, Converium refined its chart of accounts to
enhance the presentation of the line items within its financial statements,
which was disclosed at that time. As part of the Restatement, Converium applied
the refined chart of accounts on its financial statements of prior years which
resulted in some adjustments between certain line items within the consolidated
statements of income and balance sheets. The most significant financial
statement adjustments were in the line items premiums receivable, underwriting
reserves, reinsurance liabilities, other reinsurance liabilities in the
consolidated balance sheets and the losses, loss expenses and life benefits
caption in the statements of income. These adjustments did not have any impact
on net income or shareholders' equity.
Additional paid-in capital
Included in the caption "Other items" is a decrease to additional paid-in
capital of US$ 70.1 million. This adjustment relates to the cumulative effect of
all Restatement adjustments made to net income for the periods prior to December
31, 2001as these adjustments reduced the net assets of the predecessor
businesses of Converium as contributed in the Formation Transactions.
Restated quarterly financial information
The tables below show the reconciliation of the previously reported income
statements and balance sheets to the restated versions as of and for each of the
quarters ended from March 31, 2003 through June 30, 2005.
13
B) Financial information for the three and nine months ended September 30, 2005
Information for the three and nine months ended September 30, 2005 was included
in the press release of December 19, 2005. The additional information below
provides segment and comparative financial information for the three months
ended September 30, 2005 and 2004, as well as on the nine months ended September
30, 2005 and 2004. All amounts included herein have been adjusted to reflect the
restatement.
Key metrics (US$ million, unless noted)
Three months Nine months
ended ended
September 30, 2005* September 30, 2005*
o Gross premiums written 482.6 1,618.9
o Net premiums written 432.4 1,501.2
o Net premiums earned 605.2 1,941.7
o Total investment result 70.5 238.8
o (Loss) income before taxes -1.3 45.5
o Net (loss) income -6.9 34.5
o Basic (loss) earnings per share -0.05 0.24
o Annualized return on shareholders' equity -1.6% 2.7%
o Ongoing non-life loss ratio(1) 89.0%(2) 79.5%(3)
o Ongoing non-life underwriting expense ratio(4) 17.3%(2) 20.3%
o Ongoing non-life administration expense ratio(5) 5.8%(2) 6.6%
o Ongoing non-life combined ratio 112.1%(2) 106.4%(3)
o Pre-tax operating income(6) 22.1 98.0
o Average annualized total investment income yield
(pre-tax) 3.6% 4.0%
* Reflects the effects of the restatement
---------------------
(1) The ongoing non-life ratios exclude the Run-Off segment and the cost of the
Corporate Center. As opposed to other reinsurers, Converium calculates its
non-life administration expense ratio based on net premiums written rather
than net premiums earned. Using the alternative methodology based on net
premiums earned would result in a non-life administration expense ratio for
the third quarter of 4.1%.
(2) Information for the three months ended September 30, 2005 was included in
the press release of December 19, 2005. The ongoing non-life combined ratio
and its component ratios for the three months ended September 30, 2005 have
been updated since the December 19 press release to reflect the completion
of our work on the restatement. The figures in the December 19 press
release included an ongoing non-life loss ratio of 89.7%, an ongoing
non-life underwriting expense ratio of 15.3%, an ongoing non-life
administration expense ratio of 5.9% and an ongoing non-life combined ratio
of 110.9%. Excluding the impact of the hurricanes and the European floods,
the ongoing non-life combined ratio would have been 99.2%. In Converium's
December 19 press release, this figure was 97.8%.
(3) Information for the nine months ended September 30, 2005 was included in
the press release of December 19, 2005. The ongoing non-life combined ratio
and its component loss ratio for the nine months ended September 30, 2005
have been updated since the December 19 press release to reflect the
completion of our work on the restatement. The figures in the December 19
press release included an ongoing non-life loss ratio of 79.6% and an
ongoing non-life combined ratio of 106.5%.
(4) Pre-tax operating income (loss) is defined as income (loss) before taxes
excluding net realized capital (losses) gains, impairment of goodwill,
amortization of intangible assets and restructuring costs.
14
Converium produces a close to break-even result for the third quarter and a
profit for the first nine months
For the third quarter of 2005, Converium reported a loss before taxes of US$ 1.3
million, pre-tax operating income of US$ 22.1 million and a net loss of US$ 6.9
million as compared with a loss before taxes of US$ 104.8 million, a pre-tax
operating loss of US$ 120.9 million and a net loss of US$ 88.2 million in the
same period of 2004. The third quarter of 2005 was primarily impacted by the US
hurricanes and European floods in the amount of US$ 74.2 million as well as
costs of US$ 9.5 million associated with our organizational and operational
restructuring. Offsetting this was the positive impact of US$ 39.0 million due
to the commutations primarily carried out in North America in the third quarter
of 2005 as well as net positive development of prior years' loss reserves as
discussed below. 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 by solid investment results. By
comparison, the results for the three months ended September 30, 2004 included
net strengthening of prior years' loss reserves as discussed below, which was
partially offset by a strong investment result, including net realized capital
gains of US$ 20.3 million.
