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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 November, 2006
CONVERIUM HOLDING AG
------------------------------------------
(Translation of registrant's name into English)
Dammstrasse 19
CH-6301 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
1
Converium Holding AG:
Zug, Switzerland, - Nov. 7, 2006- Strong Financial Performance in the Third
Quarter of 2006.
In the third quarter of 2006 Converium produced net income of US$54.3
million, resulting in net income of US$178.4 million for the nine months ended
September 30, 2006.
Highlights of the third quarter
-- Shareholders' equity of US$1,897.1 million as of September 30, 2006, up
US$243.7 million or 14.7% compared with December 31, 2005;
-- Annualized return on shareholders' equity for the third quarter of 2006 of
12.1%, up from -1.6% in the same period of 2005;
-- A strong underwriting result, driven by current-year performance, with a
non-life combined ratio of 99.0% and segment income of ongoing operations
of US$77.5 million;
-- Positive prior accident years' developments in Converium's ongoing
operations, for the seventh consecutive quarter;
-- Net investment income of US$76.8 million or an average annualized net
investment income yield of 4.3%.
Inga Beale, Chief Executive Officer, commented: "Converium reports another
quarter of impressive financial performance. Our capital base has further
strengthened. The results primarily reflect strong current-year underwriting
performance, highlighting the quality of our book of business. The third quarter
demonstrates once more the sustainability of Converium's rebound."
Inga Beale added: "We now focus on the year-end renewal negotiations and
believe that we can benefit from the recent positive rating actions. We remain
confident that Converium will be awarded a better financial strength rating in
the near future."
2
Key financial metrics (US$, unless noted)
Three months Nine months
ended ended
Sept. 30, 2006 Sept. 30, 2006
Gross premiums written 438.0 million 1,568.0 million
Income before taxes 63.5 million 203.4 million
Pre-tax operating income(1) 53.8 million 210.5 million
Ongoing total segment income(2) 77.5 million 217.6 million
Net income 54.3 million 178.4 million
Ongoing non-life combined ratio(3) 99.0% 97.5%
Average annualized net investment
income yield (pre-tax) 4.3% 4.1%
Shareholders' equity -- 1,897.1 million
Return on shareholders' equity
(annualized) 12.1% 14.4%
Basic earnings per share 0.37 1.22
Diluted earnings per share 0.37 1.20
Agreement to sell Converium's North American operations
On October 17, 2006 Converium announced the signing of a definitive
agreement to sell its North American operations to National Indemnity Company, a
Berkshire Hathaway company, for a total consideration of US$295 million
comprised of US$95 million in cash and US$200 million in assumption of debt.
Converium has not provided any guarantee or indemnity in respect of the reserves
of the North American operations. The transaction is subject to regulatory
approvals and customary closing conditions. The transaction is not reflected in
Converium's third quarter financial accounts presented today.
The sale to National Indemnity Company is based on the balance sheet as of
June 30, 2006. On this basis Converium estimates that the sale will result in a
decrease in shareholders' equity of US$135 million. The overall effect on net
income and shareholders' equity will depend on the amount of unrealized
investment losses or gains at the North American operations, closing net asset
adjustments and foreign exchange developments. Increases or decreases in the net
assets of the North American operations after June 30, 2006 do not give rise to
a net benefit or detriment to Converium, resulting in a fixed economic effect of
the transaction at closing.
On completing this transaction, Converium will achieve finality regarding
its North American operations. In addition, the Company's risk profile improves
following the assumption of all of the North American operations' reinsurance
liabilities (in excess of US$1 billion as of June 30, 2006) by National
Indemnity Company.
Following the conclusion of the sale, Converium will maintain a strong
financial position, while further de-risking its balance sheet. Converium is
very pleased with Standard & Poor's decision to place the Company on Credit
Watch with positive implications after the transaction was announced.
---------------------------
(1) Pre-tax operating income is defined as income before taxes excluding
pre-tax net realized capital gains (losses), amortization of intangible
assets and restructuring costs.
(2) Ongoing total segment income is defined as net premiums earned plus total
investment results minus losses, loss expenses and life benefits,
acquisition costs and other operating and administration expenses,
excluding Corporate Center.
(3) Ongoing non-life combined ratio is defined as ongoing non-life loss ratio
(to net premiums earned) plus ongoing non-life acquisition costs ratio (to
net premiums earned) plus ongoing non-life administration expense ratio
(to net premiums written).
3
Overview of third quarter and first nine months of 2006 financial
performance
Another quarter of strong financial results
For the third quarter of 2006, Converium reported pre-tax operating income
of US$53.8 million and net income of US$54.3 million, compared with US$22.1
million and US$-6.9 million, respectively, for the same period of 2005. For the
first nine months of 2006, this translates into pre-tax operating income of
US$210.5 million, compared with the previous period's US$98.0 million. Net
income increased to US$178.4 million, from US$34.5 million in the first nine
months of 2005.
