Raters react to Converium restructuring

A.M. Best and Standard & Poor’s have both downgraded Converium, with Fitch placing the company on a negative rating watch for possible downgrade. The reactions follow Converium’s announcement of a plan to restructure its North American operations from two companies into one with reduced premiums, to launch a US$420 million share issue, and possibility increase reserves further in the third quarter.A.M. Best, which has had the company under review since July, says worse than expected results in the second quarter due to the company’s reserve strengthening are partly to blame for the downgrade. “The downgrades reflect the deterioration of Converium’s consolidated risk-based capital due to the potential for further reserves development, despite Converium’s intention to further bolster its reserves by between USD 50 million and USD 100 million before year-end 2004 and the acquisition of a stop-loss agreement with National Indemnity,” the rater notes. A.M. Best downgraded the rating of Converium and its subsidiaries to “B++” (very good) from “A-” (excellent). The rating of Converium Reinsurance (North America) Inc., which the parent says will be placed into run-off, has been downgraded to “B-” (fair) from “A-” (excellent) with a negative outlook.Standard & Poor’s has similarly downgraded the North American subsidiary to “BB+” from “A-“, and holds the parent company on a negative watch. Converium AG and its subsidiaries had already been downgraded following release of half-year results and the announcement the further reserve review. The rater says if the parent’s rating is further downgraded, it should be in the “BBB” level, and the watch status should be resolved following the mid-October share issue.Fitch, which had similarly downgraded Converium two notches in July, says it maintains a negative watch on the group.