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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2003. OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission file number: 333-14106
 CONVERIUM HOLDING AG (Exact name of Registrant as specified in its charter)
 Not Applicable
(Translation of Registrants name into English) Switzerland
(Jurisdiction of incorporation or organization) Baarerstrasse 8
CH-6300 Zug
Switzerland
(Address of principal executive offices) 
 Securities registered or to be registered pursuant to Section 12(b) of the Act.
 Title of each class
    
    Name of each Exchange
 on which registeredAmerican Depositary Shares (as evidenced by American
Depositary Receipts), each
representing one-half (1⁄2) of one registered share,
nominal value CHF10 per share
    
    New York Stock
ExchangeRegistered shares, nominal value CHF10 per share*
    
    New York Stock
Exchange8.25% Guaranteed Subordinated Notes due 2032 issued by
Converium Finance S.A.
    
    New York Stock
ExchangeSubordinated Guarantee of Subordinated Notes+
    
    New York Stock
Exchange
 * Not for trading, but only in connection with the listing of American
Depositary Shares, pursuant to the requirements of the Securities and Exchange
Commission. + Not for trading, but only in connection with the listing of the
Subordinated Notes, pursuant to the requirements of the Securities and Exchange
Commission.




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Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class) Indicate the number of outstanding shares of each of the issuers classes
of capital or common stock as of the close of the period covered by the annual
report. As of December 31, 2003, there were outstanding: 39,775,620 registered
shares, nominal value CHF10 per share, including 5,764,442 American Depositary
Shares (as evidenced by American Depositary Receipts), each representing
one-half (1/2) of one registered share. Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  x      No  o Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17  o     Item 18  x 2




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TABLE OF CONTENTS PART
IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLEITEM 3. KEY INFORMATIONITEM 4. INFORMATION ON THE COMPANYITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTSITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSITEM 8. FINANCIAL INFORMATIONITEM 9. THE OFFER AND LISTINGITEM 10. ADDITIONAL INFORMATIONITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESPART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESITEM 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSITEM 15. CONTROLS AND PROCEDURESITEM 16. [RESERVED]Item 16A. AUDIT COMMITTEE FINANCIAL EXPERTItem 16B. CODE OF ETHICSItem 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICESItem 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESItem 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSITEM 17. FINANCIAL STATEMENTSITEM 18. FINANCIAL STATEMENTSITEM 19. EXHIBITSSIGNATURESINDEX TO EXHIBITSExhibit 4.38Exhibit 4.39Exhibit 7.1Exhibit 8.1Exhibit 12.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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PRESENTATION OF INFORMATION In this annual report on Form 20-F, unless the context otherwise requires,
Converium, we, us, and our refer to Converium Holding AG and our
consolidated entities. Please refer to the glossary beginning on page G-1 for
definitions of selected insurance and reinsurance terms. We publish our financial statements in U.S. dollars, and unless we note
otherwise, all amounts in this annual report are expressed in U.S. dollars. As
used herein, references to U.S. dollars, dollars or $ and cents are to
U.S. currency, references to Swiss francs or CHF are to Swiss currency,
references to yen or Japanese yen are to Japanese currency, references to
British pounds or £ are to British currency and references to euro or 
are to the single European currency of the member states of the European
Monetary Union at the relevant time. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This annual report contains certain forward-looking statements.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements. In particular, statements using words such as expect, anticipate,
intend, believe or words of similar import generally involve
forward-looking statements. This annual report includes a number of
forward-looking statements, including the following:  
    
    certain statements in Item 4.  Information on the Company  B.
Business Overview with regard to strategy and management objectives,
trends in market conditions, prices, market standing and product
volumes, investment results, litigation and the effects of changes or
prospective changes in regulation.
    
    certain statements in Item 4.  Information on the Company  B.
Business Overview  Regulation with regard to the effects of changes
or prospective changes in regulation.
    
    certain statements in Item 5.  Operating and Financial Review and
Prospects with regard to trends in results, prices, volumes,
operations, investment results, margins, overall market trends, risk
management and exchange rates.
    
    certain statements in Item 11.  Quantitative and Qualitative
Disclosures About Market Risk with regard to sensitivity analyses for
invested assets. In light of the risks and uncertainties inherent in all future
projections, the inclusion of forward-looking statements should not be
considered a representation by us that our objectives or plans will be
achieved. Numerous factors could cause our actual results to differ materially
from those in the forward-looking statements, including factors set forth in
Item 3. - Key Information - D. Risk Factors and the following:  
    
    cyclicality of the reinsurance industry.
    
    uncertainties in our reserving process.
    
    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. 3




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
    
    the lowering or loss of one of the financial strength ratings of one or more of our subsidiaries.
    
    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 operate or where
our subsidiaries are organized.
    
    changes in our investment results as a result of the changed composition of our invested assets or changes in our
investment policy.
    
    failure of our retrocessional reinsurers to honor their obligations.
    
    failure to prevail in any current or future arbitration or litigation.
    
    risks associated with implementing our business strategies.
    
    extraordinary events affecting our clients, such as bankruptcies and liquidations. The factors listed above should not be construed as exhaustive. We cannot
assess the impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from those described in any forward-looking statements. Except as
otherwise required by law, we undertake no obligation to publicly release any
future revisions we may make to forward-looking statements to reflect
subsequent events or circumstances or to reflect the occurrence of
unanticipated events. The Company has made it a policy not to provide any quarterly or annual
earning guidance and it will not update any past outlook for full year
earnings. It will, however, provide investors with perspective on its value
drivers, its strategic initiatives and those factors critical to understanding
its business and operating environment. 
 PART I 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. 
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 ITEM 3. KEY INFORMATION A. SELECTED FINANCIAL DATA We have prepared our financial statements included in this annual report
in accordance with accounting principles generally accepted in the United
States, or U.S. GAAP. The following financial data highlights selected
information that is derived from our financial statements as of and for the
years ended December 31, 2003, 2002, 2001, 2000 and 1999, which have been
audited by PricewaterhouseCoopers Ltd, independent accountants. Converium was formed as a result of the divestiture of the former Zurich
Re business of Zurich Financial Services in December 2001. For a description
of the transactions that led to the divestiture, which we refer to herein as
the Formation Transactions, see Item 4.  Information on the Company  A.
History and Development of the Company. The financial statements are presented
as if we had been a separate entity for all periods presented and include
estimates related to the allocation to Converium of costs of Zurich Financial
Services corporate infrastructure prior to the Formation Transactions. We
believe that these allocations are reasonable. However, this financial
information may not be indicative of our future performance and does not
necessarily reflect what our financial position and results of operations would
have been had we operated as a stand-alone entity during the periods covered. 4




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Year ended December 312003
    
    2002
    
    2001
    
    2000
    
    1999($ million, except per share information)Income statement data:Revenues:Gross premiums written
    
    $
    4,223.9
    
    
    $
    3,535.8
    
    
    $
    2,881.2
    
    
    $
    2,565.8
    
    
    $
    1,928.7Less ceded premiums written
    
    
    (396.9
    )
    
    
    (213.6
    )
    
    
    (398.6
    )
    
    
    (569.8
    )
    
    
    (358.5
    )Net premiums written
    
    
    3,827.0
    
    
    
    3,322.2
    
    
    
    2,482.6
    
    
    
    1,996.0
    
    
    
    1,570.2Net change in unearned premiums
    
    
    (150.5
    )
    
    
    (156.7
    )
    
    
    (187.4
    )
    
    
    (134.5
    )
    
    
    (168.7
    )Net premiums earned
    
    
    3,676.5
    
    
    
    3,165.5
    
    
    
    2,295.2
    
    
    
    1,861.5
    
    
    
    1,401.5Net investment income
    
    
    233.0
    
    
    
    251.8
    
    
    
    228.7
    
    
    
    176.0
    
    
    
    214.0Net realized capital gains (losses)
    
    
    18.4
    
    
    
    (10.3
    )
    
    
    (18.4
    )
    
    
    83.7
    
    
    
    76.3Other income (loss)
    
    
    2.7
    
    
    
    (1.2
    )
    
    
    (5.8
    )
    
    
    29.3
    
    
    
    22.1Total revenues
    
    
    3,930.6
    
    
    
    3,405.8
    
    
    
    2,499.7
    
    
    
    2,150.5
    
    
    
    1,713.9Benefits, losses and expenses:Losses, loss adjustment
expenses and life benefits
    
    
    (2,674.2
    )
    
    
    (2,492.0
    )
    
    
    (2,300.5
    )
    
    
    (1,604.5
    )
    
    
    (1,138.7
    )Total costs and expenses
    
    
    (1,032.0
    )
    
    
    (856.4
    )
    
    
    (678.7
    )
    
    
    (587.5
    )
    
    
    (470.6
    )Amortization of goodwill (1)
    
    
    
    
    
    
    
    
    
    
    (7.8
    )
    
    
    (7.3
    )
    
    
    (6.2
    )Restructuring costs
    
    
    
    
    
    
    
    
    
    
    (50.0
    )
    
    
    
    
    
    
    Total benefits, losses and expenses
    
    
    (3,706.2
    )
    
    
    (3,348.4
    )
    
    
    (3,037.0
    )
    
    
    (2,199.3
    )
    
    
    (1,615.5
    )Income (loss) before taxes
    
    
    224.4
    
    
    
    57.4
    
    
    
    (537.3
    )
    
    
    (48.8
    )
    
    
    98.4Income tax (expense) benefit
    
    
    (39.3
    )
    
    
    49.4
    
    
    
    169.9
    
    
    
    19.5
    
    
    
    (40.6
    )Net income (loss)
    
    $
    185.1
    
    
    $
    106.8
    
    
    $
    (367.4
    )
    
    $
    (29.3
    )
    
    $
    57.8Earnings (loss) per share:Average number of shares (millions)(2)
    
    
    39.8
    
    
    
    39.9
    
    
    
    40.0
    
    
    
    40.0
    
    
    
    40.0Basic earnings (loss) per share
    
    $
    4.65
    
    
    $
    2.68
    
    
    $
    (9.18
    )
    
    $
    (0.73
    )
    
    $
    1.45Diluted earnings (loss) per share
    
    
    4.59
    
    
    
    2.64
    
    
    
    (9.18
    )
    
    
    (0.73
    )
    
