September 19, 2004 by Canadian Underwriter
Converium will keep its stake in Global Aerospace thanks to a “fronting” arrangement now in place. Converium currently has a 27.25% share in the provider of airline coverage. The fronting arrangement is with Berkshire Hathaway’s National Indemnity and Munich Re, with each providing security for 50% of Converium’s share.
However, a Global Aerospace release notes that Coverium will no longer actually underwrite coverage for the consortium.
The news is perhaps the one bright spot in a September filled with bad news for Converium.
The company announced reserve deficiencies in its U.S. book were forcing it to wind-up its Converium Reinsurance (North America) operation. While the company had originally planned to boost capacity at its Converium Insurance (North America) operation, that move was kyboshed following a ratings downgrade from Standard & Poor’s. Concurrent with the decision to wind-up Converium Re N.A. was the decision to wind-up its Canadian reinsurance operations.
However, Fitch Ratings also downgraded the company last week. Parent Coverium AG saw its insurer financial strength rating downgraded to “BB+” from “A-“, and Converium Holdings AG saw its long-term rating downgraded to “B” from “BBB-“. The negative watch on the ratings has been changed to “evolving”.
While a ratings downgrade of four notches is unusual, the rater says it “views the decision taken by Converium to close its U.S. operations as a deviation from its original business plan and that this action is likely to have a materially negative impact on its franchise, particularly among the group’s brokers and cedants. U.S. business is the largest single geographic segment of Converium’s business and represented 39.6% of the group’s gross premium written during 2003.”
Converium has now been downgraded below the “A” level by all four major rating agencies.