Swiss reinsurer Converium announced in a conference call this week it has published restated financial information for 1998-2004, as well as for each quarter from March 31, 2003 through June 30, 2005.
Andreas Zdrenyk, Converium's chief financial officer, said the restatement on reinsurance contracts “related primarily to the U.S. GAAP [Generally Accepted Accounting Principles] requirement that reinsurance agreements transfer significant risk in order to qualify for reinsurance accounting treatment.”
Under this treatment, he said, cash flows are recognized as premiums and losses. Reinsurance contracts “that do not transfer significant risk are not reported as premiums and losses, but are instead subject to deposit accounting”–cash flows are recognized as deposit assets or liabilities.
He noted that many of the affected transactions “have expired, were cancelled or commuted before March 31, 2005, and thus have no subsequent impact on net income or shareholders' equity.”
Mr. Zdrenyk said Converium also restated its accounting for income taxes, reflecting corrections of the valuation allowance against deferred taxes–the allowance was established in 2004 because of substantial losses incurred that year, he said.
Zug-based Converium also provided supplemental information on its third-quarter 2005 results, announcing it was “pleased that we have achieved a close to break-even result in what was the costliest quarter ever experienced by the global reinsurance industry.”
Third-quarter losses before taxes were $1.3 million, with pretax operating income at $22.1 million, Converium said.
The company reported a net loss of $6.9 million and shareholders' equity of $1.7 billion. Converium said its combined ratio impact from headline catastrophe losses amounted to 12.9 and 4.0 percentage points for the third quarter and the nine months ending Sept. 30, 2005, respectively.
“We are satisfied that even in the extraordinarily catastrophe-prone third quarter we managed to achieve a positive segment income of $6.7 million from our ongoing operations,” Mr. Zdrenyk said.
The reinsurer said its net losses from 2005 hurricanes and European floods were $62.8 million. Of that, $26.1 million were from Hurricane Katrina; $10 million from Hurricane Rita; $2.3 from Hurricanes Dennis and Emily; and $24.4 were from European floods.
Converium announced its plan to restate prior period financial statements in November 2005. The reason for the restatement was cited as ongoing investigations of the insurance and reinsurance industries conducted by U.S. and international regulators and authorities, including the U.S. Securities and Exchange Commission and New York Attorney General Eliot Spitzer.
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