    
    1.45
 Year ended December 312003
    
    2002
    
    2001
    
    2000
    
    1999($ million, except per share information)Balance sheet data:Total invested assets
    
    $
    7,528.7
    
    
    $
    6,117.3
    
    
    $
    4,915.9
    
    
    $
    4,349.7
    
    
    $
    4,232.8Total assets
    
    
    14,354.6
    
    
    
    12,051.0
    
    
    
    9,706.5
    
    
    
    8,321.3
    
    
    
    6,916.0Insurance liabilities
    
    
    11,410.8
    
    
    
    9,454.8
    
    
    
    7,677.9
    
    
    
    6,486.6
    
    
    
    5,048.9Debt
    
    
    390.6
    
    
    
    390.4
    
    
    
    197.0
    
    
    
    196.9
    
    
    
    196.8Total liabilities
    
    
    12,271.3
    
    
    
    10,313.0
    
    
    
    8,135.7
    
    
    
    7,232.9
    
    
    
    5,694.6Total equity
    
    
    2,083.3
    
    
    
    1,738.0
    
    
    
    1,570.8
    
    
    
    1,088.4
    
    
    
    1,221.4Book value per share (2)
    
    
    52.38
    
    
    
    43.55
    
    
    
    39.27
    
    
    
    27.21
    
    
    
    30.54
 Year ended December 312003
    
    2002
    
    2001
    
    2000
    
    1999($ million)Other data:Net premiums written by segment:Standard Property & Casualty Reinsurance
    
    $
    1,645.6
    
    
    $
    1,452.2
    
    
    $
    1,280.0
    
    
    $
    993.4
    
    
    $
    673.6Specialty Lines
    
    
    1,811.9
    
    
    
    1,555.3
    
    
    
    968.4
    
    
    
    818.2
    
    
    
    757.5Life & Health Reinsurance
    
    
    369.5
    
    
    
    314.7
    
    
    
    234.2
    
    
    
    184.4
    
    
    
    139.1Total net premiums written
    
    $
    3,827.0
    
    
    $
    3,322.2
    
    
    $
    2,482.6
    
    
    $
    1,996.0
    
    
    $
    1,570.2Non-life combined ratio
    
    
    97.9
    %
    
    
    103.7
    %
    
    
    129.3
    %(3)
    
    
    116.5
    %
    
    
    112.5
    %Ratio of earnings to fixed charges (4)
    
    
    7.2
    
    
    
    3.7
    
    
    
    (5
    )
    
    
    (6
    )
    
    
    5.9
 5




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(1)
    
    For a discussion of goodwill and Converiums compliance with SFAS 142,
see Notes 2(k) and 7 to our consolidated financial statements.(2)
    
    Immediately following the Formation Transactions, we had 40,000,000
shares outstanding. Therefore, these shares are considered outstanding for
all periods prior to December 11, 2001.(3)
    
    The impact on the non-life combined ratio of the September 11th terrorist
attacks was 13.3%.(4)
    
    The ratio of earnings to fixed charges is calculated by dividing earnings
by fixed charges. Fixed charges consist of interest expense and the
interest portion of rental expense.(5)
    
    Due to Converiums loss in 2001 the ratio coverage was less than 1:1.
Converium would have needed to generate additional earnings of $537.3
million to achieve coverage of 1:1.(6)
    
    Due to Converiums loss in 2000 the ratio coverage was less than 1:1.
Converium would have needed to generate additional earnings of $48.8
million to achieve coverage of 1:1. Dividends For a discussion of our dividend policy, see Item 8.  Financial
Information  A. Consolidated Statements and Other Financial Information 
Dividends and Dividend Policy. B. CAPITALIZATION AND INDEBTEDNESS Not applicable. C. REASONS FOR THE OFFER AND USE OF PROCEEDS Not applicable. D. RISK FACTORS Cyclicality of the reinsurance industry may cause fluctuations in our results The insurance and reinsurance industries, particularly the non-life
market, are cyclical. Historically, operating results of reinsurers have
fluctuated significantly because of volatile and sometimes unpredictable
developments, many of which are beyond their direct control. These developments
include:  
    
    price competition.
    
    frequency of occurrence or severity of both natural and man-made catastrophic events.
    
    levels of capacity and demand.
    
    general economic conditions.
    
    changes in legislation, case law and prevailing concepts of liability. As a result, the reinsurance business historically has been characterized
by periods of intense price competition due to excessive underwriting capacity
as well as periods when shortages of underwriting capacity permitted attractive
premium levels. We expect to continue to experience the effects of this
cyclicality, which could have a material adverse effect on our financial
condition, results of operations or cash flows. Our loss reserves may not adequately cover future losses and benefits Our loss reserves may prove to be inadequate to cover our actual losses
and benefits experience. To the extent loss reserves are insufficient to cover
actual losses, loss adjustment expenses or future life benefits, we would have
to add to these loss reserves and incur a charge to our earnings which could
have a material adverse effect on our financial condition, results of
operations or cash flows. 6




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Loss reserves do not represent an exact calculation of liability, but
rather are estimates of the expected cost of the ultimate settlement of losses.
All of our loss reserve estimates are based on actuarial and statistical
projections, at a given time, of facts and circumstances known at that time and
estimates of trends in loss severity and other variable factors, including new
concepts of liability and general economic conditions. Changes in these trends
or other variable factors could result in claims in excess of our loss
reserves. Unforeseen losses, the type or magnitude of which we cannot predict, may
emerge in the future. These additional losses could arise from newly acquired
lines of business, changes in the legal environment, extraordinary events
affecting our clients such as reorganizations and liquidations or changes in
general economic conditions. We continue to conduct pricing and loss reserving
studies for many casualty lines of business, including those in which
preliminary loss trends are noted. In 2003, there was $31.3 million net
positive development on non-life prior years loss reserves. In the Standard
Property & Casualty Reinsurance segment, net positive development of non-life
prior years loss reserves on property lines of $113.5 million (primarily from
the 2002 year) was partially offset by our recording provisions for additional
losses on motor and general third party liability lines of $64.1 million
(primarily from 2001 and prior years). In the Specialty Lines segment, adverse
development on workers compensation and professional liability and other
special liability lines of $120.3 million (primarily from 2000 and prior years)
was largely offset by net positive development of non-life prior years loss
reserves on aviation and space of $102.2 million (primarily from the 2002
year). In addition, because we, like other reinsurers, do not separately evaluate
each of the individual risks assumed under reinsurance treaties, we are largely
dependent on the original underwriting decisions made by ceding companies. We
are subject to the risk that our ceding companies may not have adequately
evaluated the risks to be reinsured and that the premiums ceded to us may not
adequately compensate us for the risks we assume. We had $7,842.8 million of gross reserves and $6,457.4 million of net
reserves for losses and loss adjustment expenses as of December 31, 2003. If we
underestimated these net reserves by 5%, this would have resulted in an
additional $322.9 million of incurred losses and loss adjustment expenses,
before income taxes, for the year ended December 31, 2003. Our exposure to catastrophic events, both natural and man-made, may cause
unexpected large losses A catastrophic event or multiple catastrophic events may cause unexpected
large losses and could have a material adverse effect on our financial
condition, results of operations or cash flows. Natural catastrophic events to
which we are exposed include windstorms, hurricanes, earthquakes, tornadoes,
severe hail, severe winter weather, floods and fires, and are inherently
unpredictable in terms of both their occurrence and severity. For example, in
1999 and 2002, the reinsurance industry suffered losses from windstorms and
flooding in Europe. These events adversely affected our results. We are also exposed to man-made catastrophic events, such as the terrorist
attacks of September 11, 2001, which are difficult to predict and may have a
significant adverse impact on our industry and on us. It is possible that both
the frequency and severity of man-made catastrophic events will increase. As a result, claims from natural or man-made catastrophic events could
cause substantial volatility in our financial results for any period and
adversely affect our financial condition or results of operations. Our ability
to write new business could also be impacted. We believe that increases in the
value and geographic concentration of insured property and the effects of
inflation will increase the severity of claims from catastrophic events in the
future. The extent of our losses from catastrophic occurrences is a function of
the total insured amount of losses our clients incur, the number of our clients
affected, the frequency of the events and the severity of the particular
catastrophe. In addition, depending on the nature of the loss, the speed with
which claims are made, and the terms of the policies affected, we may be
required to make large claims payments upon short notice. We may be forced to
fund these obligations by liquidating investments unexpectedly and in
unfavorable market conditions, or raising funds at unfavorable costs, both of
which could adversely affect the results of our operations. Our efforts to protect ourselves against catastrophic losses, such as the
use of selective underwriting practices, the purchasing of reinsurance (which,
when bought by a reinsurer such as Converium, is known as retrocessional
reinsurance) and the monitoring of risk accumulations, including on a
geographic basis, may not prevent such occurrences from adversely affecting our
profitability or financial condition. The majority of the natural catastrophe reinsurance we write relates to
exposures within the United States, Europe and Japan. Accordingly, we are
exposed to natural catastrophic events which affect these regions, such as U.S.
hurricane, California earthquake, European windstorm and Japanese earthquake
events. Our estimated potential losses on a probable maximum loss (PML) basis,
before giving effect to our retrocessional protection, are currently managed to
a self-imposed maximum gross event limit of $500 million for a 250- year return
period loss. See Item 4.  Information on the Company
 7