For the nine months ended September 30, 2005, the Company achieved income before
taxes of US$ 45.5 million, pre-tax operating income of US$ 98.0 million and net
income of US$ 34.5 million, as compared with a loss before taxes of US$ 376.8
million, a pre-tax operating loss of US$ 319.1 million and a net loss of US$
593.4 million for the same period of 2004.
The table below shows the reconciliation to pre-tax operating income for the
three and nine months ended September 30, 2005 and 2004:
Three months ended September 30, Nine months ended September 30,
2005* 2004 2005* 2004
Restated Restated
Pre-tax operating income (loss) 22.1 -120.9 98.0 -319.1
Net realized capital (losses) gains -6.4 20.3 -8.1 42.0
Impairment of goodwill - - -94.0
Amortization of intangible assets -7.5 -0.8 -21.3 -2.3
Restructuring costs -9.5 -3.4 -23.1 -3.4
(Loss) income before taxes -1.3 -104.8 45.5 -376.8
* Reflects the effects of the restatement
In addition to the aforementioned items, Converium's results for the nine months
ended September 30, 2005 included the recognition of a net pre-tax loss of US$
32.5 million related to winter storm Erwin, which occurred in the first quarter
of 2005, net positive development of prior years' loss reserves as discussed
below, and costs of US$ 23.1 million associated with our organizational and
operational restructuring (which included US$ 9.5 million from the third quarter
of 2005). Converium's 2004 results were impacted by net strengthening of prior
years' loss reserves as discussed below and an increase in income tax expenses
related to the establishment of a valuation allowance against the net deferred
income tax balances in North America and Switzerland, as well as the impairment
of goodwill of US$ 94.0 million.
The decrease in gross premiums written, net premiums written and net premiums
earned for the three and nine months ended September 30, 2005 (by 53.6%, 55.9%
and 42.8%, respectively for the quarter and by 54.3%, 55.3% and 39.3%,
respectively for the nine-month period as compared with the same periods of
2004) was in line with expectations. The decrease in premiums reflects 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. Despite the decrease in premiums, Converium
recorded significant growth in gross premiums within the Life & Health
Reinsurance segment of 16.4% as compared with the third quarter of 2004. This
expansion of business reflects increased shares in existing business and new
client relationships in Europe. In addition, Converium was able to strongly
expand its European Agribusiness in the first nine months of 2005.
Overall, Converium continues to believe that its gross premiums written target
of approximately US$ 2.0 billion for the 2005 calendar year is achievable.
Converium's shareholders' equity amounted to US$ 1,697.3 million as of September
30, 2005 compared with US$ 1,734.8 million as of December 31, 2004. This decline
primarily reflects a decrease in currency translation adjustments of US$ 86.6
million, partially offset by net unrealized capital gains (net of taxes) of US$
11.6 million and net income of US$ 34.5 million.
15
Noticeable impact of natural catastrophes
For the third quarter of 2005, the non-life combined ratio for Converium's
ongoing operations was 112.1% (including an administration expense ratio of
5.8%). For the nine months ended September 30, 2005, the ongoing non-life
combined ratio was 106.4% (including an administration expense ratio of 6.6%).
In the third quarter of 2005, Converium's ongoing operations recorded net
pre-tax losses from Hurricane Katrina, Hurricane Rita, Hurricanes Dennis and
Emily, and the European floods of US$ 26.1 million, US$ 10 million, US$ 2.3
million and US$ 24.4 million, respectively. Excluding the impact of the
hurricanes and the European floods, the ongoing non-life combined ratio would
have been 99.2% and 102.4% for the three and nine months ended September 30,
2005, respectively. For Hurricane Katrina, an additional US$ 11.4 million of net
pre-tax losses were recorded in the Run-Off segment, so that overall net pre-tax
losses in the third quarter of 2005 from Hurricane Katrina totalled US$ 37.5
million.
Converium's results for the nine months ended September 30, 2005 also reflect
the net pre-tax loss of US$ 32.5 million related to winter storm Erwin, which
affected Northern Europe in January 2005. In the first nine months of 2005,
Converium was also impacted by net strengthening of prior years' loss reserves
of US$ 22.1 million relating to the US/Caribbean hurricanes that occurred in
late 2004. This net strengthening is included in the development of prior years'
loss reserves discussed below.
Based on preliminary estimates and as reported in the December 19, 2005 press
release, Converium, at that time, expected its net pre-tax losses for Hurricane
Wilma, which occurred in the fourth quarter of 2005, to be in the range of US$
25.0 million to US$ 35.0 million. The Company has since updated its estimate for
Hurricane Wilma to a range of US$ 40.0 million to US$ 50.0 million.