The table below shows the reconciliation of pre-tax operating income to
income before taxes for the three and nine months ended September 30, 2006 and
2005 (in US$):
Three months ended Nine months ended
Sept. 30 Sept. 30
2006 2005 2006 2005
Pre-tax operating income 53.8 22.1 210.5 98.0
Net realized capital (losses) gains 9.7 -6.4 -7.3 -8.1
Amortization of intangible assets -- -7.5 -- -21.3
Restructuring costs -- -9.5 0.2 -23.1
Income before taxes 63.5 -1.3 203.4 45.5
Net income 54.3 -6.9 178.4 34.5
Business volume reflective of stable franchise
Gross premiums written in the third quarter of 2006 came in at US$438.0
million, a decrease of 9.2% compared with the third quarter of 2005. Net
premiums written decreased by 5.1% to US$410.5 million. Net premiums earned fell
by 25.6% to US$450.1 million, compared with the same period of 2005, reflecting
the completion of premium earnings from prior underwriting years.
For the first nine months of 2006, gross premiums written, net premiums
written and net premiums earned were US$1,568.0 million, US$1,476.7 million and
US$1,361.1 million, respectively, decreasing by 3.1%, 1.6% and 29.9%,
respectively, compared with the first nine months of 2005. Gross and net
premiums written for the first nine months of 2006 remained largely flat,
demonstrating the resilience of Converium's franchise despite the continuing
challenge of the Company's financial strength ratings.
Strong current-year underwriting performance
The third quarter's ongoing non-life combined ratio was 99.0%, including an
administration expense ratio of 6.3%, compared with 112.1% and 5.8%,
respectively, for the same period of 2005. The third quarter of 2006 was
favorably impacted by the absence of any major catastrophic losses and a solid
underlying underwriting performance.
For the first nine months of 2006, Converium recorded an ongoing non-life
combined ratio of 97.5%, including an administration expense ratio of 5.1%,
compared with 106.4% and 6.6%, respectively, for the same period of 2005. The
improved underwriting performance in 2006 reflects the absence of any major
catastrophic events as well as a positive net impact of prior accident years on
the technical result of US$32.7 million.
Minimal prior accident years' developments
In the third quarter of 2006, Converium recorded a net positive impact of
prior accident years on the technical result of US$1.0 million, with the
Company's ongoing operations making a positive contribution of US$6.8 million,
offset by a negative development in the Run-Off segment. In the same period of
2005, the overall net positive impact of prior accident years on the technical
result was US$11.1 million.
For the first nine months of 2006, an overall net positive impact of
US$32.7 million was recorded, with the ongoing operations accounting for US$49.3
million, partially offset by a net negative impact in the Run-Off segment. In
the same period of 2005, there was a net positive impact of prior accident years
on the technical result of US$5.3 million, with the ongoing operations making a
net positive contribution of US$31.0 million, offset by a net negative impact in
the Run-Off segment.
4
Strong investment result
In the third quarter of 2006, Converium reported net investment income of
US$76.8 million and an average annualized net investment income yield of 4.3%,
which compares with US$76.9 million and 4.0%, respectively, for the same period
of 2005. Net investment income has remained stable despite a reduction in
average invested assets of US$576.9 million compared with the third quarter of
2005. The increase in the annualized net investment income yield is attributable
to higher yields on bonds and short-term investments.
Taking into account the net realized capital gains, primarily from
divesting equity securities, the total investment result was US$86.5 million
which compares with US$70.5 million for the same period of 2005. The average
annualized total investment income yield came in at 4.8%, compared with 3.6% in
the same period of 2005.
In the third quarter of 2006, Converium recorded an improved net unrealized
capital gains and losses position (pre-tax) of US$51.8 million. This development
is largely due to stabilizing interest rates as well as the positive performance
of equity securities.
Operating and administration expenses under control
In the third quarter of 2006, total administration expenses were US$48.5
million, an increase of 20.3% compared with the same period of 2005, due to
increasing audit, legal and consulting fees, mainly in the context of
Converium's preparation for Sarbanes-Oxley compliance, the sale of the North
American operations and regulatory inquiries. For the first nine months of 2006,
total administration expenses declined by 10.5% to US$132.1 million, compared
with the same period of 2005. The reduction reflects the effects of the cost
management measures taken in 2005 as well as the non-recurrence of the expenses
associated with staff retention plans in 2005.
Short- to medium-term outlook
Financial guidance for 2006 essentially unchanged
Converium reiterates the fundamental elements of its full-year financial
guidance given in March 2006:
-- Gross premiums written for 2006 are projected to come in at US$1.8 - 1.9
billion.
-- The priced combined ratio for the ongoing non-life operations is
anticipated at around 102.5%, including an administration expense ratio of
5.5%, expected losses from natural catastrophes of about US$80 million but
excluding expected Corporate Center costs of up to US$55 million as
compared with the Company's previous guidance of US$45 - 50 million. This
upward revision of Corporate Center costs is driven by additional expenses
associated with the sale of the North American operations.
-- The corporate tax rate is expected to range between 12 - 15%, up from the
previous guidance of 7 - 12%. This upward revision is largely attributable
to more income from high-tax jurisdictions.
-- Average invested assets including cash and cash equivalents should be in
the magnitude of approximately US$7.2 billion, up from the previous
guidance of around US$7.0 billion.
5
Positive outlook for year-end renewals In the ongoing year-end renewals
Converium experiences strong support from clients. Given the most recent
positive signals from rating agencies, especially Standard & Poor's placing of
Converium under Credit Watch with positive implications, clients believe that
Converium will obtain an improved financial strength rating in the near future.