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##### Table of Contents



B.
Business Overview  Catastrophe Risk Management. Terrorist attacks and national security threats could result in the payment of
material insurance claims and may have an enduring negative effect on our
business We believe that the terrorist attacks of September 11, 2001 represent the
largest loss event in the insurance industrys history. As of December 31,
2003, we have estimated and recorded gross losses and loss adjustment expenses
for claims arising in connection with the terrorist attacks of $674.2 million.
Our recorded net losses and loss adjustment expenses were $289.2 million, net
of retrocessional reinsurance recoveries. Losses from our aviation and property
businesses represented the majority of the net loss. The remainder of the
losses were from our workers compensation, life and general third-party
liability lines of business. It is still early in the claims process, and our
gross estimates are subject to revision as claims are received from insurers
and our claims to our retrocessionaires are identified and processed. We cannot assess the long-term effects of terrorist attacks and continuing
threats to national security on our businesses at this time. The September 11th
terrorist attacks, threats of further terrorist attacks and the military
initiatives and political unrest in Iraq, Afghanistan and the Middle East have
had and may continue to have a significant adverse effect on general economic,
market and political conditions, increasing many of the risks in our
businesses. Although Zurich Financial Services, through its subsidiaries, has
agreed to arrangements that cap our exposure for losses and loss adjustment
expenses arising out of the September 11th terrorist attacks at $289.2 million,
net of retrocessional reinsurance recoveries, terrorist attacks and other
man-made catastrophic events may have an enduring negative effect on our
business, financial condition and results of operations. For additional discussion of the impact of the September 11th terrorist
attacks on our business, see Note 8 to our consolidated financial statements. If we are unable to achieve our investment objectives, our financial condition
may be adversely affected Investment returns are an important part of our overall profitability, and
fluctuations in the fixed income or equity markets could have a material
adverse effect on our financial condition, results of operations or cash flows.
In 2003, net investment income and net realized capital gains accounted for
6.4% of our revenues. Accordingly, our capital levels, ability to pay
catastrophic claims and our operating results substantially depend on our
ability to achieve our investment objectives, which may be affected by general
political and economic conditions that are beyond our control. As with any institutional investor, with a cash and investments portfolio
of approximately $7.8 billion at the end of 2003, Converium is exposed to the
financial markets; in particular, declining equity markets and an increase in
interest rates would adversely impact our net income and shareholders equity. Fluctuations in interest rates affect our returns on fixed income
investments, as well as the market values of, and corresponding levels of
capital gains or losses on, the fixed income securities in our investment
portfolio. Generally, investment income will be reduced during sustained
periods of lower interest rates as higher yielding fixed income securities are
called, mature or are sold and the proceeds reinvested at lower rates. During
periods of rising interest rates, prices of fixed income securities tend to
fall and realized gains upon their sale are reduced. General economic
conditions can adversely affect the markets for interest-rate-sensitive
securities, including the extent and timing of investor participation in such
markets, the level and volatility of interest rates and, consequently, the
value of fixed income securities. Interest rates are highly sensitive to many
factors, including governmental monetary policies, domestic and international
economic and political conditions and other factors beyond our control. We invest a portion of our assets globally in equity securities, which are
generally subject to greater risks and more volatility than fixed income
securities. General economic conditions, stock market conditions and many other
factors beyond our control can adversely affect the equity markets and,
consequently, the value of the equity securities we own. See Item 11. 
Quantitative and Qualitative Disclosures About Market Risk. Competitive conditions in the reinsurance industry could adversely impact our
results The reinsurance industry is highly competitive. Since Converium has only
entered the market under its own brand name in 2001, some competitors have
greater name and brand recognition. Some of our competitors may have greater
financial or operating resources or offer a broader range of products or more
competitive pricing than we do. Our competitive position is based on many
factors, including our overall financial strength, geographic scope of
business, client relationships, premiums charged, contract terms and
conditions, products and services offered, speed of claims payment, reputation,
experience and qualifications of employees and local presence. We compete for
reinsurance business in U.S., European and other 8




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international reinsurance markets with numerous reinsurance and insurance
companies, some of which have greater financial or other resources and higher
financial strength ratings. We believe that our largest competitors include:  
    
    Munich Reinsurance Company
    
    Swiss Reinsurance Company
    
    General Reinsurance Company, a subsidiary of Berkshire Hathaway, Inc.
    
    Employers Reinsurance Corporation, a subsidiary of General Electric Company
    
    Hannover Re Group, which is 51.2% owned by the mutual insurance group HDI Haftpflichtverband der Deutschen Industrie
    
    Lloyds syndicates active in the London market
    
    Everest Reinsurance Company
    
    Transatlantic Reinsurance Company
    
    SCOR
    
    companies active in the Bermuda Market, including the Partner Re Group, XL Capital Ltd., Ace Ltd. and RenaissanceRe
Holdings Ltd. In addition, new companies have entered the reinsurance market and
existing companies have raised additional capital to increase their
underwriting capacity. Other financial institutions, such as banks, are now
able to offer services similar to our own. In addition, we have recently seen
the creation of alternative products from capital market participants that are
intended to compete with reinsurance products. Moreover, following the
September 11th terrorist events, a number of new reinsurers and other entities
have been formed to compete in or with our industry, and a number of existing
market participants have raised new capital, which may enhance their ability to
compete. We are unable to predict the extent to which these new, proposed or
potential initiatives may affect the demand for our products or the supply and
terms of risks that may be available for us to consider underwriting. Consolidation in the insurance industry could lead to lower margins for us and
less demand for our reinsurance products and services The insurance industry overall is undergoing a process of consolidation as
industry participants seek to enhance their product and geographic reach,
client base, operating efficiency and general market power through merger and
acquisition activities. These larger entities may seek to use the benefits of
consolidation to, among other things, implement price reductions for the
products and services they purchase. If competitive pressures compel us to
reduce our prices, our operating margins would decrease. As the insurance industry consolidates, competition for customers may
become more intense and the importance of acquiring and properly servicing each
customer will become greater. We could incur greater expenses relating to
customer acquisition and retention, which could reduce our operating margins.
In addition, insurance companies that merge may be able to enhance their
negotiating position when buying reinsurance and may be able to spread their
risks across a larger capital base so that they require less reinsurance. The loss of key executive officers could adversely affect us Our ability to execute our business strategy is dependent on our ability
to attract, develop and retain a staff of qualified underwriters and other
personnel. Our management team includes a number of key personnel whose skills,
experience and knowledge of the reinsurance industry constitute important
elements of Converiums competitive strengths. If some or all of these managers
leave their positions at Converium, even if we were able to find persons with
suitable skills to replace them, our operations could be adversely affected. A downgrade in our ratings may adversely affect our relationships with clients
and brokers and negatively impact sales of our products 9




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Claims-paying ability and financial strength ratings are a factor in
establishing the competitive position of reinsurers. The claims-paying ability
ratings assigned by rating agencies to reinsurance or insurance companies are
based upon factors relevant to policyholders and are not directed toward the
protection of investors. A ratings downgrade, or the potential for such a downgrade, among other
things, could adversely affect our relationships with clients, brokers, agents,
wholesalers and other distributors of our products and services, negatively
impact new sales and adversely affect our ability to compete in our markets.
Standard & Poors Corporation has rated Converium A (Strong), stable outlook,
and A.M. Best Company, Inc has rated Converium A (Excellent), stable outlook.
Our ratings may not satisfy the criteria required by some of our clients and
brokers. Accordingly, we may suffer a loss of business as a result. Any
reduction in our ratings could result in our reinsurance operations being
removed from the approved lists of some brokers or clients and may adversely
affect our ability to write business through such brokers or to such clients. Over time the rating agencies could reexamine the ratings affecting our
industry generally, including us. Regulatory or legal changes could adversely affect our business Insurance laws, regulations and policies currently governing us and our
clients may change at any time in ways which may adversely affect our business.
Furthermore, we cannot predict the timing or form of any future regulatory
initiatives. We are subject to applicable government regulation in each of the
jurisdictions in which we conduct business, particularly in Switzerland, the
United States, the United Kingdom and Germany. Regulatory agencies have broad
administrative power over many aspects of the insurance and reinsurance
industries. Government regulators are concerned primarily with the protection
of policyholders rather than shareholders or creditors. Recently, the insurance and reinsurance regulatory framework has been
subject to increased scrutiny in many jurisdictions. Changes in current
insurance regulation may include increased governmental involvement in the
insurance industry, initiatives aimed at premium controls, requirements for
participation in guaranty associations or other industry pools and other
changes which could adversely affect the reinsurance business and economic
environment. Such changes could impose new financial obligations on us, require
us to make unplanned modifications of our products and services, or result in
delays or cancellations of sales of our products and services. The reinsurance industry is also affected by political, judicial and other
legal developments, which have at times in the past resulted in new or expanded
theories of liability. We cannot predict the future impact of changing law or
regulation on our operations and any changes could have a material adverse
effect on our financial condition, results of operations or cash flows. See
Item 4.  Information on the Company  B. Business Overview  Regulation. We purchase retrocessional reinsurance, which subjects us to credit risk and
may become unavailable on acceptable terms In order to limit the effect on our financial condition of large and
multiple losses, we buy reinsurance for our own account. This type of insurance
is known as retrocessional reinsurance. From time to time, market conditions
have limited, and in some cases have prevented, insurers and reinsurers from
obtaining the types and amounts of reinsurance which they consider adequate for
their business needs. There can be no assurance that we will be able to obtain
our desired amounts of retrocessional reinsurance. There is also no assurance
that, if we are able to obtain such retrocessional reinsurance, we will be able
to negotiate terms as favorable to us as in prior years. A retrocessionaires insolvency or its inability or unwillingness to make
payments under the terms of its reinsurance treaty with us could have a
material adverse effect on us. Therefore, our retrocessions subject us to
credit risk because the ceding of risk to retrocessionaires does not relieve us
of our liability to our ceding companies. See Item 4.  Information on the
Company  B. Business Overview  Retrocessional Reinsurance. Because we depend on reinsurance brokers for a large portion of our revenue,
loss of business written through them could adversely affect us We market our reinsurance products worldwide in substantial part through
reinsurance brokers. In some markets, such as the London market and the United
States, we principally write through reinsurance brokers. In 2003, two
reinsurance intermediaries produced approximately 11.0% and 12.0% of our gross
premiums written. Loss of all or a substantial portion of the business written
through brokers could have a material adverse effect on us. Our reliance on reinsurance brokers exposes us to their credit risk In 2003, approximately 58.0% of our gross premiums written were written
through brokers. In accordance with industry practice, we frequently pay
amounts owed on claims under our policies to reinsurance brokers, and these
brokers, in turn, pay 10




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these amounts over to the insurers that have reinsured a portion of their
liabilities with us. We refer to these insurers as ceding insurers. In some
jurisdictions, or pursuant to some contractual arrangements, if a broker fails
to make such a payment, we may remain liable to the ceding insurer for the
deficiency. Conversely, in certain jurisdictions, when the ceding insurer pays
premiums for these policies to reinsurance brokers for payment over to us,
these premiums are considered to have been paid and the ceding insurer will no
longer be liable to us for those amounts, whether or not we have actually
received the premiums. Consequently, in connection with the settlement of
reinsurance balances, we assume a degree of credit risk associated with
reinsurance brokers around the world. Foreign exchange rate fluctuations may impact our results We publish our financial statements in U.S. dollars. Therefore,
fluctuations in exchange rates used to translate other currencies, particularly
European currencies including the Euro, British pound and Swiss franc, into
U.S. dollars will impact our reported financial condition, results of
operations and cash flows from year to year. These fluctuations in exchange
rates will also impact the U.S. dollar value of our investments and the return
on our investments. For 2003, approximately:  
    