Favorable loss reserve development in the third quarter of 2005
In the third quarter of 2005, Converium recorded net positive development of
prior years' loss reserves of US$ 11.1 million(7), which contributed to the
overall net positive development of US$ 5.3 million(5) for the nine months ended
September 30, 2005. The Company believes that the continued stability of its
aggregate prior years' loss reserve position at the end of the third quarter of
2005 reflects the adequacy of prior reserving actions.
For the third quarter of 2005, net positive development of prior years' loss
reserves of US$ 23.7 million was recorded in the Company's ongoing operations.
For the three months ended September 30, 2005, the development of prior years'
loss reserves included US$ 10.0 million of net positive development in the
Standard Property & Casualty Reinsurance segment, resulting from the net
positive development of US$ 31.4 million within the property line of business,
partially offset by net strengthening of US$ 12.5 million within the general
third party liability line of business. The Specialty Lines segment experienced
net positive development of prior years' loss reserves of US$ 13.7 million
primarily driven by net positive development of US$ 11.4 million within the
aviation & space line of business. In addition, the Run-Off segment experienced
US$ 12.6 million(5) of net strengthening of prior years' loss reserves. For the
first nine months of 2005, the development of prior years' loss reserves
consisted of net positive development of US$ 11.5 million in the Standard
Property & Casualty Reinsurance segment and US$ 19.5 million in the Specialty
Lines segment, offset by net strengthening of US$ 25.7 million in the Run-Off
segment.
As a result of the reserve volatility of old underwriting years and the adverse
loss-reporting trend that continued throughout the early part of 2004, Converium
recorded net strengthening of prior years' loss reserves of US$ 126.1 million
for the three months ended September 30, 2004, which resulted in an overall net
strengthening of prior years' loss reserves of US$ 556.4 million for the nine
months ended September 30, 2004. The development of prior years' loss reserves
for the three months ended September 30, 2004 included net reserve strengthening
of US$ 4.7 million in the Standard Property & Casualty Reinsurance segment, US$
24.4 million in the Specialty Lines segment and US$ 97.0 million in the Run-Off
segment. The development of prior years' loss reserves for the first nine months
of 2004 consisted of net reserve strengthening of US$ 12.6 million in the
Standard Property & Casualty Reinsurance segment, US$ 55.3 million in the
Specialty Lines segment and US$ 488.5 million in the Run-Off segment.
---------------------
(5) Updated from information included in the December 19, 2005 press release to
reflect the completion of our work on the restatement as follows: The US
$11.1 million, US$ 5.3 million, US$ 12.5 million and US$ 12.6 million
figures in today's release were US$ 11.3 million, US$ 15.0 million, US$
16.5 million and US$ 12.4 million, respectively in the December 19 press
release.
16
Although the restatement discussed in the "Restatement of accounts" section of
this press release did not result in changes to the reserve amounts determined
as a result of Converium's process for establishing loss and loss adjustment
expense reserves, it did result in corrections to the accounting for certain
assumed and ceded transactions and the reserve amounts related thereto. The
resulting changes relate to transactions which at inception did not meet the
requirements for reinsurance accounting. The required changes reflected in the
restatement, substantially related to ceded reinsurance transactions, have
increased the additional net provisions on prior years' non-life reserves
reported in the preceding paragraph from US$ 111.6 million to US$ 126.1 million
and from US$ 542.4 million to US$ 556.4 million for the three and nine months
ended September 30, 2004, respectively. The net strengthening of prior years'
loss reserves during 2004 reported in the preceding paragraph with respect to
the segments were also effected by the restatement.
CRNA run-off on track; commutations target to be exceeded
For the nine months ended September 30, 2005, CRNA's net loss reserves have
decreased by US$ 443.5 million to approximately US$ 1.3 billion, including the
effects of commutations and other settlements of close to US$ 250 million. The
commutations resulted in a positive contribution of US$ 39.0 million to net
income in the third quarter of 2005.
More than 90% of the commuted liabilities were associated with volatile and
long-tail lines of business, such as general and special liability, professional
liability, and workers' compensation. In light of further commutations carried
out in the fourth quarter of 2005, Converium will exceed its previously stated
target of commuting or otherwise settling CRNA liabilities of approximately US$
500 million for the full year 2005.
Progress in trimming cost base
In the third quarter of 2005, the administration expense ratio for the ongoing
non-life business (excluding Corporate Center segment costs) was 5.8%. Other
operating and administration expenses for the Company were US$ 40.3 million, a
decrease of US$ 10.1 million or 20.0% as compared with the second quarter of
2005.
As expected, the cost management measures initiated in March 2005 have taken
effect in the third quarter of 2005. The Company reaffirms that it will continue
to incur certain expenses which it considers crucial investments in order to
expedite its rebound following the restoration of its financial strength ratings
and to accelerate the recovery of its market position. In addition, the Company
is incurring higher than expected expenses in conjunction with the internal
review addressed in the first part of this press release describing the
restatement.