Even assuming no upgrade before the end of the year Converium expects to
achieve at least a stable volume of business in 2007, based on increasing shares
in a number of client relationships, new business from various markets, and
overall market conditions which Converium believes to remain attractive.
Distinct value proposition based on clearly defined medium-term business
strategy
Following a ratings upgrade Converium will continue to build its franchise
as a mid-sized multi-line reinsurer with a distinct geographic emphasis on
Europe, Asia Pacific and the Middle East, and with a focus on global specialty
lines. The Company believes that, based on its knowledge-based strategy, it can
successfully position itself as an "intelligent alternative" in global
reinsurance markets, also benefiting from a clear and distinctive strategic
stance on North America. As a result of a ratings upgrade Converium expects to
gain increased shares with existing clients and to establish new client
relationships without compromising on profitability.
Business development per segment
Standard Property & Casualty Reinsurance reported segment income of US$38.3
million for the third quarter and US$127.1 million for the first nine months of
2006, compared with US$-26.7 million and US$22.7 million, respectively, for the
same periods of 2005. The segment's combined ratio improved in both the third
quarter and first nine months of 2006 to 96.6% and 90.5%, respectively, compared
with 125.6% and 108.7% in the same periods of 2005.
The segment results in the third quarter and first nine months of 2006
reflect a strong current-year underwriting performance as well as the absence of
any major catastrophic events. Third quarter segment income was partially offset
by a net negative impact of prior accident years on the technical result of
US$7.1 million.
For the first nine months of 2006, the Standard Property & Casualty
Reinsurance segment experienced a net positive impact of prior accident years on
the technical result in the amount of US$29.5 million. The General Third Party
Liability and Property lines of business accounted for the biggest positive
effects, with US$28.4 million and US$21.9 million, respectively, offset by some
negative development in the Motor line of business amounting to US$19.2 million.
In the third quarter of 2006, gross premiums written decreased by 3.5% and
net premiums written increased by 10.6% to US$167.3 million and US$154.6
million, respectively. Net premiums earned decreased by 8.0% to US$203.6
million, compared with the same period of 2005. The decrease of net premiums
earned reflects the impact of the ratings downgrade in 2004 with significantly
lower earned premiums from prior underwriting years.
In the first nine months of 2006, gross and net premiums written increased
by 2.1% and 1.0% to US$726.2 million and US$667.8 million, respectively. Net
premiums earned declined by 21.4% to US$565.5 million, compared with the same
period of 2005.
In the first nine months of 2006, the slight increase in net premiums
written was driven by General Third Party Liability, which grew by 49.0% to
US$184.5 million due to the adjustment of premium estimates and accrued premiums
in 2005, Property, which grew by 10.6% to US$346.0 million and Motor, which
decreased by 39.2% to US$127.9 million, reflecting this year's closing of the
2003 Lloyd's underwriting year.
Specialty Lines reported segment income of US$34.5 million for the third
quarter of 2006 and US$69.8 million for the first nine months of 2006, compared
with US$28.6 million and US$76.9 million for the same periods of 2005,
respectively. The segment's combined ratio in the third quarter of 2006 was
101.9%, compared with 101.0% in the same period of 2005. For the first nine
months of 2006, the segment's combined ratio was at 104.9% compared with 104.8%
in the same period of 2005.
6
For the third quarter of 2006, the Specialty Lines segment recorded a net
positive impact of prior accident years on the technical result of US$13.9
million. Overall, the net positive impact of prior accident years on the
technical result was most pronounced in the Workers' Compensation line of
business.
For the first nine months of 2006, the Specialty Lines segment experienced
a net positive impact of prior accident years on the technical result in the
amount of US$19.8 million. The Aviation & Space and Professional Liability &
other Special Liability lines of business accounted for the biggest effects,
with a positive US$21.0 million and a negative US$25.0 million, respectively.
In the third quarter of 2006, gross and net premiums written decreased by
7.0% and 8.4% to US$195.6 million and US$181.3 million, respectively. Net
premiums earned fell by 36.8% to US$167.4 million, compared with the same period
of 2005. The decrease of net premiums earned reflects the impact of the ratings
downgrade in 2004 with significantly lower earned premiums from prior
underwriting years.
In the first nine months of 2006, gross premiums written decreased slightly
by 2.5% to US$578.6 million, net premiums written increased by 1.7% to US$551.4
million and net premiums earned declined by 36.0% to US$539.9 million, compared
with the same period of 2005. In the first nine months of 2006, the increase in
net premiums written was driven by Professional Liability & other Special
Liability lines of business and Engineering, which grew by 27.7% to US$219.0
million (primarily due to the adjustment of premium estimates and accrued
premiums in 2005) and 2.3% to US$46.8 million, respectively. These increases
were offset by the following lines of business: Agribusiness, which decreased by
5.2% to US$26.2 million; Credit & Surety, which declined by 39.4% to US$29.6
million; and Marine & Energy, which decreased by 15.7% to US$44.6 million.
Life & Health Reinsurance reported segment income of US$4.7 million for the
third quarter and US$20.7 million for the first nine months of 2006, compared
with US$4.8 million and US$11.0 million for the same periods of 2005,
respectively.
