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Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of March, 2007
CONVERIUM HOLDING AG
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(Translation of registrant's name into English)
Dammstrasse 19
CH-6301 Zug
Switzerland
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
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Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
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If "Yes" is marked, indicate the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- Not Applicable
1
News release
Converium Holding Ltd, Zug
Zug, Switzerland - February 28, 2007 - Converium reports 2006 income from
continuing operations of USD 215 million, net income of USD 57 million and
presents its value-focused medium-term strategy.
Converium today presents its road map to generate a sustainable return on equity
of 14% by 2009. The key elements of Converium's medium-term value creation
strategy are: growing business volume to USD 3 billion by 2009, whilst reducing
the combined ratio to 96%; boosting capital efficiency by seeking shareholder
approval to return USD 300 million to shareholders through the use of hybrid
capital; increasing returns on investment and further improving cost-efficiency
of operations.
Converium's value creation strategy is supported by a strong financial
performance in 2006, with the following highlights:
o USD 215.0 million income from continuing operations
o USD 57.1 million net income, including the negative impact from
discontinued operations, net of tax of USD 157.9 million
o USD 1,980.9 million gross premiums written
o 96.3% non-life combined ratio
o USD 1,846.0 million shareholders' equity
o CHF 0.20 per share proposed dividend for 2006
Inga Beale, CEO, commented: "I am very pleased with our strong financial results
for 2006. Based on a robust franchise and significant operational improvements
we have accomplished a remarkable turnaround. I am convinced that the strategic
path charted today sets both ambitious and obtainable goals. It rests on a
capital base of approximately USD 2 billion, sound operating profitability,
strong support from clients and brokers as well as talented employees who are
committed to capturing the growth opportunities following a ratings upgrade. I
strongly believe that we can achieve our growth and profitability targets based
on the comprehensive management of all relevant value drivers."
Converium's road map for sustainable value creation
Converium is committed to achieving a sustainable return on equity of 14% by
2009. The underlying strategy will be built on fundamental improvements in
underwriting, capital management, asset management and operations.
Growing the business while improving profitability
Converium aims to grow its gross premiums written by more than one third to USD
3 billion by 2009 based on total gross premiums written for 2007, expected to be
in the range of USD 2.2 billion. Converium expects to win back a significant
share of business with existing customers following a ratings upgrade. The
Company expects to be able to regain market share in all lines of business, but
primarily in specialty areas such as Credit & Surety and Agribusiness where
Converium used to be among the global leaders. In addition, the Company expects
to capture opportunities from fast-growing emerging markets where Converium can
build on strong client relationships and a regional infrastructure.
Converium is further committed to improving underwriting profitability to a
combined ratio of around 96% in 2009. This objective is expected to be achieved
based on the following four elements: First, the fronting fee on Converium's
Global Aerospace Underwriters Ltd (GAUM) business will decrease following a
ratings upgrade; second, the long-tail business with the Medical Defence Union
(MDU) which is economically profitable even at a combined ratio of more than
100% will lose weight in Converium's overall portfolio; third, following a
ratings upgrade, the Company is committed to rebalancing its book of business
towards non-proportional business and attractive specialty lines at lower
expected combined ratios; and, fourth, with growing business volumes Converium
expects a reduced administrative expense ratio.
2
Boosting capital efficiency by returning capital to shareholders and using more
hybrid capital
Following a ratings upgrade, Converium will be in a position to more efficiently
leverage its balance sheet. Converium currently has significantly lower balance
sheet leverage than its peers. The Company will seek to take advantage of
beneficial financing conditions, and, shortly after a ratings upgrade, issue
hybrid debt to USD 500 million. The funds raised will refinance current
outstanding hybrid debt, and allow for USD 300 million to be returned to
shareholders following shareholder approval. Greater efficiency in the use of
capital is expected to bring down the weighted average cost of capital to under
9% by that date.
Converium believes that its overall capital situation will allow for a
sustainable dividend pay-out ratio of 25%-35%.
Increasing sustainable investment yield
Based on Converium's state-of-the-art expertise in Asset-Liability-Management
and its new strategic partnership with Deutsche Asset Management, the Company
expects to achieve significant sustainable improvements in its investment yield.
One of the specific measures envisaged is a more sophisticated management of
Converium's fixed-income securities portfolio.
Strong financial performance in 2006
Income from continuing operations up six-fold
For 2006, Converium reported income from continuing operations of USD 215.0
million compared with USD 34.1 million for the same period in 2005, equivalent
to 13.0% return on equity. Converium's 2006 figures demonstrate the quality of
the Company's underlying book of business, the absence of any major catastrophic
events, as well as a satisfactory net investment income. The significant
increase in profit is driven by an improvement in the non-life combined ratio
from 107.0% in 2005 to 96.3% in 2006. In addition, Converium's results were
positively impacted by the net favorable impact of prior accident years on the
technical result of USD 52.1 million. Net income for 2006 amounted to USD 57.1
million, reflecting an overall negative impact on net income of USD 157.9
million from the sale of Converium's North American operations.