Solid investment result
In the third quarter of 2005, Converium generated a total investment result of
US$ 70.5 million or an average annualized total investment income yield
(pre-tax) of 3.6% as compared with a total investment result of US$ 97.8 million
or an average annualized total investment income yield (pre-tax) of 4.9% for the
same period of 2004. Net investment income remained relatively flat for the
third quarter of 2005 and 2004 at US$ 76.9 million and US$ 77.5 million,
respectively. Converium recorded net realized capital losses of US$ 6.4 million
for the three months ended September 30, 2005 as compared with net realized
capital gains of US$ 20.3 million for the same period of 2004. In the third
quarter of 2005, Converium took an impairment charge of US$ 2.4 million related
to its participation in SATEC. The Company also realized net capital losses and
impairments of US$ 4.0 million, primarily due to the liquidation of parts of the
fixed maturity securities portfolio in North America, which resulted from the
restructuring of the investment portfolio to optimally accommodate the
commutation efforts.
For the nine months ended September 30, 2005, Converium generated a total
investment result of US$ 238.8 million or an average annualized total investment
income yield (pre-tax) of 4.0% versus a total investment result of US$ 270.1
million or an average annualized total investment income yield (pre-tax) of 4.6%
for the same period of 2004. Net investment income was US$ 246.9 million for the
nine months ended September 30, 2005 as compared with US$ 228.1 million for the
same period of 2004. For the nine months ended September 30, 2005 Converium
recorded net realized capital losses of US$ 8.1 million as compared with net
realized capital gains of US$ 42.0 million for the same period of 2004,
inclusive of impairment charges of US$ 8.2 million and US$ 3.6 million for the
same respective periods.
The bulk of the net realized capital losses in 2005 occurred in the third
quarter (see above). In the first nine months of 2004, Converium's net realized
capital gains were mainly attributable to the sale of equity security
investments of approximately US$ 500 million to adjust the Company's asset
allocation to reduce investment risk.
17
The average annualized total investment return (pre-tax) was 3.1% and 4.3% for
the three and nine months ended September 30, 2005 as compared with 6.5% and
3.8% for the same periods of 2004. In the second quarter of 2005, bond yields
decreased, which led to significant net unrealized capital gains on the fixed
maturity portfolio. Increasing bond yields in the first and third quarter of
2005 had an offsetting impact. Also, European equity markets performed strongly
in the first nine months of 2005, which resulted in additional net unrealized
capital gains in the equity portfolio.
Business development
Standard Property & Casualty Reinsurance reported a segment loss of US$ 26.7
million for the three months ended September 30, 2005 and segment income of US$
24.7 million for the same period of 2004, respectively. For the nine months
ended September 30, 2005, Standard Property & Casualty Reinsurance reported
segment income of US$ 22.7 million as compared with US$ 120.9 million for the
same period of 2004, respectively.
For the third quarter of 2005, the segment result was primarily attributable to
the hurricanes in the United States with a total impact of US$ 29.9 million
(Hurricane Katrina: US$ 20.1 million, Hurricane Rita: US$ 7.5 million,
Hurricanes Dennis and Emily: US$ 2.3 million). In addition, the European floods
in Switzerland, Germany, Austria and Romania caused total net pre-tax losses of
US$ 24.4 million. The results for the first nine months ended September 30, 2005
also reflect the impact of winter storm Erwin, which resulted in net pre-tax
losses of US$ 32.5 million during the first quarter of 2005.
The result for the third quarter of 2005 was favorably impacted by net positive
development of prior years' loss reserves of US$ 10.0 million, which resulted in
net positive development of prior years' loss reserves of US$ 11.5 million for
the nine months ended September 30, 2005. The net positive development in the
third quarter of 2005 was primarily driven by the property line of business (US$
31.4 million) and partially offset by the general third party liability line of
business (US$ 12.5 million). In the third quarter of 2004, US$ 4.6 million of
net strengthening of prior years' loss reserves was recorded, which resulted in
net strengthening of US$ 12.5 million for the nine months ended September 30,
2004.
The combined ratio for the third quarter of 2005 was 125.6% (including an
administration expense ratio of 6.4%) and 108.7% (including an administration
expense ratio of 5.3%) for the nine months ended September 30, 2005 as compared
with 102.7% and 96.6% for the same periods of 2004, respectively. The hurricanes
and the European floods impacted the segment's combined ratio by 24.5 percentage
points in the third quarter of 2005.
For the third quarter of 2005, gross premiums written decreased by 46.4% to US$
173.3 million, net premiums written declined by 52.9% to US$ 139.8 million and
net premiums earned were down by 38.5% to US$ 221.4 million. For the nine months
ended September 30, 2005, gross premiums written decreased by 44.7% to US$ 711.0
million, net premiums written declined by 45.4% to US$ 661.2 million and net
premiums earned were down by 36.0% to US$ 719.4 million. Premiums written were
adversely impacted by the ratings downgrades in 2004. For the nine months ended
September 30, 2005, the reduction in net premiums written in the Standard
Property & Casualty Reinsurance segment included (by line of business):
o Motor, which decreased by 45.7% or US$ 177.2 million to US$ 210.5
million, largely reflecting reduced writings in France and the United
Kingdom due to profitability considerations as well as the
cancellation of business because of the ratings downgrades in 2004;
o Property, down by 33.6% or US$ 158.4 million to US$ 312.9 million,
primarily attributable to the ratings downgrades in 2004;
o General third party liability, which decreased by 60.7% or US$ 191.4
million to US$ 123.8 million, partly due to revisions to premium
estimates on our London Market North America and United Kingdom book
of business; and
o Personal accident assumed from non-life insurers, which recorded a
reduction of 61.5% or US$ 22.4 million to US$ 14.0 million, primarily
as a result of the cancellation or non-renewal of business and reduced
shares in current business due to the ratings downgrades in 2004.
