Best, S&P React to Converium’s Review Plan

A.M. Best Co and Standard & Poor’s both announced rating actions following Converium AG’s announcement that it plans to raise additional capital and will significantly restructure its North American reinsurance operations (See IJ Website Sept.1).

S&P lowered its long-term counterparty credit and insurer financial strength ratings on the U.S.-based reinsurer Converium Reinsurance (North America) Inc. (CRNA) to “B+” from “A-“. However, it maintained its current “A-” ratings on Converium AG and its main operating subsidiaries, while keeping them on CreditWatch with negative implications, where they were placed on July 20, 2004.

Best downgraded the financial strength rating of Converium AG and certain rated subsidiaries to “B++” (Very Good) from “A-” (Excellent). It also downgraded the issuer credit rating to “bbb” from “a-“. The actions reflected Best’s analysis of Converium’s “overall ability to meet its senior obligations, which are insurance policies; hence both ratings (issuer credit and financial strength ratings) are at the same level.” The ratings remain under review.

S&P singled out Converium’s plans to put CRNA into runoff as the primary reason for the downgrade. “While CRNA was previously considered core to its parent, and was therefore rated at the same level as Converium’s other operating subsidiaries, Standard & Poor’s now considers CRNA to be nonstrategic, and the company is therefore rated on a stand-alone basis,” said the bulletin. It also pointed to Tillinghast’s conclusion that there is a potential $213 needed in further reserve strengthening in the group’s non-life loss reserves.

Best said the ratings would “remain under review with negative implications pending the successful raising of the proposed USD 420 million via a share issue, which is in the process of being underwritten.”

Following the announcement that it is to be placed into run off, Best downgraded the financial strength rating of Converium Reinsurance (North America) Inc. to “B-” (Fair) from “A-” (Excellent) and the issuer credit rating to “bb-” from “a-“. It also removed the rating from under review and assigned a negative outlook.