    48% of our net premiums written
    
    29% of our net investment income
    
    42% of our losses, loss adjustment expenses and life benefits, and
    
    61% of our operating expenses were denominated in currencies other than the U.S. dollar. For a discussion of
the impact of material changes in foreign exchange rates on our shareholders
equity, see Item 11.  Quantitative and Qualitative Disclosures About Market
Risk. We may be adversely affected if Zurich Financial Services or its subsidiaries
fail to honor their obligations to us or our clients As part of the Formation Transactions, we entered into a number of
contractual agreements with Zurich Financial Services and its affiliates
including the Master Agreement, the Quota Share Retrocession Agreement, the
Master Novation and Indemnity Reinsurance Agreement, service agreements, lease
agreements and certain indemnity agreements. Among other things, under the
Quota Share Retrocession Agreement, Zurich Financial Services, through its
subsidiaries, provides us with a substantial amount of our investment returns.
Additionally, Zurich Financial Services, through its subsidiaries, has agreed
to arrangements that cap our exposure, net of retrocessional reinsurance
recoveries, for losses and loss adjustment expenses arising out of the
September 11th terrorist attacks at $289.2 million, the amount of loss and loss
adjustment expenses we recorded as of September 30, 2001. In addition,
subsidiaries of Zurich Financial Services have provided us with retrocessional
reinsurance protection, provided coverage for certain workers compensation
exposure, indemnified us for specified taxes and other matters and agreed to
lease or sublease office space to us. See Item 4.  Information on the
Company  A. History and Development of the Company and Item 10. 
Additional Information  C. Material Contracts. Therefore, we are exposed to
credit risk from Zurich Financial Services with respect to these obligations. In addition, Zurich Financial Services subsidiaries remain the legal
counterparty for many of our assumed reinsurance contracts. Although we do not
have credit risk exposure with respect to these contracts, if these Zurich
Financial Services subsidiaries do not honor their commitments efficiently and
effectively to these clients, we might bear reputational risk. The financial and investment return information included in this annual report
may not be indicative of our future financial performance For periods ended December 31, 2001 and earlier, we derived the financial
information included in this annual report from historical financial statements
of Zurich Financial Services. These financial statements present the financial
condition, results of operations and cash flows of the businesses, which prior
to the Formation Transactions, were owned by Zurich Financial Services and now
comprise Converium. Accordingly, these financial statements may not necessarily
reflect the results Converium would have achieved had it been a separate,
stand-alone entity during the periods presented, or the financial position,
results of operations and cash flows of Converium in the future. Historically, a significant portion of our invested assets were managed by
Zurich Financial Services pursuant to the Zurich Financing Agreement. Since the
Zurich Financing Agreement was terminated effective July 1, 2001, and replaced
by the Funds Withheld Asset, our historical investment results are not
indicative of the investment results we may achieve in the future. 11




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In addition, under the Quota Share Retrocession Agreement, the Funds
Withheld Asset may be prepaid to us, in whole or in part, as of the end of any
calendar quarter. In the event that the Funds Withheld Asset is prepaid, we
would have to reinvest these assets in investments and we may not be able to
invest them at yields comparable to those payable under the Quota Share
Retrocession Agreement. To the extent we are not able to invest these funds at
comparable yields, our investment income could be adversely affected. See Item
5.  Operating and Financial Review and Prospects. We may be restricted from disposing of assets and may suffer negative tax
consequences in the case of a change of control Certain tax considerations and contractual arrangements with Zurich
Financial Services may make an acquisition of Converium less likely and limit
our ability to dispose of assets or enter into new lines of business. Because
of the qualification of the Formation Transactions under Swiss tax law as
partially exempt from the Swiss Share Issuance Tax to Converium, we may be
restricted from certain disposals of assets, and may further face adverse tax
consequences if the ownership of one third or more of our registered shares
comes to be held by one shareholder or a group of related shareholders. See
Item 10.  Additional Information  C. Material Contracts  Swiss Tax
Consequences to Converium of the Formation Transactions. Future European Commission directives may disadvantage companies like us which
are not established within the European Union In October 2002, the European Commission, or EC, released a draft Proposal
for a Directive of the European Parliament and of the Council concerning
reinsurance and retrocession, which has been subject to a consultation process
in the interim. The proposed Directive, when adopted will essentially establish
the principles applicable to the taking-up of the business of reinsurance in a
Member State as well as rules regarding technical provisions and the solvency
requirements applicable to reinsurance companies. The Directive is based
largely on solvency related concepts stipulated in the prior Directive adopted
by the EU for insurance companies. The proposed Directive does not currently
provide for any discrimination of non-EU based reinsurance companies. However,
if the final adopted Directive should include such discriminatory regulations,
this could be a disadvantage for Converium AG in its doing business in the EU,
as Converium AG derives a substantial proportion of its revenues within the EU
and any competitive disadvantage we face there could have an adverse effect on
our result of operations. 
 ITEM 4. INFORMATION ON THE COMPANY Converium Holding AG was incorporated in Switzerland on June 19, 2001 as a
joint stock company as defined in article 620 et seq. of the Swiss Code of
Obligations. We were registered on June 21, 2001 in the Commercial Register of
the Canton of Zug with registered number CH-170.3.024.827-8. Our registered
office is Baarerstrasse 8, CH-6300 Zug, Switzerland. A. HISTORY AND DEVELOPMENT OF THE COMPANY On March 22, 2001, Zurich Financial Services announced its intention to
divest substantially all of its third-party reinsurance business historically
operated under the Zurich Re brand name. This business had been managed and
operated as a global operation since 1998. We refer to the Formation
Transactions and the global offering described below in this annual report as
the Formation Transactions. As part of the Formation Transactions, ownership
of this business was consolidated under Converium Holding AG, a newly
incorporated Swiss company. The financial statements included in this annual
report reflect this business. The Formation Transactions consisted of the following principal steps:  
    
    the transfer to us of the Zurich reinsurance business now conducted by
Converium AG, through a series of steps including:  
    
    our reinsurance of this business through quota share
retrocession agreements with two units of Zurich Financial
Services, which we refer to collectively as the Quota Share
Retrocession Agreement
    
    the establishment of funds withheld balances in our
favor by the applicable units of Zurich Financial Services, which
we refer to collectively as the Funds Withheld Asset, on which we
will be paid investment returns by the Zurich Financial Services
units
    
    the transfer of assets including cash, marketable
securities and participations by Zurich Financial Services and its
subsidiaries to Converium, together with the assumption of
liabilities  
    
    the acquisition of the Cologne reinsurance business through the transfer
by a subsidiary of Zurich Financial Services to Converium AG of its 98.63%
interest in Zürich Rückversicherung (Köln) AG, which was renamed Converium 12




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Rückversicherung (Deutschland) AG. Converiums interest in Converium
Rückversicherung (Deutschland) AG increased to 100% in January 2003
    
    the acquisition of the North American reinsurance business through the
transfer by a subsidiary of Zurich Financial Services of all of the
voting securities of Zurich Reinsurance (North America) Inc. to
Converium Holdings (North America) Inc., a wholly owned subsidiary of
Converium AG. In conjunction with this transfer, Converium Holdings
(North America) Inc. assumed $200 million of public debt from a
subsidiary of Zurich Financial Services, and Zurich Reinsurance (North
America), Inc. was renamed Converium Reinsurance (North America) Inc.
    
    the sale of 35,000,000 of our registered shares to the public by
Zurich Financial Services on December 11, 2001 in a global offering
and the subsequent sale of 5,000,000 of our registered shares to the
public by Zurich Financial Services on January 9, 2002 as a result of
the underwriters exercise of their over-allotment option, which sales
resulted in the public owning 100% of our shares As part of the Formation Transactions, Zurich Financial Services and its
subsidiaries transferred cash and other assets and liabilities to Converium.
The assets transferred to us included:  
    
    the shareholders equity of the legal entities comprising our operating businesses
    
    the operating assets of the Zurich reinsurance business
    
    the balance of the assets transferred to us consisted of investments and cash, of which approximately $140 million was used
by Converium AG to acquire residential and commercial rental properties located in Switzerland from subsidiaries of Zurich
Financial Services For a description of the agreements and transactions involved in the
Formation Transactions and our divestiture from Zurich Financial Services,
including certain ongoing contractual arrangements with Zurich Financial
Services, see Item 10.  Additional Information  C. Material Contracts. Converium Finance S.A. is a company incorporated for unlimited duration
under the laws of Luxembourg on October 7, 2002. It has authorized share
capital of 31,000 divided into 3,100 shares with a par value of 10 per share,
3,099 of which are owned by Converium AG and one of which is held by BAC
Management S.a.r.l., a director of Converium Finance S.A., and all of which are
fully paid. Converium Finance S.A.s registered office is 54, boulevard
Napoleon Ier, L-2210 Luxembourg. The objective of Converium Finance S.A., as
stated in its Articles of Incorporation, is the acquisition, the management,
the enhancement and the disposal of participations in whichever form in
domestic and foreign companies. B. BUSINESS OVERVIEW Overview Converium is a leading global reinsurer whose business operations are
recognized for innovation, professionalism and service. We believe we are
accepted as a professional lead reinsurer for all major lines of non-life and
life reinsurance. We actively seek to create innovative and efficient
reinsurance solutions to complement our clients business plans and needs. We
focus on core underwriting skills and on developing close client relationships
while honoring ours and our clients relationships with brokers. We have the
ability to cover risks globally and to provide meaningful capacity worldwide.
Based on calendar year 2002 third-party net premiums written, we rank among the
ten largest global professional reinsurers. Converium was formed through the restructuring and integration of the
third-party reinsurance business of Zurich Financial Services. We believe that
our separation from Zurich Financial Services presents significant
opportunities and benefits for us. We believe we have benefited from our status
as an independently managed, publicly traded company. In October 2003, Converium implemented changes to its organizational and
financial reporting structures. At the time of its Initial Public Offering
(IPO) in December 2001, Converium adopted an organizational model based on
geography. This was largely driven by the historical development of its then
parent, Zurich Financial Services. Over its first two years as an independent
reinsurer, Converium has become more globally integrated and has seen its
business strategy evolve. As a result, the issues of legal entity and geography
have become less relevant criteria when evaluating business strategy and
capital and resource allocation. Converiums business is now organized around three operating segments:
Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health
Reinsurance, which are based principally on global lines of business. In
addition to the 13