The technical result - defined as net premiums earned minus losses, loss
expenses and life benefits minus acquisition costs plus other technical income,
mainly interest on deposits - was US$1.7 million for the third quarter of 2006
and US$15.5 million for the first nine months of 2006, compared with US$4.7
million and US$12.9 million for the same periods in 2005, respectively. The
technical result of the third quarter was impacted by negative developments on
some contracts in European markets. The segment's strong performance in the nine
months ended September 30, 2006 was primarily attributable to new, and the
expansion of existing reinsurance transactions, especially within Continental
Europe, as well as updated cedent information within Converium's German and
Dutch books of business.
In the third quarter of 2006, compared with the same period of the previous
year, gross premiums written, net premiums written and net premiums earned
decreased by 13.7%, 10.7% and 9.7% to US$75.4 million, US$74.9 million and
US$79.4 million, respectively. These decreases were primarily attributable to
the decision not to renew some contracts within the Italian market, partly
offset by a new client relationship in Northern Europe.
For the first nine months of 2006, gross premiums written, net premiums
written and net premiums earned in the Life & Health Reinsurance segment fell by
6.0%, 4.4% and 2.3% to US$248.0 million, US$242.3 million and US$237.6 million,
respectively. The premium development mainly reflects Converium's continuing
ratings disadvantage.
Run-Off reported segment income of US$9.4 million for the third quarter and
US$47.0 million for the first nine months of 2006, compared with US$21.8 million
and US$32.6 million for the same periods of 2005. The strong performance during
the nine months ended September 30, 2006 primarily reflects the favourable
impact of commutations on the technical result.
In the third quarter of 2006, net reserves in the Run-Off segment decreased
by US$66.5 million to US$945.7 million. For the first nine months of 2006, this
translates into a reduction of net reserves of US$364.0 million. In the third
quarter and the first nine months of 2006, commutations contributed US$20.1
million and US$209.9 million, respectively, to the reduction of net reserves in
the segment and generated a benefit on the technical result of US$8.7 million
and US$51.8 million, respectively.
In the third quarter of 2006, the Run-Off segment recorded a net adverse
impact of prior accident years on the technical result of US$5.8 million,
primarily relating to the Workers' Compensation line of business.
7
For the first nine months of 2006, the Run-Off segment experienced a net
adverse impact of prior accident years on the technical result in the amount of
US$16.6 million, primarily driven by the Professional Liability and other
Special Liability line of business in the amount of US$26.0 million. Partially
offsetting this development was net favourable development of US$11.0 million
related to the Motor line of business.
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 reported costs of US$17.6 million for the third quarter and
US$42.3 million for the first nine months of 2006, compared with US$8.1 million
and US$27.3 million for the same periods of 2005, respectively. The increase in
the first nine months of 2006 as compared with the same period of 2005 reflects
higher audit fees in the context of Converium's preparation for Sarbanes-Oxley
compliance, late fees related to the restatement of prior year financial
accounts and expenses resulting from the sale of Converium's North American
operations.
Other income and interest expense are not included in either the Corporate
Center or the business segments and totalled US$- 5.8 million and US$- 19.1
million for the third quarter and the first nine months of 2006, respectively,
compared with US$- 4.7 million and US$- 26.0 million, respectively, in the same
periods of 2005. Converium AG has taken a one-off other income (loss) charge of
US$7.6 million in the third quarter for an expected commutation where coverage
is no longer required due to the planned sale of the North American operations.
Balance sheets and cash flow statement
During the first nine months of 2006, Converium's cash and cash equivalents
increased by US$135.5 million to US$782.8 million as of September 30, 2006. Cash
flows from operating activities result principally from premiums, collections on
losses recoverable and investment income, net of paid losses, acquisition costs
and administration expenses. Cash used in operating activities was US$95.7
million for the nine months ended September 30, 2006, mainly driven by cash
outflows resulting from commutations recorded during this period. Cash for
commutations was primarily provided by the liquidation of investments, which is
reflected in the results of cash flow from investing activities.
The ability to generate cash from operations and the availability of
short-term investments are viewed as sufficient to meet planned short- and
medium-term financial commitments, including the Company's remaining commutation
efforts and to close the sale of the North America transaction.
On October 3, 2006 Converium announced an agreement with its counter-party
banks to reduce the level of collateral requirement on its US$1.6 billion letter
of credit facility. As a result of the reduced level of collateral Converium
frees up around US$110 million of assets on its balance sheet and benefits from
additional degrees of freedom in managing its assets.
On August 16, 2006 Converium announced the conclusion of an agreement for
an uncollateralized US$250 million letter of credit facility with a leading
European banking group.
Legal and regulatory matters
An overview of the Company's legal and regulatory matters is presented in
its Form 20-F 2005 filed with the SEC on June 29, 2006 ("Notes to the
Consolidated Financial Statements"), available on Converium's website.
In addition, it should be noted that as a result of Judge Mukasey stepping
down from the bench at the end of July the class action matter was assigned to
Judge Denise Cote. A status conference has been called for November 16, 2006,
during which the Judge is expected to give guidance as to the further course of
the case.