Our underwriting expense ratio for the three and nine months ended September 30,
2005 decreased due to the receipt of Lloyd's reinsurance to close (RITC)
premiums, on which there are no acquisition costs.
18
Specialty Lines reported segment income for the three and nine months ended
September 30, 2005 of US$ 28.6 million and US$ 76.9 million as compared with
segment income of US$ 8.9 million and US$ 34.5 million, respectively, for the
same periods of 2004.
For the third quarter of 2005, the segment result was negatively affected by US$
8.5 million from the Hurricanes Katrina and Rita in the United States, primarily
from the marine & energy line of business.
The positive segment results were primarily attributable to a solid underwriting
performance supported by net positive development of prior years' loss reserves
of US$ 13.7 million in the third quarter of 2005 (US$ 19.5 million for the nine
months ended September 30, 2005). US$ 11.4 million of this positive development
were driven by the aviation line of business. In the third quarter of 2004, US$
24.4 million of net strengthening of prior years' loss reserves were recorded
(US$ 55.4 million for the nine months ended September 30, 2004).
For the third quarter of 2005, the combined ratio was 101.0% (including an
administration expense ratio of 5.5%) and 104.8% (including an administration
expense ratio of 8.1%) for the nine months ended September 30, 2005 as compared
with 109.5% and 107.5% for the same periods of 2004, respectively. The long-tail
Medical Defence Union (MDU) business and the fronting agreement for our Global
Aerospace Underwriting Managers Ltd. (GAUM) business make up 12.0 percentage
points of the segment's combined ratio for the third quarter of 2005 or 7.8
percentage points for the nine months ended September 30, 2005.
For the third quarter of 2005, gross premiums written decreased by 41.4% to US$
210.4 million, net premiums written declined by 41.1% to US$ 198.0 million and
net premiums earned decreased by 18.0% to US$ 264.8 million. For the nine months
ended September 30, 2005, gross premiums written decreased by 47.9% to US$ 593.6
million, net premiums written were down by 49.2% to US$ 542.0 million and net
premiums earned decreased by 13.6% to US$ 843.9 million. Premium volumes were
adversely impacted by the ratings downgrades in 2004. For the nine months ended
September 30, 2005, the reduction in net premiums written in the Specialty Line
segment included (by line of business):
o Aviation & space, which decreased by 35.0% or US$ 101.5 million to US$
188.2 million;
o Credit & surety, which decreased by 68.1% or US$ 104.4 million to US$
48.8 million;
o Professional liability and other special liability, down by 57.0% or
US$ 227.5 million to US$ 171.5 million;
o Engineering, which decreased by 59.3% or US$ 66.6 million to US$ 45.8
million;
o Marine & energy, which recorded a reduction of 24.0% or US$ 16.7
million to US$ 52.9 million; and
o Workers' compensation, which decreased by 79.2% or US$ 27.4 million to
US$ 7.2 million.
These decreases were partially offset by the growth in net premiums written in
the Agribusiness line of business (by US$ 19.1 million to US$ 27.6 million),
primarily reflective of the decision to write this business out of Zurich and to
expand it in Europe.
Life & Health Reinsurance reported segment income for the third quarter and the
nine months ended September 30, 2005 of US$ 4.8 million and US$ 11.0 million,
respectively as compared with segment income of US$ 6.0 million and US$ 10.9
million for the same periods of 2004.
The technical result for the three months ended September 30, 2005 was US$ 4.7
million as compared with US$ 4.9 million for the same period of 2004. For the
nine months ended September 30, 2005, the technical result was US$ 12.9 million
as compared with US$ 10.3 million for the same period of 2004. The technical
result is defined as net premiums earned minus losses, loss expenses and life
benefits minus acquisition costs plus technical interest.
The segment income and technical result for the three and nine months ended
September 2005 were primarily attributable to the expansion of existing
reinsurance transactions in Continental Europe, especially in the German and
Italian markets, contributing approximately US$ 1.7 million to the technical
result. In addition, updated cedent information pertaining to prior underwriting
years in our core overseas markets and the positive development in the Middle
East contributed approximately US$ 1.8 million to the technical result.
The positive development for the nine months ended September 30, 2005 was
partially offset by net reserve strengthening in the amount of US$ 1.5 million
in the first quarter of 2005 related to the tsunami that occurred in late 2004.