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three segments financial results, the Corporate Center carries certain
administration expenses, such as costs of the Board of Directors, the Global
Executive Committee, and other global functions. We offer a full range of traditional non-life and life reinsurance
products as well as innovative non-traditional solutions to help our clients
manage capital and risk. Our principal lines of non-life reinsurance include
general third party liability, motor, personal accident, property,
agribusiness, aviation and space, credit and surety, engineering, marine and
energy, professional liability and other special liability and workers
compensation. The principal life reinsurance products are ordinary life and
disability reinsurance, including quota share, surplus coverage and financing
contracts, and accident and health. We underwrite reinsurance both directly with ceding companies and through
brokers, giving us the flexibility to pursue business in accordance with our
ceding companies preferred reinsurance purchasing method. Globally,
approximately 42.0% of our 2003 gross premiums written were written on a direct
basis and approximately 58.0% were written through brokers. We believe that one of our competitive strengths is our ability to work
closely with our clients while honoring ours and our clients relationships
with brokers. A key component of this competitive strength is our strong focus
on client relationship management. We believe it is imperative that we fully
understand our clients businesses in order to provide better solutions to our
clients and enhance our own profitability. Direct communication with our
clients enables us to obtain the in-depth details required for the proper
analysis and understanding of our clients exposures. We seek to establish and
maintain contacts with key decision makers in the organizations of our clients,
particularly with their chief executive officers, chief financial officers and
actuarial and underwriting managers. As a component of our strategy of getting closer to our clients and
enhancing our understanding of the risks and other financial aspects of their
business, we aligned our organizational structure to better serve our clients
and enhance knowledge sharing among our underwriters, actuaries, client
relationship managers and other personnel. This structure brings together
professionals with treaty expertise and facultative specialists, focusing them
around lines of business. We believe the combination of the two disciplines
yields a stronger risk analysis and ultimately more profitable business
opportunities for us, by allowing us to utilize the detailed knowledge of
individual risks possessed by our facultative professionals in underwriting
treaty business. For example, in North America, our facultative offices now
report to persons with line of business responsibility. In Europe, we have
established client relationship managers, supported by underwriters with both
treaty and facultative expertise in all major lines of business. These client
relationship managers are able to call upon our expertise from wherever it may
be located within our global organization and establish multi-disciplinary
client teams to address our clients needs. These teams seek to provide
additional services to our clients, such as advice on balance sheet and
operating risk management, underwriting audits and assistance with risk capital
allocation. As a reflection of our financial strength and stability, Standard & Poors
Corporation has rated Converium A (Strong), stable outlook, and A.M. Best
Company Inc. has rated Converium A (Excellent), stable outlook. These ratings
are based upon factors of concern to reinsurance clients and are not a measure
of protection afforded to investors. These ratings may be revised, suspended or
withdrawn at any time by the relevant rating agency. See  Ratings. Our Strategy We believe we are an enduring leader of the global reinsurance industry,
driving the evolution of the sector with forward-thinking and innovative
solutions that enable our clients to efficiently manage their risk. We believe
we are an agile, credible and interactive organization that provides the model
for a new generation of reinsurers. We are a global multi-line reinsurer that satisfies its clients business
needs by analyzing, assuming and managing risks. In an ethical and responsible
manner, we believe we provide:  
    
    Sustainable value growth for our shareholders
    
    Excellent service for our customers and intermediaries
    
    A fulfilling work environment for our employees
    
    A spirit of shared responsibility within our community We have a fiduciary mandate from our shareholders to invest their equity
in the reinsurance business. Our core business is to analyze, assume and manage
portfolios of insurance risks, and to invest the assets which support assumed
insurance risks. All of our business aspirations remain within the boundaries
of this defined field of activity. In achieving some of these, we will also
transact direct insurance business; from an economic perspective, these
exceptions remain within the bounds of our core business. 14




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Guiding principles to develop our business The five guiding principles for the development of our core business
portfolio of assumed reinsurance risks across the reinsurance cycle are:  
    
    Our lead objective is to maximize our economic value. Our metrics include net after-tax operating income and Performance
Excess
    
    To optimize our overall risk profile, our business portfolio is diversified in three key ways: by line of business, by
region and by duration
    
    All contracts we underwrite should be profitable in expectation (i.e., a Performance Excess target of at least equal to
zero). For every individual client relationship, Performance Excess must be greater than or equal to zero at every renewal
    
    We seek growing relationships with our target clients, but sustainable profitability is a prerequisite
    
    Assumed retrocession, financial guarantees, underwriting authorities for assumed reinsurance, and fronting are outside of
our strategic scope *Performance Excess provides the basis for value-based management at
Converium. It represents the economic value added attached to all reinsurance
contracts in our portfolio. It takes into account all expected benefits and
costs emanating from a contract or group of contracts, including expected
premiums, expected losses and all other internal and external costs including
risk-based cost of capital. Performance Excess is the expected net present
value created for shareholders, in excess of the normal returns that they can
expect from holding reinsurance company shares, such as Converiums. We have
chosen to make Performance Excess our key internal metric for measuring
underwriting performance. The following are the guiding principles of our investment policy,
capital management and retention management. Investment policy.We will continue to allocate our capital primarily to
support underwriting risks. Strategic asset allocation will continue to be
based on the capital allocated to support investment risks and on an integral
asset and liability management approach. Within these boundaries, we strive to
optimize the after-tax risk-return characteristics of the investment portfolio.
Asset allocation will continue to focus on core portfolios of high-quality
bonds and equities, generally managed passively. Further diversification will
be achieved through complementary portfolios in other asset classes, such as
real estate, credit portfolios, mortgage-backed securities, non-traditional or
alternative investments. These portfolios will generally be actively managed.
The acquisition of minority stakes in insurance or reinsurance companies
remains outside of our strategic scope. Capital management.We manage our capital base so as to keep it strong
enough to ensure that clients and brokers deem the company to be a credible
reinsurer for short- and long-tail business. At the same time, we remain
committed to returning capital to shareholders if such capital cannot be fully
deployed to support reinsurance underwriting at adequate returns. Our cost of
capital will continue to be competitive, and we will follow a sustainable
dividend policy. Retention management.We will continue to effectively manage our gross and
net risk position on a legal entity and on a group-wide basis, through global
risk pooling and the limited purchase of retrocession. Global roles Our global strategy is set by our Board of Directors. The Board has
delegated the implementation of our global strategy to the Global Executive
Committee. Under our strategy, a specific global role has been outlined for
each segment and function within the organization. These job descriptions for
our various operating units clarify the contribution that each makes to the
execution of the strategy  and, by doing so, the roles explain our strategy
and provide information on the plan for its execution. The global roles assigned to our segments are as follows: Standard Property & Casualty Reinsurance The Standard Property & Casualty Reinsurance segments role in the current
market environment and at the present stage of our development is to continue
to position us as a core player in the global reinsurance marketplace. In so
doing, it yields the market presence necessary to gain access to new and
profitable business, to establish further geographical diversification of
assumed risks, and to continue to contribute to earnings and cash flows. Specialty Lines 15




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The Specialty Lines segments role is to develop several core specialty
businesses in which we can position ourselves clearly as a market leader and
can effectively leverage our intellectual assets in risk analysis, structuring,
product design and risk modeling. The focus on specialty lines of businesses is
based upon the belief that Converium, with its intellectual and structural
assets, can offer unique service propositions to its chosen clients that will
allow for superior profit generation over the reinsurance cycle. The Specialty
Lines segment seeks to develop preferred access to business opportunities
through joint ventures or participations in entities that enjoy a unique
position in the minds of clients. Additionally, the Specialty Lines segment
should capitalize on relationships developed through the Standard Property &
Casualty Reinsurance segment. In so doing, the segment offers added value and
additional service to clients, which may in turn yield more business for the
Standard Property & Casualty Reinsurance segment. Due to the long-tail nature of much of the specialty lines of business,
the emergence of accounting profit (on the basis of U.S. GAAP) will come with a
certain time lag. Therefore, the Specialty Lines segment in its early growth
phases will be the generator of substantial operating cash flows and future
investment income, which will provide the platform for future earnings. The
high levels of carried reserves necessary for the specialty lines underwritten
by the segment will be capital consumptive during periods of strong growth in
written premium and may pose a constraint on the amount of growth and business
mix of the segment. Converiums challenge will be to generate acceptable
combined ratios in todays low interest rate environment, so as to not distort
published calendar year earnings. Life & Health Reinsurance The business underwritten by the Life & Health Reinsurance segment
increases the stability of our income, because traditional life reinsurance has
a low correlation to property and casualty risk, and can therefore improve risk
diversification. This segment is to provide current earnings through life and
health underwriting, and in addition will yield future earnings through life
reinsurance. The global roles assigned to our functions are as follows: Functions reporting to the Chief Technical Officer All
functions reporting to the Chief Technical Officer (CTO) 
Underwriting Controlling, Global Risk Pooling and Retention Management,
Strategic Planning and Cycle Management, the Strategic Project Office and
Global Claims  have the common objective of ensuring a consistent and
profit-optimizing approach to global underwriting results. This entails
monitoring of adherence to common underwriting and claims standards and best
practices, including peer reviews and client audit capabilities. Actuarial and Risk Management It is the Actuarial and Risk Management functions responsibility to
measure and monitor our overall risk/return profile, and thus to enable
management to take informed decisions consistent with our strategy. This
includes the assessment of past and expected future profitability on the
underwriting side, and the allocation of risk-based capital to support the
organization most efficiently. The Actuarial and Risk Management functions
ensure consistency and risk assessment best practice for underwriting risk
through pricing and reserving analysis, asset risks (including investments) and
strategic and operational risks. They provide comprehensive, timely and
reliable information to all stakeholders in order to support decision-making
processes. Finance The Finance function provides the financial data necessary both to measure
our actual and expected future profitability in a way that is consistent
throughout the organization, and to comply with external financial reporting
requirements. In both cases, data is formatted according to the requirements of
those who need the information. In addition, the Investment and Treasury
functions optimize the risk/return ratio of invested assets based on our asset
and liability management approach and on the capital attributed to investment
risks. Finance actively manages our claims-supporting capital, ensuring that we
have an appropriate level of capitalization and financial leverage to offer
clients and rating agencies an adequate degree of security, while allowing for
satisfactory returns for shareholders. To achieve an efficient balance between
the need for an appropriate rating and the need to provide sustainable returns,
the Finance function takes a lead role in the management of our relationships
with key shareholders, financial analysts and rating agencies. Information Technology 16




