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Rating Action:

MOODY'S DOWNGRADES THE IFSR OF CONVERIUM AG FROM A2 TO Baa1, CONVERIUM REINSURANCE (NORTH AMERICA) INC. FROM A2 TO Ba1 AND CONVERIUM'S DEBT FROM Baa1 TO Ba1

31 Aug 2004
MOODY'S DOWNGRADES THE IFSR OF CONVERIUM AG FROM A2 TO Baa1, CONVERIUM REINSURANCE (NORTH AMERICA) INC. FROM A2 TO Ba1 AND CONVERIUM'S DEBT FROM Baa1 TO Ba1

London, 31 August 2004 -- Moody's Investors Service announced today that it had downgraded the ratings of the various entities of Converium group (see full list below). The rating action concludes the review process initiated on 20 July 2004.

Moody's said that its rating action follows the completion of the external actuarial review which identified a further reserve deficiency of $212.9 million. As a result, Converium is expecting to strengthen its reserves by up to $100 million in the third quarter of 2004. In addition, the decision to put Converium Reinsurance (North America) Inc. (CRNA) into run-off may result in a write-off of Converium's AG equity stake in this company, as well as failure to recover interest and principal on the $150 million surplus contribution note due to Converium Holding AG. On the positive side, the rating agency noted that the $420 million capital increase will be fully underwritten by banks, and that Berkshire Hathaway will be providing a $150 million stop loss protection.

Moody's commented that the main reasons behind the downgrade of the IFSR of Converium AG to Baa1 was the franchise damage suffered by the group as a result of the decision to place CRNA into run-off, as well as the lower capital base at Converium AG relative to year-end 2003. Moody's expects that Converium's ability to write new business will be constrained, particularly in North America. Moody's also expects that the group as a whole may become prone to adverse risk selection as hitherto profitable clients reassess their relationship with Converium which in turn may negatively affect the group's profitability. In addition, both Converium AG and Converium Holding AG are likely to take charges relating to their financial interest in CRNA.

Moody's elaborated that the decision to place a core reinsurance carrier into run-off is rather unprecedented and will almost certainly have implications on how Converium is viewed by its clients going forward. Converium Reinsurance (North America) Inc shared Converium's name, brand, business strategy and distribution channels, and was widely viewed by the market as an essential element of the group. We believe that the disadvantages resulting from damage to the franchise and reduced ability to embark on attractive business opportunities are likely to outweigh any advantages associated with savings from partial settlement of reinsurance claims.

The insurance financial strength rating (IFSR) of Converium Reinsurance (North America) Inc was downgraded to Ba1 and remains under review for further possible downgrade. Moody's expects to complete the review process within the next few weeks.

Moody's further stated that the decision to downgrade Converium's debt to Ba1 reflected the increased probability of default following the downgrade of the IFSR to Baa1, as well as the higher expected loss in the event of default.

The rating agency noted that the new ratings are predicated on completion of the capital increase in full and allocation of at least $350 million to Converium Insurance (North America) Inc. Failure to implement these measures is likely to result in a further downgrade of insurance financial strength and/or debt ratings.

The following ratings have been downgraded:

Converium AG -- insurance financial strength rating from A2 to Baa1, stable outlook

Converium Reinsurance (North America) Inc - insurance financial strength rating from A2 to Ba1, under review for possible downgrade

Converium Rueckversicherung (Deutschland) AG - insurance financial strength rating from A2 to Baa1, stable outlook

$200 million 7.125% senior unsecured notes due October 2023 originally issued by Zurich Reinsurance Centre Holdings, Inc and assumed by Converium Holdings (North America) Inc. -- senior debt rating from Baa1 to Ba1, stable outlook

$200 million 8.25% guaranteed subordinated notes due December 2032 (callable in 2007) issued by Converium Finance S.A., a wholly-owned subsidiary of Converium Holding AG -- subordinated debt rating from Baa1 to Ba1, stable outlook

Converium AG, based in Zurich, Switzerland, is the main operating company of Converium Holding AG, Zug, Switzerland. Converium Holding AG reported consolidated Gross Premiums Written of $4,223.9 million in 2003 and Shareholders Equity of $1,349.2 million as of 30 June 2004.

London
Timour Boudkeev
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Mark Hewlett
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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