8
Converium has made it a policy not to provide any quarterly or annual
earnings guidance and it will not update any past outlooks for full-year
earnings. It will, however, continue to provide investors with perspectives on
its value drivers, certain financial guidance for the full year, its strategic
initiatives and those factors critical to understanding its business and
operating environment.
Enquiries:
Dr. Kai-Uwe Schanz Marco Circelli Mladen Tomic
Chief Communication & Head of Investor Relations & Investor Relations Officer
Corporate Development Officer Market Research
kai-uwe.schanz@converium.com marco.circelli@converium.com mladen.tomic@converium.com
Phone: +41 (0) 44 639 90 35 Phone: +41 (0) 44 639 91 31 Phone: +41 (0) 44 639 91 39
Fax: +41 (0) 44 639 70 35 Fax: +41 (0) 44 639 71 31 Fax: +41 (0) 44 639 71 39
About Converium
Converium is an independent international multi-line reinsurer known for
its innovation, professionalism and service. Today Converium employs about 600
people in 18 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+" financial strength rating
(Credit Watch positive) from Standard & Poor's and a "B++" financial strength
rating (outlook positive) from A.M. Best Company.
Important Disclaimer
This document contains forward-looking statements as defined in the U.S.
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, certain financial guidance, e.g. related to the tax rate of the
Company, the reduction of North American net reserves, the acquisition costs
ratio and the costs of the Corporate Center, 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 U.S. 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.
http://www.converium.com
9
------------------------------------------------------ ------------------------- ------------------------ -------------
Financial highlights: Income statement Three months ended Nine months ended Year ended
(Unaudited) Sept. 30, Sept. 30, Dec. 31,
2005
In USD million, unless noted 2006 2005 2006 2005 (audited)
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Gross premiums written 438.0 482.6 1,568.0 1,618.9 1,994.3
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Net premiums written 410.5 432.4 1,476.7 1,501.2 1,815.7
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Net premiums earned 450.1 605.2 1,361.1 1,941.7 2,383.2
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Ongoing non-life loss ratio(4) 69.2% 89.0% 67.6% 79.5% 77.4%
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Ongoing non-life acquisition costs ratio(5) 23.5% 17.3% 24.8% 20.3% 22.9%
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Ongoing non-life administration expense ratio(6) 6.3% 5.8% 5.1% 6.6% 6.9%
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Ongoing non-life combined ratio(7) 99.0% 112.1% 97.5% 106.4% 107.2%
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Life & Health technical result(8) 1.7 4.7 15.5 12.9 14.2
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Total investment results(9)
86.5 70.5 228.8 238.8 350.4
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Total investment income yield(10) 4.8% 3.6% 4.2% 4.0% 4.4%
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Total investment return(11) 7.7% 3.1% 4.3% 4.3% 4.0%
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Pre-tax operating income(12) 53.8 22.1 210.5 98.0 100.8
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Net income 54.3 -6.9 178.4 34.5 68.7
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Basic earnings per share (USD) 0.37 -0.05 1.22 0.24 0.47
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Diluted earnings per share (USD) 0.37 -0.05 1.20 0.23 0.46
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
Return on shareholders' equity(13) 12.1% -1.6% 14.4% 2.7% 4.0%
------------------------------------------------------ ------------ ------------ ----------- ------------ -------------
---------------------------
(4) Ongoing non-life loss ratio is defined as losses and loss expenses divided
by net premiums earned.
(5) Ongoing non-life acquisition costs ratio is defined as acquisition costs
divided by net premiums earned.
(6) Ongoing non-life administration expense ratio is defined as other
operating and administration expenses divided by net premiums written.
(7) Ongoing non-life combined ratio is defined as ongoing non-life loss ratio
(to net premiums earned) plus ongoing non-life acquisition costs ratio (to
net premiums earned) plus ongoing non-life administration expense ratio
(to net premiums written).
(8) Life & Health technical result is defined as net premiums earned minus
losses, loss expenses and life benefits minus acquisition costs plus other
technical income, mainly interest on deposits.
(9) Total investment results are defined as net investment income plus net
realized capital gains (losses).
(10) Total investment income yield is defined as net investment income plus net
realized capital gains (losses) divided by average total invested assets
(including cash and cash equivalents), pre-tax and annualized.
(11) Total investment return is defined as net investment income plus net
realized capital gains (losses) plus change in net unrealized capital
gains (losses).
(12) Pre-tax operating income is defined as income before taxes excluding
pre-tax net realized capital gains (losses), amortization of intangible
assets and restructuring costs.
(13) Return on shareholders' equity is defined as net income or loss
(after-tax) divided by shareholders' equity at the beginning of the
period, annualized.
10
------------------------------------------------------------------------------- ------------- ------------- -------------
Financial highlights: Balance sheet Sept. 30, Dec. 31,
2006 2005 Change
In USD million, unless noted (unaudited) (audited) %
------------------------------------------------------------------------------- ------------- ------------- -------------
Total invested assets plus cash and cash equivalents 7,239.6 7,281.6 -0.6%
------------------------------------------------------------------------------- ------------- ------------- -------------
Claims supporting capital(1) 2,288.6 2,044.6 11.9%
------------------------------------------------------------------------------- ------------- ------------- -------------
Shareholders' equity 1,897.1 1,653.4 14.7%
------------------------------------------------------------------------------- ------------- ------------- -------------
Book value per share (USD) 12.96 11.29 14.8%
------------------------------------------------------------------------------- ------------- ------------- -------------
Book value per share (CHF) 16.25 14.88 9.2%
------------------------------------------------------------------------------- ------------- ------------- -------------
-------------------------
(14) Claims supporting capital is defined as total shareholders' equity plus
debt.