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##### Table of Contents



The Information Technology (IT) function efficiently supports the whole
organization by providing stable global core applications and IT infrastructure
that is driven by user requirements. The IT function enables data to be
globally consistent and easily accessible. Legal The Legal function provides the efficient legal support necessary for our
business and corporate development. It provides management with its independent
assessment of the critical legal issues pertinent to our business and ensures
the proper legal governance of the organization. Human Resources As a strategic partner of all functions in the organization, Human
Resources enables us to attract, develop and retain the talent needed to
achieve our business goals. Corporate Communications The Corporate Communications function plays an instrumental role in
providing timely, truthful, comprehensive and relevant information to all of
our stakeholders and the public in general. This function also provides
internal consultancy services, and assists in shaping Converiums branding and
messaging content to ensure that all stakeholders have easy access to all
relevant information about Converium. Our Business We are a leading global professional reinsurer, which offers a full range
of traditional non-life and life reinsurance products as well as innovative
non-traditional solutions to help our clients manage capital and risk. Our
principal lines of non-life reinsurance include general third party liability,
motor, personal accident, property, agribusiness, aviation and space, credit
and surety, engineering, marine and energy, professional liability and other
special liability and workers compensation. The principal life reinsurance
products are ordinary life and disability reinsurance, including quota share,
surplus coverage and financing contracts, and accident and health. In addition to our offices in Cologne, New York, Zug and Zurich, we have
branch offices in Bermuda, Labuan, London, Milan, Paris, Singapore and Sydney,
as well as marketing offices in Atlanta, Buenos Aires, Chicago, Kuala Lumpur,
London, Mexico City, Mission Viejo, San Francisco, Sao Paulo and Tokyo. In
addition, we have administrative offices in Stamford, Connecticut. We have a
sub-holding company in London and another company in Luxembourg. Converiums business is now organized around three operating segments:
Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health
Reinsurance, which are based principally on global lines of business. In
addition to the three segments financial results, the Corporate Center carries
certain administration expenses, such as costs of the Board of Directors, the
Global Executive Committee, and other global functions. To measure the
financial performance of our operating segments, we define segment income as
income before other income (loss), interest expense, and
income taxes. The 2001 results also exclude the amortization of goodwill and
restructuring costs. The table below presents, by segment, the distribution of our premiums written
and income for the year ended December 31, 2003. For additional information
regarding the results of our operating segments, see Item 5   Operating and
Financial Review and Prospects  A. Operating Results and the Schedule of
Segment Data on pages F-7 and F-8 of the financial statements. Year Ended December 31, 2003SegmentincomeGross premiums written
    
    Net premiums written
    
    (loss)$ millions
    
    % of total
    
    $ millions
    
    % of total
    
    $ millionsBusiness Segment:Standard Property & Casualty Reinsurance
    
    $
    1,795.4
    
    
    
    42.5
    %
    
    $
    1,645.6
    
    
    
    43.0
    %
    
    $
    183.7Specialty Lines
    
    
    2,022.0
    
    
    
    47.9
    
    
    
    1,811.9
    
    
    
    47.3
    
    
    
    115.2Life & Health Reinsurance
    
    
    406.5
    
    
    
    9.6
    
    
    
    369.5
    
    
    
    9.7
    
    
    
    (11.9
    )Corporate Center
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34.3
    )Total
    
    $
    4,223.9
    
    
    
    100.0
    %
    
    $
    3,827.0
    
    
    
    100.0
    %
    
    
    252.7Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31.0
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39.3
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    185.1
 17




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##### Table of Contents



The table below presents the geographic distribution of our gross premiums
written for the years ended December 31, 2003, 2002 and 2001, based on the
location of the ceding companies. Year Ended December 31,2003
    
    2002
    
    2001$
    
    % of
    
    $
    
    % of
    
    $
    
    % ofmillions
    
    total
    
    millions
    
    total
    
    millions
    
    totalUnited Kingdom*
    
    $
    1,083.0
    
    
    
    25.6
    %
    
    $
    910.4
    
    
    
    25.8
    %
    
    $
    560.1
    
    
    
    19.4
    %Germany
    
    
    286.9
    
    
    
    6.8
    
    
    
    176.1
    
    
    
    5.0
    
    
    
    179.4
    
    
    
    6.2France
    
    
    160.5
    
    
    
    3.8
    
    
    
    106.9
    
    
    
    3.0
    
    
    
    89.8
    
    
    
    3.1Italy
    
    
    131.2
    
    
    
    3.1
    
    
    
    84.0
    
    
    
    2.4
    
    
    
    62.7
    
    
    
    2.2Rest of Europe
    
    
    338.8
    
    
    
    8.0
    
    
    
    224.0
    
    
    
    6.3
    
    
    
    199.5
    
    
    
    6.9Far East
    
    
    266.4
    
    
    
    6.3
    
    
    
    191.9
    
    
    
    5.4
    
    
    
    113.7
    
    
    
    4.0Near and Middle East
    
    
    134.3
    
    
    
    3.2
    
    
    
    124.3
    
    
    
    3.5
    
    
    
    99.8
    
    
    
    3.5North America
    
    
    1,671.1
    
    
    
    39.6
    
    
    
    1,553.2
    
    
    
    43.9
    
    
    
    1,431.5
    
    
    
    49.7Latin America
    
    
    151.7
    
    
    
    3.6
    
    
    
    165.0
    
    
    
    4.7
    
    
    
    144.7
    
    
    
    5.0Total
    
    $
    4,223.9
    
    
    
    100.0
    %
    
    $
    3,535.8
    
    
    
    100.0
    %
    
    $
    2,881.2
    
    
    
    100.0
    %
  *
    
    Premiums from the United Kingdom include business assumed through Global
Aerospace Underwriting Managers Limited and Lloyds syndicates for such
lines of business as aviation and space as well as marine, where the
exposures are worldwide in nature. Therefore, geographic location of the
ceding company may not necessarily be indicative of the location of risk The table below presents the distribution of our net premiums written by
line of business for the years ended December 31, 2003, 2002 and 2001. Year Ended December 31,2003
    
    2002
    
    2001$
    
    % of
    
    $
    
    % of
    
    $
    
    % ofmillions
    
    total
    
    millions
    
    total
    
    millions
    
    totalStandard Property & Casualty ReinsuranceGeneral third party liability
    
    $
    335.0
    
    
    
    8.8
    %
    
    $
    337.7
    
    
    
    10.2
    %
    
    $
    271.6
    
    
    
    10.9
    %Motor
    
    
    488.5
    
    
    
    12.8
    
    
    
    453.5
    
    
    
    13.7
    
    
    
    436.9
    
    
    
    17.6Personal
accident (assumed from non-life insurers)
    
    
    35.1
    
    
    
    0.9
    
    
    
    35.0
    
    
    
    1.1
    
    
    
    21.1
    
    
    
    0.8Property
    
    
    787.0
    
    
    
    20.5
    
    
    
    626.0
    
    
    
    18.7
    
    
    
    550.4
    
    
    
    22.3Total standard property &
casualty reinsurance
    
    
    1,645.6
    
    
    
    43.0
    
    
    
    1,452.2
    
    
    
    43.7
    
    
    
    1,280.0
    
    
    
    51.6Specialty LinesAgribusiness
    
    
    90.0
    
    
    
    2.4
    
    
    
    22.0
    
    
    
    0.7
    
    
    
    32.0
    
    
    
    1.3Aviation & space
    
    
    341.8
    
    
    
    8.9
    
    
    
    365.3
    
    
    
    11.0
    
    
    
    182.8
    
    
    
    7.4Credit & surety
    
    
    236.0
    
    
    
    6.2
    
    
    
    200.1
    
    
    
    6.0
    
    
    
    178.5
    
    
    
    7.2Engineering
    
    
    139.9
    
    
    
    3.7
    
    
    
    116.1
    
    
    
    3.5
    
    
    
    81.5
    
    
    
    3.3Marine & energy
    
    
    95.3
    
    
    
    2.5
    
    
    
    94.3
    
    
    
    2.8
    
    
    
    73.6
    
    
    
    3.0Professional
liability and other special liability
    
    
    598.0
    
    
    
    15.5
    
    
    
    536.9
    
    
    
    16.2
    
    
    
    241.2
    
    
    
    9.6Workers compensation
    
    
    310.9
    
    
    
    8.1
    
    
    
    220.6
    
    
    
    6.6
    
    
    
    178.8
    
    
    
    7.2Total specialty lines
    
    
    1,811.9
    
    
    
    47.3
    
    
    
    1,555.3
    
    
    
    46.8
    
    
    
    968.4
    
    
    
    39.0Total non-life reinsurance
    
    
    3,457.5
    
    
    
    90.3
    
    
    
    3,007.5
    
    
    
    90.5
    
    
    
    2,248.4
    
    
    
    90.6Life & Health ReinsuranceLife and disability
    
    
    162.1
    
    
    
    4.2
    
    
    
    154.7
    
    
    
    4.7
    
    
    
    136.4
    
    
    
    5.5Accident and health
    
    
    207.4
    
    
    
    5.5
    
    
    
    160.0
    
    
    
    4.8
    
    
    
    97.8
    
    
    
    3.9Total life & health reinsurance
    
    
    369.5
    
    
    
    9.7
    
    
    
    314.7
    
    
    
    9.5
    
    
    
    234.2
    
    
    
    9.4Total
    
    $
    3,827.0
    
    
    
    100.0
    %
    
    $
    3,322.2
    
    
    
    100.0
    %
    
    $
    2,482.6
    
    
    