19
For the third quarter of 2005, gross premiums written increased by 16.4% to US$
87.4 million, net premiums written grew by 19.9% to US$ 83.9 million and net
premiums earned expanded by 21.7% to US$ 87.9 million. This growth reflects new
business in Converium's German and Italian markets.
For the nine months ended September 30, 2005, gross premiums written decreased
slightly by 0.4% to US$ 263.8 million, primarily due to a decrease in the health
line of business in the Middle East and in the non-active North American market,
partially offset by the positive development in other lines, above all in
Italian personal accident business.
Net premiums written increased by 5.7% to US$ 253.4 million and net premiums
earned increased by 8.4% to US$ 243.2 million, respectively. This increase was
primarily driven by the above described business development and the termination
of the Life & Health Reinsurance segment's Master Retrocession Agreement
contributing an additional US$ 9.0 million in 2005.
The Run-Off segment reported segment income for the third quarter and the nine
months ended September 30, 2005 of US$ 21.8 million and US$ 32.6 million,
respectively as compared with a segment loss of US$ 104.7 million and US$ 383.8
million for the same periods of 2004.
For the third quarter of 2005, the segment result was negatively affected by
Hurricane Katrina in the United States with a total impact of US$ 11.4 million,
offset by a positive net income contribution of US$ 39.0 million from
commutations and other settlements, which totalled close to US$ 250 million.
For the third quarter of 2005, the Run-Off segment recorded US$ 12.6 million of
net strengthening of prior years' loss reserves, resulting in net strengthening
of US$ 25.7 million for the nine months ended September 30, 2005. For the same
periods of 2004, the Run-Off segment recorded net strengthening of prior years'
loss reserves of US$ 97.0 million and US$ 488.5 million, respectively.
Corporate Center
The Corporate Center carries certain administration expenses, such as costs of
the Board of Directors, the Global Executive Committee and other corporate
functions, as well as other expenses not allocated to the operating segments.
The Corporate Center costs decreased by 3.6% to US$ 8.1 million for the third
quarter and increased by 7.1% to US$ 27.3 million for the nine months ended
September 30, 2005 as compared with the same periods of 2004, respectively. The
overall development reflects increased legal, audit and consulting fees related
to Converium's organizational and operational restructuring, offset by the
decline in certain personnel costs.
20
--------------------------------------------------------------- ------------------------- ------------------------
Financial highlights: Income statement Three months ended Nine months ended
September 30, September 30,
2005* 2004 2005* 2004
In US$ million, unless noted restated restated
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Gross premiums written 482.6 1,040.5 1,618.9 3,544.2
- change (%) -53.6% -54.3%
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Net premiums written 432.4 980.3 1,501.2 3,355.3
- change (%) -55.9% -55.3%
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Net premiums earned 605.2 1,057.3 1,941.7 3,197.6
- change (%) -42.8% -39.3%
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Ongoing non-life loss ratio(8) 89.0% 81.4% 79.5% 75.9%
- change in percentage points +7.6pts +3.6pts
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Ongoing non-life underwriting expense ratio(9) 17.3% 19.6% 20.3% 21.9%
- change in percentage points -2.3pts -1.6pts
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Ongoing non-life administration expense ratio(10) 5.8% 4.9% 6.6% 3.9%
- change in percentage points +0.9pts +2.7pts
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Ongoing non-life combined ratio(11) 112.1% 105.9% 106.4% 101.7%
- change in percentage points +6.2pts +4.7pts
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Life & Health technical result(12) 4.7 4.9 12.9 10.3
- change (%) -4.1% +25.2%
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Total investment results(13) 70.5 97.8 238.8 270.1
- change (%) -27.9% -11.6%
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Average annualized total investment income yield (pre tax)(14) 3.6% 4.9% 4.0% 4.6%
- change in percentage points -1.3pts -0.6pts
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Pre-tax operating income (loss) (15) 22.1 -120.9 98.0 -319.1
- change (%) n.m. n.m.
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Net (loss) income -6.9 -88.2 34.5 -593.4
- change (%) n.m. n.m.
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Basic (loss) earnings per share (US$) -0.05 -1.07 0.24 -7.24
- change (%) n.m. n.m.
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Diluted (loss) earnings per share (US$) -0.05 -1.07 0.23 -7.18
- change (%) n.m. n.m.
--------------------------------------------------------------- ------------ ------------ ----------- ------------
Annualized return on shareholders' equity(16) -1.6% -27.5% 2.7% -41.0%
- change in percentage points n.m. n.m.
--------------------------------------------------------------- ------------ ------------ ----------- ------------
* Reflects the effects of the restatement
---------------------
(6) Ongoing non-life loss ratio is defined as ongoing non-life losses and loss
adjustment expenses divided by ongoing non-life net premiums earned.
(7) Ongoing non-life underwriting expense ratio is defined as ongoing non-life
underwriting acquisition costs divided by ongoing non-life net premiums
earned.