---------------------------------------------------------- ------------------------ ------------------------ ------------
Financial highlights: Investment results Three months ended Nine months ended Year
(Unaudited) September 30, September 30, ended
Dec. 31,
(audited)
In USD million, unless noted
----------------------------------------------------------
2006 2005 2006 2005 2005
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Investment income - Fixed maturities 51.2 54.0 158.1 170.0 221.3
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Investment income - Equity securities 0.7 0.9 4.1 4.8 5.9
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Investment income - Funds Withheld Asset 12.9 15.2 39.5 48.3 62.6
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Other investment income, net 12.0 6.8 34.4 23.8 35.1
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Net investment income 76.8 76.9 236.1 246.9 324.9
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Average annualized net investment income yield 4.3% 4.0% 4.3% 4.1% 4.1%
(pre-tax)
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Net realized capital (losses) gains 9.7 -6.4 -7.3 -8.1 25.5
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Total investment results 86.5 70.5 228.8 238.8 350.4
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Average annualized total investment income yield 4.8% 3.6% 4.2% 4.0% 4.4%
(pre-tax)
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Change in net unrealized (losses) gains (pre-tax) 51.8 -9.4 4.4 18.3 -38.4
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Total investment return (pre-tax) 138.3 61.1 233.2 257.1 312.0
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Average annualized total investment return (pre-tax) 7.7% 3.1% 4.3% 4.3% 4.0%
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Average total invested assets (including cash and cash 7,208.5 7,785.4 7,260.6 8,036.6 7'874.4
equivalents)
---------------------------------------------------------- ----------- ------------ ----------- ------------ ------------
Basis of preparation
The unaudited interim financial information for Converium Holding AG and
subsidiaries ("Converium" or "the Company") has been prepared on the basis of
the United States generally accepted accounting principles for interim financial
information. Accordingly, such 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, 2006, as interim results may be
affected by several factors including, but not limited to, changes in the
economic environment and catastrophic losses. This interim financial information
should be read in conjunction with the audited consolidated financial statements
of Converium for the year ended December 31, 2005.
11
------------------------------------------------------ ------------------------- ------------------------- -------------
Interim consolidated statements of income Three months ended Nine months ended
(Unaudited) September 30, September 30,
Year ended
In USD million, unless noted Dec. 31
2006 2005 2006 2005 2005
(audited)
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Revenues
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Gross premiums written 438.0 482.6 1,568.0 1,618.9 1,994.3
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Less ceded premiums written -27.5 -50.2 -91.3 -117.7 -178.6
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Net premiums written 410.5 432.4 1,476.7 1,501.2 1,815.7
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Net change in unearned premiums 39.6 172.8 -115.6 440.5 567.5
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Net premiums earned 450.1 605.2 1,361.1 1,941.7 2,383.2
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Net investment income 76.8 76.9 236.1 246.9 324.9
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Net realized capital (losses) gains 9.7 -6.4 -7.3 -8.1 25.5
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Other income (loss) 1.7 3.0 4.1 -2.4 -13.4
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Total revenues 538.3 678.7 1,594.0 2,178.1 2,720.2
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Benefits, losses and expenses
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Losses, loss expenses and life benefits -309.0 -492.1 -880.6 -1,488.6 -1,775.9
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Acquisition costs -109.8 -122.9 -354.9 -428.4 -575.6
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Other operating and administration expenses -48.5 -40.3 -132.1 -147.6 -210.8
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Interest expense -7.5 -7.7 -23.2 -23.6 -31.6
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Amortization of intangible assets - -7.5 - -21.3 -21.5
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Restructuring costs - -9.5 0.2 -23.1 -20.5
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Total benefits, losses and expenses -474.8 -680.0 -1,390.6 -2,132.6 -2,635.9
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Income before taxes 63.5 -1.3 203.4 45.5 84.3
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Income tax (expense) benefit -9.2 -5.6 -25.0 -11.0 -15.6
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Net (loss) income 54.3 -6.9 178.4 34.5 68.7
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Basic earnings per share (USD) 0.37 -0.05 1.22 0.24 0.47
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Diluted earnings per share (USD) 0.37 -0.05 1.20 0.23 0.46
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
Pre-tax operating income 53.8 22.1 210.5 98.0 100.8
------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
12
----------------------------------------------------------------------------------------------------------------------
Interim consolidated balance sheets Sept. 30, Dec. 31,
2006 2005
In USD million (unaudited) (audited)
----------------------------------------------------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------------------------------------------------
Invested assets
----------------------------------------------------------------------------------------------------------------------
Held-to-maturity securities:
Fixed maturities 783.3 793.6
----------------------------------------------------------------------------------------------------------------------
Available-for-sale securities:
Fixed maturities 3,991.1 4,169.8
Equity securities 323.6 362.6
----------------------------------------------------------------------------------------------------------------------
Other investments 261.3 253.1
----------------------------------------------------------------------------------------------------------------------
Short-term investments 145.2 35.1
----------------------------------------------------------------------------------------------------------------------
Total investments 5,504.5 5,614.2
----------------------------------------------------------------------------------------------------------------------
Funds Withheld Asset 952.3 1,020.1
----------------------------------------------------------------------------------------------------------------------
Total invested assets 6,456.8 6,634.3
----------------------------------------------------------------------------------------------------------------------