    100.0
    %
 Types of Reinsurance Both non-life reinsurance and life reinsurance can be written on either a
proportional basis or a non-proportional basis. Proportional reinsurance is
also known as pro rata reinsurance. Quota share reinsurance and surplus
reinsurance are types of proportional reinsurance. Some non-proportional
reinsurance takes the form of excess of loss reinsurance in which the
reinsurers obligations are only triggered after covered losses exceed a
specified attachment point. In the case of proportional reinsurance, the
reinsurer assumes a predetermined portion of the ceding companys risks under
the covered insurance contract or contracts. In the case of non-proportional
reinsurance, the reinsurer assumes all or a specified portion of the ceding
companys risks in excess of a specified amount, known as the ceding companys
retention or the reinsurers attachment point, subject to a negotiated
reinsurance contract limit. Premiums that the ceding company pays to a reinsurer for proportional
reinsurance are a predetermined portion of the premiums that the ceding company
receives from its insured, consistent with the proportional sharing of risk. In
addition, in proportional reinsurance, the reinsurer generally pays the ceding
company a ceding commission. The ceding commission is usually based on the
ceding companys cost of generating the business being reinsured, which
includes commissions, 18




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##### Table of Contents



premium taxes, assessments and miscellaneous administrative expenses and a profit
participation for originating the business, the amount of which is based on the
claims experience. The ceding commission may also be affected by competitive
factors. Premiums that the ceding company pays to a reinsurer for
non-proportional reinsurance are not directly proportional to the premiums that
the ceding company receives. This is because the reinsurer does not assume a
direct proportion of the ceding companys risk. The frequency of claims under a
proportional reinsurance contract is usually greater than under a
non-proportional contract, and therefore the claims experience with
proportional reinsurance contracts is generally more predictable. Non-proportional non-life reinsurance is often written in layers. One or a
group of reinsurers accepts the risk just above the ceding companys retention
up to a specified amount, at which point another reinsurer or a group of
reinsurers accepts the excess liability up to an additional specified limit or
the excess liability reverts to the ceding company. The reinsurer taking on the
risk just above the ceding companys retention is typically said to write lower
layer excess reinsurance. A claim that reaches just beyond the ceding companys
retention will create a claims payment for the lower layer reinsurer, but not
for the reinsurers of any higher layers. Claims activity in lower layer
reinsurance tends to be more predictable than in higher layers due to greater
frequency and availability of historical data, and therefore, like proportional
reinsurance, better enables underwriters and actuaries to more accurately price
the underlying risks. In a limited number of cases, reinsurance is also written
on an aggregate stop-loss basis to protect the ceding companys total portfolio
from extraordinary losses resulting from the aggregation of individual risks. Both non-life reinsurance and life reinsurance can be written either
through treaty or facultative reinsurance arrangements. In treaty reinsurance,
the ceding company cedes, and the reinsurer assumes, a specified portion of a
type or category of risks insured by the ceding company. Generally in the
industry, treaty reinsurers do not separately evaluate each of the individual
risks assumed under their treaties and are largely dependent on the original
risk underwriting decisions made by the ceding companys underwriters. This
dependence subjects reinsurers to the possibility that the ceding company has
not adequately evaluated the risks to be reinsured and, therefore, that the
premiums ceded to the reinsurer may not adequately compensate the reinsurer for
the risk assumed. Accordingly, the reinsurers evaluation of the ceding
companys risk management and underwriting practices, as well as claims
settlement practices and procedures, will usually impact the pricing of the
treaty. Generally, reinsurers who provide facultative reinsurance do so separately
from their treaty operations. In facultative reinsurance, the ceding company
cedes, and the reinsurer assumes, all or part of a specific risk or risks.
Facultative reinsurance normally is purchased by ceding companies for risks not
covered by their reinsurance treaties, for amounts in excess of the monetary
limits of their reinsurance treaties and for unusual and complex risks. In
addition, facultative risks often provide coverages for relatively severe
exposures, which results in greater volatility. The ability to evaluate
separately each risk reinsured, however, increases the probability that the
reinsurance underwriter can price the contract to reflect more accurately the
risks involved. Because of the transactional nature of the business and the
greater risks generally involved, margins on facultative business are usually
higher than on treaty business. However, reinsurers who provide facultative
coverage solely, or through distinct operations, experience relatively high
underwriting expenses and, in particular, personnel costs, because each risk is
individually underwritten and administered. Non-traditional reinsurance involves structured reinsurance solutions
tailored to meet individual client strategic and financial objectives. Both
non-life reinsurance and life reinsurance can be written on a structured/finite
basis. Often these reinsurance solutions provide reinsurance protection across
a companys entire insurance portfolio. For instance, a whole account aggregate
stop loss, whether single year or multi-year in design, provides protection for
a company from deterioration in their accident year results. Another common
solution is a loss portfolio transfer, which can take many forms, and which is
frequently used to assist companies in efficiently and effectively exiting
lines of business or facilitating insurance entity sales transactions. With
increasing frequency, non-traditional reinsurance has been utilized in various
ways to assist companies in managing property catastrophe exposures and other
loss exposures from single or multiple events which, in the aggregate, could be
significant. Because of the constantly changing industry and regulatory
framework, as well as the changing market demands facing insurance companies,
the approaches utilized in structured/finite programs are constantly evolving
and will continue to do so. We underwrite our product lines on a non-proportional and proportional
basis, as well as on a structured/finite basis. As part of our management
organization, we integrate our facultative specialists with our underwriting
professionals with treaty expertise, organizing them as focused teams around
client relationship management and lines of business. We do not distinguish
between treaty and facultative reinsurance, but rather between proportional and
non-proportional underwriting and lines of business. In 2003, $2.6 billion or approximately 62% of our gross premiums written
were written on a proportional treaty basis, $1.2 billion or approximately 27%
of our gross premiums written were written on a non-proportional basis, and
$458.7 million or approximately 11% of our net premiums written were written on
a structured/finite basis. 19




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##### Table of Contents



The table below presents the distribution of our gross premiums written by
type of reinsurance for the years ended December 31, 2003, 2002 and 2001. Year Ended December 31,2003
    
    2002
    
    2001$
    
    % of
    
    $
    
    % of
    
    $
    
    % ofmillions
    
    total
    
    millions
    
    total
    
    millions
    
    totalProportional
    
    $
    2,609.6
    
    
    
    61.8
    %
    
    $
    2,107.2
    
    
    
    59.6
    %
    
    $
    1,757.2
    
    
    
    61.0
    %Non-proportional
    
    
    1,155.5
    
    
    
    27.3
    
    
    
    925.2
    
    
    
    26.2
    
    
    
    798.6
    
    
    
    27.7Structured/finite
    
    
    458.8
    
    
    
    10.9
    
    
    
    503.4
    
    
    
    14.2
    
    
    
    325.4
    
    
    
    11.3Total
    
    $
    4,223.9
    
    
    
    100.0
    %
    
    $
    3,535.8
    
    
    
    100.0
    %
    
    $
    2,881.2
    
    
    
    100.0
    %
 Proportional and Non-proportional We offer traditional reinsurance products on both a proportional and
non-proportional basis in all our lines of business. Our non-proportional
business includes property, motor, aviation and space and professional
liability and other special lines, to complement our established market
position in non-proportional liability. The growth in our proportional business
has been mainly due to an increase in proportional property, aviation and space
and motor as well as opportunities in proportional agribusiness. We believe that clients and brokers actively seek our input in the
evaluation and structuring of businesses with unique or difficult risk
characteristics. We believe this is a result of our innovative approach,
organizational resources and financial strength. We have developed integrated
teams of professionals with significant treaty and individual risk, or
facultative, expertise at our three principal underwriting centers in Zurich,
New York and Cologne, which support the professionals we have in our branch
network. We offer facultative products in almost every line on a proportional
and non-proportional basis. We deploy our global specialty lines experts and
local specialists to design solutions to address our clients risk management
needs. Structured/Finite Structured/finite reinsurance solutions are marketed and underwritten by
the Risk Strategies divisions of our Standard Property & Casualty Reinsurance,
Specialty Lines and Life & Health Reinsurance segments. These divisions focus
on servicing the needs of the reinsurance market that may not be met
efficiently through traditional reinsurance products. With primary operating
locations in Zurich, New York and Cologne, our structured/finite specialists
focus on providing clients with innovative financial solutions for their risk
management and other financial needs, primarily through reinsurance products.
Whether working directly with the client or through a broker, we seek to
develop client-specific solutions after spending time with the client to
understand its business needs. We believe that to succeed in providing our clients with the solutions
they need, we must take a comprehensive, iterative approach in our analysis. To
accomplish this goal, our Risk Strategies divisions comprise a team of
underwriting, tax, accounting, actuarial and banking experts who can
effectively address all aspects of the solution. We believe this
multi-disciplinary approach distinguishes us from our peers and enables us to
craft solutions that are both creative and viable in light of the specific
needs of the ceding company. Furthermore, our Risk Strategies personnel draw
upon our global capabilities to marshal the necessary expertise and resources
in any market. Our customers use structured/finite products principally to mitigate
volatility as well as to transfer insurance risks. The more widely used
structured/finite products have similar features but differing terms and
limits, depending on the customers requirements. The three main types of
structured/finite products that we offer are described below.  
    
    Multi-year aggregate excess of loss reinsurance contracts have become
a well-established structured/finite reinsurance product in the North
American market. These reinsurance contracts provide coverage when the
ceding companys applicable block of policies reports losses at or
above a specific loss ratio. This type of product will often charge an
up-front premium plus additional premiums, which are dependent on the
magnitude of losses claimed by the ceding company under the contract.
The ceding company generally also participates in a profit sharing
arrangement under these types of reinsurance contracts if the business
covered does not generate excessive losses.
    
    Loss portfolio transfer and adverse loss development contracts are
sold by all of our business segments. These products are considered
retroactive reinsurance as they cover past periods for which the loss
events have already occurred, but where all claims have not yet been
made or paid. Retroactive structured/finite reinsurance products
remain an attractive solution for certain clients, who may, for
example, wish to exit a particular line of business, facilitate a
business acquisition or stabilize statutory capital. Typically, a loss
portfolio transfer will transfer to the reinsurer all risks
underwritten, subject to an aggregate loss limit established in the
contract. Adverse loss development products provide 20




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##### Table of Contents



reinsurance coverage for losses in excess of the carried loss reserves of the
ceding company at the transaction date, or in some cases at a mutually agreed
attachment point, in excess of existing loss reserves.
    