(8) Ongoing non-life administration expense ratio is defined as ongoing other
non-life operating and administration expenses divided by ongoing non-life
net premiums written.
(9) Ongoing non-life combined ratio is defined as ongoing non-life loss ratio
(to premiums earned) plus ongoing non-life underwriting expense ratio (to
premiums earned) plus ongoing non-life administration expense ratio (to
premiums written).
(10) Life & Health technical result is defined as Life & Health net premiums
earned minus Life & Health losses, loss adjustment expenses and life
benefits minus Life & Health underwriting acquisition costs plus Life &
Health technical interest.
(11) Total investment results are defined as net investment income plus net
realized capital (losses) gains.
(12) Average annualized total investment income yield (pre-tax) is defined as
total investment results divided by average total invested assets
(including cash and cash equivalents), annualized.
(13) Pre-tax operating income (loss) is defined as income (loss) before taxes
excluding net realized capital (losses) gains, impairment of goodwill,
amortization of intangible assets and restructuring costs.
(14) Annualized return on equity is defined as net income (loss) divided by
shareholders' equity at the beginning of the period.
21
-------------------------------------------------------------------------------- ------------ -------------
Financial highlights: Balance sheet Sept. 30, Dec. 31,
2005* 2004
In US$ million, unless noted Restated
-------------------------------------------------------------------------------- ------------ -------------
Total invested assets plus cash and cash equivalents 7,605.9 8,467.1
- change compared with December 2004 -10.2%
-------------------------------------------------------------------------------- ------------ -------------
Claims supporting capital(17) 2,088.5 2,125.9
- change compared with December 2004 +1.8%
-------------------------------------------------------------------------------- ------------ -------------
Shareholders' equity 1,697.3 1,734.8
- change compared with December 2004 -2.2%
-------------------------------------------------------------------------------- ------------ -------------
Book value per share (US$)(18) 11.59 11.86
- change (%) -2.3%
-------------------------------------------------------------------------------- ------------ -------------
Book value per share (CHF) 14.94 13.49
- change (%) +10.7%
-------------------------------------------------------------------------------- ------------ -------------
------------------------------------------------------- ------------------------ --------------------------
Financial highlights: Investment results Three months ended Nine months ended
September 30, September 30,
In US$ million, unless noted
-------------------------------------------------------
2005* 2004 2005* 2004
restated Restated
------------------------------------------------------- ------------ ----------- ------------ -------------
Investment income - Fixed maturities 54.0 52.3 170.0 143.4
------------------------------------------------------- ------------ ----------- ------------ -------------
Investment income - Equity securities 0.9 1.0 4.8 13.2
------------------------------------------------------- ------------ ----------- ------------ -------------
Investment income - Funds Withheld Asset 15.2 18.2 48.3 57.5
------------------------------------------------------- ------------ ----------- ------------ -------------
Investment income - other, net of expenses 6.8 6.0 23.8 14.0
------------------------------------------------------- ------------ ----------- ------------ -------------
Net investment income 76.9 77.5 246.9 228.1
------------------------------------------------------- ------------ ----------- ------------ -------------
Average annualized net investment income yield 4.0% 3.9% 4.1% 3.9%
(pre-tax)
------------------------------------------------------- ------------ ----------- ------------ -------------
------------------------------------------------------- ------------ ----------- ------------ -------------
Net realized capital (losses) gains -6.4 20.3 -8.1 42.0
------------------------------------------------------- ------------ ----------- ------------ -------------
Total investment results 70.5 97.8 238.8 270.1
------------------------------------------------------- ------------ ----------- ------------ -------------
Average annualized total investment income yield 3.6% 4.9% 4.0% 4.6%
(pre-tax)
------------------------------------------------------- ------------ ----------- ------------ -------------
------------------------------------------------------- ------------ ----------- ------------ -------------
Change in net unrealized gains (losses) (pre-tax) -9.4 30.9 18.3 -46.0
------------------------------------------------------- ------------ ----------- ------------ -------------
Total investment return (pre-tax) 61.1 128.7 257.1 224.1
------------------------------------------------------- ------------ ----------- ------------ -------------
Average annualized total investment return (pre-tax) 3.1% 6.5% 4.3% 3.8%
------------------------------------------------------- ------------ ----------- ------------ -------------
Average total invested assets (including cash and cash 7,785.4 7,943.7 8,036.6 7,872.9
equivalents)
------------------------------------------------------- ------------ ----------- ------------ -------------
* Reflects the effects of the restatement
---------------------
(15) Claims supporting capital is defined as total shareholders' equity plus
debt.
(16) Reflects the impacts of the rights offering that occurred in October 2004.
22
Selected third quarter financial information
Basis of preparation
The unaudited interim financial information ("interim financial
information") for Converium Holding AG and subsidiaries ("Converium" or
"the Company") has been prepared on the basis of United States generally
accepted accounting principles for interim financial information.