Growth in business volume reflective of stable franchise
For the year ended December 31, 2006, gross premiums written increased by 1.3%
to USD 1,981 million. Net premiums written increased by 3.9% to USD 1,852
million, showing a resilient franchise and visible progress made towards the
Company's turnaround in 2006. However, net premiums earned decreased by 19.7% to
USD 1,812 million due to lower earned premiums from prior underwriting years
reflecting the impact of the ratings downgrade in 2004. For the year ended
December 31, 2006, net premiums written in Standard Property & Casualty
Reinsurance increased by USD 77.9 million, or 10.5%, Specialty Lines decreased
by USD 8.3 million, or 1.1% and net premiums written in the Life & Health
Reinsurance segment decreased by USD 0.7 million, or 0.2%.
Satisfactory net investment income result and investment yield (continuing
operations)
Converium's net investment income from continuing operations increased by 1.0%
to USD 260.4 million for the year ended December 31, 2006 as compared with USD
257.8 for the same period in 2005. The average total invested assets from
continuing operations was USD 6,147.4 million, which was a slight increase on
the 2005 amount of USD 6,139.1 million. Our average net investment income yield
(pre-tax) from continuing operations for the year was 4.2%, comparable with the
prior year, reflecting similar market conditions and asset allocation.
Fourth quarter performance impacted by sale of US operations
The net loss in the fourth quarter of 2006 was USD 121.3 million, reflecting the
one-off negative impact from the loss on sale of Converium's North American
operations in December of 2006 of USD 190.1 million. The return on equity from
continuing operations was 14.9%, compared with 4.2% for the fourth quarter of
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2005. Gross premiums written over the quarter were USD 428.1 million, an
increase of 10.7% on the prior year quarter. The combined ratio for the fourth
quarter of 2006 was 93.5%, benefiting from the absence of major natural
catastrophes during the period.
Key financial metrics (USD, unless noted)
Three months ended Twelve months ended
December 31, 2006 December 31, 2006
(unaudited) (unaudited)
o Gross premiums written 428.1 1,980.9
o Income from continuing operations, before taxes 86.4 255.5
o Income from continuing operations(1) 70.6 215.0
o (Loss)/income from discontinued operations(2) -191.9 -157.9
o Net income -121.3 57.1
o Segment income(3) 107.7 327.0
o Non-life combined ratio(4) 93.5% 96.3%
o Average annualized net investment income yield 4.3% 4.2%
(pre-tax)
o Shareholders' equity 1,846.0 1,846.0
o Return on shareholders' equity(5) from continuing 14.9% 13.0%
operations (annualized)
o Basic earnings per share from continuing operations 0.48 1.47
o Diluted earnings per share from continuing operations 0.48 1.45
o Basic (loss) earnings per share from net income -0.83 0.39
o Diluted (loss) earnings per share from net income -0.82 0.38
Considerations on SCOR's pre-announcement: Converium's strategy expected to
deliver more value
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(1)Continuing operations information (including prior periods presented)
excludes the operating results of the North American operations and the loss on
sale of Converium Holdings (North America) Inc. in the fourth quarter of 2006.
(2)Included in loss on sale are net unrealized losses on available-for-sale
securities, the currency impact and deferred income tax balance of USD 18.6
million that previously have been recognized in other comprehensive income
(equity) and are realized upon the sale of the North American operations.
(3)Segment income is defined as net premiums earned plus total investment
results minus losses, loss expenses and life benefits, acquisition costs and
other operating and administration expenses, excluding Corporate Center.
(4)Non-life combined ratio is defined as ongoing non-life loss ratio (to
net premiums earned) plus ongoing non-life acquisition costs ratio (to net
premiums earned) plus ongoing non-life administration expense ratio (to net
premiums written).
(5)Based on shareholders' equity from continuing operations at the
beginning of the period.
4
The Board of Directors of Converium has noted the announcement of an offer by
SCOR, at CHF 21.1 per share, for the whole of the share capital of Converium,
based on closing share prices at February 16, 2007, that was published on
February 26, 2007. The Board strongly believes that the offer fails to recognize
Converium's full stand alone value potential. In addition, the Board stresses
the fact that Converium offers shareholders potential value upside due to its
flexibility to return capital.
Converium's Board considers SCOR's acquisition currency to be weak: the cash
part of SCOR's offer would be financed by Converium's excess capital and
Converium shareholders would assume significant risk with a stretched combined
balance sheet. Further, given the significant stock element in the offer,
Converium shareholders would require more visibility on SCOR's stand alone value
potential.
Converium's Board of Directors is convinced that the Company's current share
price does not reflect its full upside value following a ratings upgrade which
Converium has made great progress to achieving on its own. SCOR's unsolicited
approach also entails incalculable business and integration risk.
Converium's 2006 Annual Report will be available in electronic format on 20
March 2007. The Annual General Meeting is planned to take place on 10 May 2007.