Other assets
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 782.8 647.3
----------------------------------------------------------------------------------------------------------------------
Premiums receivable:
Current 141.8 193.7
Accrued 805.9 865.6
----------------------------------------------------------------------------------------------------------------------
Reserves for unearned premiums, retro 32.8 37.8
----------------------------------------------------------------------------------------------------------------------
Reinsurance assets:
Underwriting reserves 750.8 805.1
Insurance and reinsurance balances receivable 61.3 37.6
----------------------------------------------------------------------------------------------------------------------
Funds held by reinsureds 2,008.8 1,817.4
----------------------------------------------------------------------------------------------------------------------
Deposit assets 178.7 183.4
----------------------------------------------------------------------------------------------------------------------
Deferred policy acquisition costs 363.2 304.3
----------------------------------------------------------------------------------------------------------------------
Deferred income taxes 2.3 1.0
----------------------------------------------------------------------------------------------------------------------
Other assets 285.3 298.4
----------------------------------------------------------------------------------------------------------------------
Total assets 11,870.5 11,825.9
----------------------------------------------------------------------------------------------------------------------
Liabilities
----------------------------------------------------------------------------------------------------------------------
Reinsurance liabilities:
Unpaid losses and loss expenses 7,241.8 7,568.9
Future life benefits, gross 487.5 405.6
Insurance and reinsurance balances payable 187.7 226.3
----------------------------------------------------------------------------------------------------------------------
Reserves for unearned premiums, gross 747.5 610.8
----------------------------------------------------------------------------------------------------------------------
Other reinsurance liabilities 90.5 127.8
----------------------------------------------------------------------------------------------------------------------
Funds held under reinsurance contracts 355.9 332.9
----------------------------------------------------------------------------------------------------------------------
Deposit liabilities 267.2 300.6
----------------------------------------------------------------------------------------------------------------------
Deferred income taxes 20.9 8.1
----------------------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 182.9 200.3
----------------------------------------------------------------------------------------------------------------------
Debt 391.5 391.2
----------------------------------------------------------------------------------------------------------------------
Total liabilities 9,973.4 10,172.5
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Shareholders' equity
----------------------------------------------------------------------------------------------------------------------
Common stock 554.9 554.9
----------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 1,356.2 1,354.2
----------------------------------------------------------------------------------------------------------------------
Treasury stock -3.5 -1.5
----------------------------------------------------------------------------------------------------------------------
Unearned stock compensation - -3.5
----------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income:
Minimum pension liabilities, net of taxes -5.9 -4.9
Net unrealized gains on investments, net of taxes 50.5 42.7
Cumulative translation adjustments, net of taxes 163.6 96.9
----------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income 208.2 134.7
----------------------------------------------------------------------------------------------------------------------
Retained deficit -218.7 -385.4
----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,897.1 1,653.4
----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 11,870.5 11,825.9
----------------------------------------------------------------------------------------------------------------------
13
Condensed consolidated statements of cash flows Nine months
(Unaudited) ended
Sep. 30
In USD million, unless noted 2006
----------------------------------------------------------------------------------------------------------------------
Net income 178.4
----------------------------------------------------------------------------------------------------------------------
Total adjustments 69.0
----------------------------------------------------------------------------------------------------------------------
Total changes in operational assets and liabilities -343.1
----------------------------------------------------------------------------------------------------------------------
Cash (used in) provided by operating activities -95.7
----------------------------------------------------------------------------------------------------------------------
Proceeds from sales and maturities of fixed maturities held-to-maturity
19.0
Proceeds from sales and maturities of fixed maturities available for sale
1,539.4
Purchases of fixed maturities available-for-sale
-1,289.6
----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (fixed maturities) 268.8
----------------------------------------------------------------------------------------------------------------------
Proceeds from sales of equity securities
165.1
Purchases of equity securities
-70.4
----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (equity securities) 94.7
----------------------------------------------------------------------------------------------------------------------
Net (increase) in short-term investments
-107.3
Proceeds from sales of other assets
0.7
Purchases of other assets
-11.2
----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (other) -117.8
----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 245.7
----------------------------------------------------------------------------------------------------------------------
Dividends to shareholders
-11.7
Net increase in deposit liabilities
-23.5
----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities -35.2
----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 20.7
----------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 135.5
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents as of January 1 647.3
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents as of September 30 782.8
----------------------------------------------------------------------------------------------------------------------
14
----------------------------------------------------------------------------------------------------------------------
Segments Three months ended Nine months ended
(Unaudited) September 30, September 30,
In USD million, unless noted 2006 2005 2006 2005
