Swiss reinsurer Converium last week agreed to sell its runoff North American operations to National Indemnity Company, a Berkshire Hathaway subsidiary, for $95 million in cash and $200 million in assumption of debt.
Converium said it has not provided any guarantee or indemnity in respect of the reserves of the North American operations. The transaction is subject to regulatory approvals and customary closing conditions, the company said.
“With this transaction we have successfully delivered on our promise to achieve finality regarding Converium's U.S. operations through a clean-cut sale,” Converium's chief executive officer, Inga Beale, said in a statement. “We can now fully concentrate on building Converium's future, with our business strategy focused on markets outside the U.S.”
Standard & Poor's Rating Services placed its “triple-B-plus” long-term counterparty credit and insurer financial strength ratings on Switzerland-based Converium AG, and its “triple-B-plus” long-term insurer financial strength ratings on guaranteed operating entities Converium Ruckversicherung (Deutschland) AG and Converium Insurance (U.K.) Ltd., on CreditWatch positive.
S&P affirmed its “R” long-term counterparty credit and insurer financial strength ratings on Converium Reinsurance (North America) Inc.
According to S&P, the CreditWatch placement reflects the Converium Group's announcement that it has signed a definitive agreement to sell its North American operations.
S&P said in a statement it believes the transaction “will enable Converium to achieve a clean-cut sale (that is, without guarantees and seasoning agreements) to a reputable buyer whose new ownership does not disadvantage policy- or debt holders.”
Moody's Investors Service said it has placed the “B2″ senior unsecured debt rating of Converium Holdings (North America) Inc. on review for possible upgrade following last week's announcement.
Moody's has also placed the “B2″ insurance financial strength rating of Converium Reinsurance (North America) Inc., a subsidiary of CHNA, on review for possible upgrade. The review for possible upgrade will focus on the nature of Berkshire Hathaway's support for CHNA and its subsidiaries.
Following the announcement of the sale, Fitch Ratings said it placed Converium AG's Insurer Financial Strength “triple-B-minus” rating on Rating Watch Positive (RWP). The agency also placed other ratings within the Converium group on RWP.
Fitch will review additional information on the sale of Converium's North American operations as it becomes available, and said it will resolve the group's Rating Watch status when the transaction closes. Upon closure, Converium's ratings will either be affirmed or upgraded. Any upgrade is likely to be up to two rating notches, Fitch said.
Converium was downgraded in 2004 by Standard & Poor's, A.M. Best and Moody's. At the same time, S&P lowered the rating of its U.S. operation.
All three actions came when Converium announced that an independent actuarial study estimated a further reserve deficiency of $213 million. Converium said it would reserve capital, buy stop-loss protection and put Converium Reinsurance North America into runoff (see NU, Sept. 20, 2004).
Ms. Beale thanked the North American team “for an excellent job in running-off and commuting a major portion of Converium's North American liabilities prior to today's announcement. Our North American colleagues have exceeded expectations both in terms of the pace and the profitability of our runoff operations.”
Upon the sale's closing, Converium said it will reduce its exposure significantly, as National Indemnity Company will assume all of the North American operation's reinsurance liabilities ($1.06 billion as of June 30) as well as $200 million of debt issued by Converium Holdings (North America) Inc.
Converium estimates the sale will result in a decrease in shareholders' equity of $135 million.
“Even after adjusting the June 30, 2006 shareholders' equity to $1.66 billion to account for the sale, we maintain a strong financial position, while further de-risking our balance sheet,” said Paolo De Martin, Converium's chief financial officer. “The clean-cut agreement to sell our North American operations meets a crucial condition for an improved financial strength rating.”
Converium said it will provide further details on the transaction on Nov. 7, when the company reports on the financial results for the third quarter.
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