Enquiries
Beat W. Werder Marco Circelli
Head of Public Relations Head of Investor Relations
beat.werder@converium.com marco.circelli@converium.com
Phone: +41 44 639 90 22 Phone: +41 44 639 91 31
Fax: +41 44 639 70 22 Fax: +41 44 639 71 31
Dr. Kai-Uwe Schanz Inken Ehrich
Chief Communication & Investor Relations Specialist
Corporate Development Officer inken.ehrich@converium.com
kai-uwe.schanz@converium.com Phone: +41 44 639 90 94
Phone: +41 44 639 90 35 Fax: +41 44 639 70 94
Fax: +41 44 639 70 35
About Converium
Converium is an independent international multi-line reinsurer known for its
innovation, professionalism and service. Today Converium employs about 500
people in 15 offices around the globe and is organized into three business
segments: Standard Property & Casualty Reinsurance, Specialty Lines and Life &
Health Reinsurance. Converium has a "BBB+" financial strength rating (Credit
Watch positive) from Standard & Poor's and a "B++" financial strength rating
(outlook positive) from A.M. Best Company.
5
Important Disclaimers
This document contains forward-looking statements as defined in the U.S. Private
Securities Litigation Reform Act of 1995. It contains forward-looking statements
and information relating to the Company's financial condition, results of
operations, business, strategy and plans, based on currently available
information. These statements are often, but not always, made through the use of
words or phrases such as `seek to', `expects', `aims' `should continue',
`believes', `anticipates', `estimates' and `intends'. The specific
forward-looking statements cover, among other matters, our combined ratio,
return on equity and premium volume and expense reduction targets, our plans to
use capital more efficiently and to return capital to shareholders, the
reinsurance market, the Company's operating results, the Company's dividend
policy, our ability to obtain an upgrade of our financial strength rating and
the consequences of such an upgrade, the prospects for improving our results,
investment yield and market share. Such statements are inherently subject to
certain risks and uncertainties. Actual future results and trends could differ
materially from those set forth in such statements due to various factors. Such
factors include whether we are able to secure an upgrade of our financial
strength ratings; our ability to refinance our outstanding indebtedness and
increase our use of hybrid capital; uncertainties of assumptions used in our
reserving process; risk associated with implementing our business strategies and
our capital improvement measures; cyclicality of the reinsurance industry; the
occurrence of natural and man-made catastrophic events with a frequency or
severity exceeding our estimates; acts of terrorism and acts of war; changes in
economic conditions, including interest and currency rate conditions that could
affect our investment portfolio; actions of competitors, including industry
consolidation and development of competing financial products; a decrease in the
level of demand for our reinsurance or increased competition in our industries
or markets; our ability to expand into emerging markets; our ability to enter
into strategic investment partnerships; a loss of our key employees or executive
officers without suitable replacements being recruited within a suitable period
of time; our ability to address material weaknesses we have identified in our
internal control environment; political risks in the countries in which we
operate or in which we reinsure risks; the passage of additional legislation or
the promulgation of new regulation in a jurisdiction in which we or our clients
operate or where our subsidiaries are organized; the effect on us and the
insurance industry as a result of the investigations being carried out by the US
Securities and Exchange Commission, New York's Attorney General and other
governmental authorities; our ability to regain past customers following any
rating upgrades and the resolution of the investigations being carried out by
the US Securities and Exchange Commission, New York's Attorney General and other
governmental authorities; changes in our investment results due to the changed
composition of our invested assets or changes in our investment policy; failure
of our retrocessional reinsurers to honor their obligations or changes in the
credit worthiness of our reinsurers; our failure to prevail in any current or
future arbitration or litigation; and extraordinary events affecting our
clients, such as bankruptcies and liquidations, and other risks and
uncertainties, including those detailed in the Company's filings with the U.S.
Securities and Exchange Commission (including, but not limited to, our Annual
Report on Form 20-F filed with the U.S. Securities and Exchange Commission) and
the SWX Swiss Exchange. The Company does not assume any obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Additional information and where to find it:
In connection with the offer by SCOR, Converium expects to file a
solicitation/recommendation statement with the Securities and Exchange
Commission (the "SEC"). Investors and security holders are strongly advised to
read these documents when they become available because they will contain
important information about the tender offer and the proposed merger. Copies of
the solicitation/recommendation statement will be available free of charge at
the SEC's web site at www.sec.gov, or at Converium's website at
www.converium.com.
IRS Circular 230 disclosure:
To ensure compliance with requirements imposed by the Internal Revenue Service,
we inform you that any U.S. tax advice contained in this communication
(including any attachments) is not intended or written to be used, and cannot be
used, for the purpose of (i) avoiding penalties under the Internal Revenue Code
or (ii) promoting, marketing or recommending to another party any transaction or
matter addressed herein.
6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONVERIUM HOLDING AG
By: /s/ Inga Beale
Name: Inga Beale
Title: CEO
By: /s/ Christian Felderer
Name: Christian Felderer
Title: General Legal Counsel
Date: March 2, 2007
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