Accordingly, such interim financial information does not reflect all the
information required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. The results of operations for the interim period are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2005, as interim results may be affected by several
factors including, but not limited to, changes in the economic environment
and catastrophic losses. As reported in this press release, the financial
statements for the year ended December 31, 2004 have been restated and the
interim financial information for the three and nine months ended September
30, 2005 reflects the effects of the restatement.
This interim financial information should be read in conjunction with the
audited financial statements of Converium as reported on Form 20-F/A for
the year ended December 31, 2004.
Converium's business is organized around three ongoing operating segments:
Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health
Reinsurance, which are based principally on global lines of business, in
addition to a Run-Off segment. The Run-Off segment includes all business:
both life and non-life, originating from Converium Reinsurance (North
America) Inc. and Converium Insurance (North America) Inc., excluding the
US originated aviation business. In addition to the four segments'
financial information, the corporate Center carries certain administration
expenses, such as costs of the Board of directors, the Global Executive
committee and other corporate functions as well as other expenses not
allocated to operating segments. As well as reporting individual segments
results, management also presents the aggregation of Standard Property &
Casualty Reinsurance and Specialty Lines, referred to in the financial
information as ongoing non-life business, as these are both non-life
segments, the aggregation of which management considers meaningful in
understanding the performance of Converium. This measure excludes the
non-life business contained within the Run-Off segment in line with
management's desire to monitor this segment on a stand-alone basis. The
aggregation of the Life & Health Reinsurance segment with the ongoing
non-life business is referred to as total ongoing business.
As a result of the restatement, any previously published financial
statements and information should not be viewed as a basis of comparison to
the results presented today and should no longer be relied upon. Converium
expects to file shortly an amended Form 20-F/A reflecting the restatement
adjustments and their impact on previous disclosures and financial
statements.
23
Converium 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 continue to provide investors with perspectives on its value drivers,
its strategic initiatives and those factors critical to understanding its
business and operating environment.
Enquiries:
Esther Gerster Zuzana Drozd
Head of Public Relations Head of Investor Relations
esther.gerster@converium.com zuzana.drozd@converium.com
Phone: +41 (0) 44 639 90 22 Phone: +41 (0) 44 639 91 20
Fax: +41 (0) 44 639 70 22 Fax: +41 (0) 44 639 71 20
About Converium
Converium is an independent international multi-line reinsurer known for its
innovation, professionalism and service. Today Converium employs about 600
people in 20 offices around the globe and is organized into four business
segments: Standard Property & Casualty Reinsurance, Specialty Lines and Life &
Health Reinsurance, which are based principally on ongoing global lines of
business, as well as the Run-Off segment, which primarily comprises the business
from Converium Reinsurance (North America) Inc., excluding the US originated
aviation business portfolio. Converium has a "BBB+" rating (outlook stable) from
Standard & Poor's and a "B++" rating (outlook stable) from A.M. Best Company.
* * * * * * *
24
Important Disclaimer
This document contains forward-looking statements as defined in the US 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 `seek to', `expects', `should continue', `believes',
`anticipates', `estimates' and `intends'. The specific forward-looking
statements cover, among other matters, the Company's internal review and related
restatement, the reinsurance market, the Company's operating results, the rating
environment and the prospect for improving results and expense reductions. 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 the impact of our
ratings downgrade or a further lowering or loss of one of our financial strength
ratings; the impact of the restatement on our ratings and client relationships;
uncertainties of assumptions used in our reserving process; risk associated with
implementing our business strategies and our capital improvement measures and
the run-off of our North American business; cyclicality of the reinsurance
industry; the occurrence of natural and man-made catastrophic events with a
frequency or severity exceeding our estimates; acts of terrorism and acts of
war; changes in economic conditions, including interest and currency rate
conditions that could affect our investment portfolio; actions of competitors,
including industry consolidation and development of competing financial
products; a decrease in the level of demand for our reinsurance or increased
competition in our industries or markets; a loss of our key employees or
executive officers without suitable replacements being recruited within a
suitable period of time; our ability to address material weaknesses we have
identified in our internal control environment; political risks in the countries
in which we operate or in which we reinsure risks; the passage of additional
legislation or the promulgation of new regulation in a jurisdiction in which we
or our clients operate or where our subsidiaries are organized; the effect on us
and the insurance industry as a result of the investigations being carried out
by the US Securities and Exchange Commission, New York's Attorney General and
other governmental authorities; changes in our investment results due to the
changed composition of our invested assets or changes in our investment policy;
failure of our retrocessional reinsurers to honor their obligations or changes
in the credit worthiness of our reinsurers; our failure to prevail in any
current or future arbitration or litigation; and extraordinary events affecting
our clients, such as bankruptcies and liquidations , and other risks and
uncertainties, including those detailed in the Company's filings with the US
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.
www.converium.com
-----------------
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONVERIUM HOLDING AG
By: /s/ Inga Beale
--------------------------------
Name: Inga Beale
Title: CEO
By: /s/ Christian Felderer
--------------------------------
Name: Christian Felderer
Title: General Legal Counsel
Date: March 2, 2006