----------------------------------------------------------------------------------------------------------------------
Standard Property & Casualty Reinsurance
----------------------------------------------------------------------------------------------------------------------
Gross premiums written 167.3 173.3 726.2 711.0
----------------------------------------------------------------------------------------------------------------------
Net premiums written 154.6 139.8 667.8 661.2
----------------------------------------------------------------------------------------------------------------------
Net premiums earned 203.6 221.4 565.5 719.4
----------------------------------------------------------------------------------------------------------------------
Loss ratio(15) 70.5% 103.0% 60.8% 86.2%
----------------------------------------------------------------------------------------------------------------------
Acquisition costs ratio(16) 19.4% 16.2% 24.9% 17.2%
----------------------------------------------------------------------------------------------------------------------
Administration expense ratio(17) 6.7% 6.4% 4.8% 5.3%
----------------------------------------------------------------------------------------------------------------------
Combined ratio(18) 96.6% 125.6% 90.5% 108.7%
----------------------------------------------------------------------------------------------------------------------
Total investment results(19) 28.0 24.7 77.7 82.5
----------------------------------------------------------------------------------------------------------------------
Segment income 38.3 -26.7 127.1 22.7
----------------------------------------------------------------------------------------------------------------------
Retention ratio(20) 92.4% 80.7% 92.0% 93.0%
----------------------------------------------------------------------------------------------------------------------
Specialty Lines
----------------------------------------------------------------------------------------------------------------------
Gross premiums written 195.6 210.4 578.6 593.6
----------------------------------------------------------------------------------------------------------------------
Net premiums written 181.3 198.0 551.4 542.0
----------------------------------------------------------------------------------------------------------------------
Net premiums earned 167.4 264.8 539.9 843.9
----------------------------------------------------------------------------------------------------------------------
Loss ratio(15) 67.6% 77.4% 74.8% 73.8%
----------------------------------------------------------------------------------------------------------------------
Acquisition costs ratio(16) 28.4% 18.1% 24.7% 22.9%
----------------------------------------------------------------------------------------------------------------------
Administration expense ratio(17) 5.9% 5.5% 5.4% 8.1%
----------------------------------------------------------------------------------------------------------------------
Combined ratio(18) 101.9% 101.0% 104.9% 104.8%
----------------------------------------------------------------------------------------------------------------------
Total investment results(19) 38.5 27.5 97.2 93.4
----------------------------------------------------------------------------------------------------------------------
Segment income (loss) 34.5 28.6 69.8 76.9
----------------------------------------------------------------------------------------------------------------------
Retention ratio(20) 92.7% 94.1% 95.3% 91.3%
----------------------------------------------------------------------------------------------------------------------
Life & Health Reinsurance
----------------------------------------------------------------------------------------------------------------------
Gross premiums written 75.4 87.4 248.0 263.8
----------------------------------------------------------------------------------------------------------------------
Net premiums written 74.9 83.9 242.3 253.4
----------------------------------------------------------------------------------------------------------------------
Net premiums earned 79.4 87.9 237.6 243.2
----------------------------------------------------------------------------------------------------------------------
Acquisition costs ratio(16) 27.5% 30.5% 30.5% 29.9%
----------------------------------------------------------------------------------------------------------------------
Administration expense ratio(17) 3.3% 3.9% 3.0% 4.7%
----------------------------------------------------------------------------------------------------------------------
Total investment results(19) 7.9 5.5 20.4 18.0
----------------------------------------------------------------------------------------------------------------------
Segment income 4.7 4.8 20.7 11.0
----------------------------------------------------------------------------------------------------------------------
Technical result 1.7 4.7 15.5 12.9
----------------------------------------------------------------------------------------------------------------------
Retention ratio(20) 99.3% 96.0% 97.7% 96.1%
----------------------------------------------------------------------------------------------------------------------
Run-Off
----------------------------------------------------------------------------------------------------------------------
Gross premiums written -0.3 11.5 15.2 50.5
----------------------------------------------------------------------------------------------------------------------
Net premiums written -0.3 10.7 15.2 44.6
----------------------------------------------------------------------------------------------------------------------
Net premiums earned -0.3 31.1 18.1 135.2
----------------------------------------------------------------------------------------------------------------------
Total investment results(19) 12.1 12.8 33.5 44.9
----------------------------------------------------------------------------------------------------------------------
Segment income (loss) 9.4 21.8 47.0 32.6
----------------------------------------------------------------------------------------------------------------------
Corporate Center
----------------------------------------------------------------------------------------------------------------------
Other operating and administration expenses -17.6 -8.1 -42.3 -27.3
----------------------------------------------------------------------------------------------------------------------
------------------------
(15) Loss ratio is defined as losses and loss expenses divided by net premiums
earned.
(16) Acquisition costs ratio is defined as acquisition costs divided by net
premiums earned.
(17) Administration expense ratio is defined as other operating and
administration expenses divided by net premiums written.
(18) Combined ratio is defined as loss ratio (to net premiums earned) plus
acquisition costs ratio (to net premiums earned) plus administration
expense ratio (to net premiums written).
(19) Total investment results are defined as net investment income plus net
realized capital gains (losses).
(20) Retention ratio is defined as net premiums written divided by gross
premiums written.
15
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: November 7, 2006
16