    Modified co-insurance contracts are offered by our Life & Health
Reinsurance segment. This product is used by our life insurance clients
principally to relieve the strain on statutory surplus caused by the
statutory accounting requirement to expense all new business acquisition
costs in the year incurred. Clients that are growing rapidly can encounter
severe capital constraints as a result of this requirement. The
reinsurance contract is a co-insurance contract (which means the reinsurer
assumes a percentage of the same risks as the life insurer), modified to
allow the ceding company to retain the investments which support the
liabilities for future policy benefits applicable to the reinsured
portfolio of business. We pay a ceding commission to our client, who
accounts for it as statutory income and thus replenishes the surplus
previously consumed by new business acquisition costs. Non-Life Operations Overview We operate our non-life reinsurance business through our two non-life
segments: Standard Property & Casualty Reinsurance and Specialty Lines. Our
non-life operations had gross premiums written of $3,817.4 million for the year
ended December 31, 2003, representing 90.4% of our total gross premiums
written. The following table sets forth our non-life reinsurance gross premiums
written by type and line of business for the years ended December 31, 2003,
2002 and 2001: Year Ended December 31,2003
    
    2002
    
    2001$
    
    % of
    
    $
    
    % of
    
    $
    
    % ofmillions
    
    total
    
    millions
    
    total
    
    millions
    
    totalProportionalGeneral third party liability
    
    $
    217.9
    
    
    
    9.7
    %
    
    $
    194.5
    
    
    
    11.0
    %
    
    $
    251.2
    
    
    
    16.8
    %Motor
    
    
    373.6
    
    
    
    16.6
    
    
    
    251.2
    
    
    
    14.2
    
    
    
    345.6
    
    
    
    23.2Personal accident (assumed from non-life insurers)
    
    
    27.3
    
    
    
    1.2
    
    
    
    31.9
    
    
    
    1.8
    
    
    
    19.6
    
    
    
    1.3Property
    
    
    503.0
    
    
    
    22.4
    
    
    
    423.5
    
    
    
    24.0
    
    
    
    288.5
    
    
    
    19.3Agribusiness
    
    
    83.6
    
    
    
    3.7
    
    
    
    3.5
    
    
    
    0.2
    
    
    
    11.4
    
    
    
    0.8Aviation & space
    
    
    417.7
    
    
    
    18.6
    
    
    
    310.8
    
    
    
    17.6
    
    
    
    176.3
    
    
    
    11.8Credit & surety
    
    
    181.8
    
    
    
    8.1
    
    
    
    133.7
    
    
    
    7.6
    
    
    
    114.0
    
    
    
    7.6Engineering
    
    
    141.5
    
    
    
    6.3
    
    
    
    118.8
    
    
    
    6.7
    
    
    
    82.8
    
    
    
    5.6Marine & energy
    
    
    78.5
    
    
    
    3.5
    
    
    
    81.5
    
    
    
    4.6
    
    
    
    56.3
    
    
    
    3.8Professional liability and other special liability
    
    
    193.6
    
    
    
    8.6
    
    
    
    194.7
    
    
    
    11.0
    
    
    
    111.6
    
    
    
    7.5Workers compensation
    
    
    29.3
    
    
    
    1.3
    
    
    
    22.6
    
    
    
    1.3
    
    
    
    34.0
    
    
    
    2.3Total Proportional
    
    $
    2,247.8
    
    
    
    100.0
    %
    
    $
    1,766.7
    
    
    
    100.0
    %
    
    $
    1,491.3
    
    
    
    100.0
    %Non-ProportionalGeneral third party liability
    
    $
    137.9
    
    
    
    12.6
    %
    
    $
    136.0
    
    
    
    15.0
    %
    
    $
    115.8
    
    
    
    14.7
    %Motor
    
    
    138.5
    
    
    
    12.7
    
    
    
    123.3
    
    
    
    13.6
    
    
    
    106.9
    
    
    
    13.5Personal accident (assumed from non-life insurers)
    
    
    7.7
    
    
    
    0.7
    
    
    
    3.1
    
    
    
    0.3
    
    
    
    1.3
    
    
    
    0.2Property
    
    
    354.6
    
    
    
    32.4
    
    
    
    248.2
    
    
    
    27.6
    
    
    
    274.8
    
    
    
    34.6Agribusiness
    
    
    14.9
    
    
    
    1.4
    
    
    
    18.5
    
    
    
    2.0
    
    
    
    20.7
    
    
    
    2.6Aviation & space
    
    
    67.8
    
    
    
    6.2
    
    
    
    97.4
    
    
    
    10.7
    
    
    
    49.6
    
    
    
    6.3Credit & surety
    
    
    39.9
    
    
    
    3.7
    
    
    
    35.6
    
    
    
    3.9
    
    
    
    17.6
    
    
    
    2.2Engineering
    
    
    3.4
    
    
    
    0.3
    
    
    
    2.1
    
    
    
    0.2
    
    
    
    2.9
    
    
    
    0.4Marine & energy
    
    
    22.4
    
    
    
    2.1
    
    
    
    18.8
    
    
    
    2.1
    
    
    
    22.6
    
    
    
    2.9Professional liability and other special liability
    
    
    278.9
    
    
    
    25.5
    
    
    
    213.5
    
    
    
    23.5
    
    
    
    147.4
    
    
    
    18.7Workers compensation
    
    
    25.9
    
    
    
    2.4
    
    
    
    10.1
    
    
    
    1.1
    
    
    
    30.5
    
    
    
    3.9Total Non-Proportional
    
    $
    1,091.9
    
    
    
    100.0
    %
    
    $
    906.6
    
    
    
    100.0
    %
    
    $
    790.1
    
    
    
    100.0
    %Structured/FiniteGeneral third party liability
    
    $
    33.2
    
    
    
    6.9
    %
    
    $
    28.0
    
    
    
    5.4
    %
    
    $
    69.6
    
    
    
    20.3
    %Motor
    
    
    
    
    
    
    
    
    
    
    100.2
    
    
    
    19.3
    
    
    
    4.1
    
    
    
    1.2Personal accident (assumed from non-life insurers)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property
    
    
    1.6
    
    
    
    0.3
    
    
    
    2.5
    
    
    
    0.5
    
    
    
    18.2
    
    
    
    5.3Agribusiness
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aviation & space
    
    
    -0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    0.4Credit & surety
    
    
    39.6
    
    
    
    8.3
    
    
    
    46.8
    
    
    
    9.0
    
    
    
    59.7
    
    
    
    17.4Engineering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marine & energy
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Professional liability and other special liability
    
    
    149.7
    
    
    
    31.3
    
    
    
    160.0
    
    
    
    30.8
    
    
    
    13.1
    
    
    
    3.8Workers compensation
    
    
    253.8
    
    
    
    53.2
    
    
    
    181.8
    
    
    
    35.0
    
    
    
    177.3
    
    
    
    51.6Total Structured/Finite
    
    $
    477.7
    
    
    
    100.0
    %
    
    $
    519.3
    
    
    
    100.0
    %
    
    $
    343.4
    
    
    
    100.0
    %TotalGeneral third party liability
    
    $
    389.0
    
    
    
    10.2
    %
    
    $
    358.5
    
    
    
    11.2
    %
    
    $
    436.6
    
    
    
    16.6
    %Motor
    
    
    512.1
    
    
    
    13.4
    
    
    
    474.7
    
    
    
    14.9
    
    
    
    456.6
    
    
    
    17.3Personal accident (assumed from non-life insurers)
    
    
    35.0
    
    
    
    1.0
    
    
    
    35.0
    
    
    
    1.1
    
    
    
    20.9
    
    
    
    0.8Property
    
    
    859.2
    
    
    
    22.5
    
    
    
    674.2
    
    
    
    21.1
    
    
    
    581.5
    
    
    
    22.2Agribusiness
    
    
    98.5
    
    
    
    2.6
    
    
    
    22.0
    
    
    
    0.7
    
    
    
    32.1
    
    
    
    1.2Aviation & Space
    
    
    485.3
    
    
    
    12.7
    
    
    
    408.2
    
    
    
    12.8
    
    
    
    227.3
    
    
    
    8.7Credit & surety
    
    
    261.3
    
    
    
    6.8
    
    
    
    216.1
    
    
    
    6.8
    
    
    
    191.3
    
    
    
    7.3Engineering
    
    
    144.9
    
    
    
    3.8
    
    
    
    120.9
    
    
    
    3.8
    
    
    
    85.7
    
    
    
    3.3Marine & energy
    
    
    100.9
    
    
    
    2.6
    
    
    
    100.3
    
    
    
    3.1
    
    
    
    78.9
    
    
    
    3.0Professional liability and other special liability
    
    
    622.2
    
    
    
    16.3
    
    
    
    568.2
    
    
    
    17.8
    
    
    
    272.1
    
    
    
    10.4Workers compensation
    
    
    309.0
    
    
    
    8.1
    
    
    
    214.5
    
    
    
    6.7
    
    
    
    241.8
    
    
    
    9.2Total
    
    $
    3,817.4
    
    
    
    100.0
    %
    
    $
    3,192.6
    
    
    
    100.0
    %
    
    $
    2,624.8
    
    
    
    100.0
    %
 21




---



##### Table of Contents



The table below presents the loss, underwriting expense and combined
ratios of our non-life reinsurance business both by line of business and type
of reinsurance for the years ended December 31, 2003, 2002 and 2001. This
table represents an aggregation of line of business ratios for our two
non-life segments. Subsequent tables present ratios for each non-life segment
by line of business and type of reinsurance. Any prior underwriting
year development (positive or negative) will affect the ratios of the
calendar year in which the activity is recorded. Loss, Expense and Combined Ratios
Year Ended December 31, 2003
    
    2002
    
    2001U/W
    
    
    
    
    
    
    
    
    
    U/W
    
    
    
    
    
    
    
    
    
    U/WLoss
    
    Expense
    
    Combined
    
    Loss
    
    Expense
    
    Combined
    
    Loss
    
    Expense
    
    CombinedRatio
    
    Ratio
    
    Ratio(1)
    
    Ratio
    
    Ratio
    
    Ratio(1)
    
    Ratio
    
    Ratio
    
    Ratio(1)%
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %General third party liability
    
    
    92.1
    %
    
    
    22.1
    %
    
    
    114.2
    %
    
    
    109.4
    %
    
    
    19.0
    %
    
    
    128.4
    %
    
    
    132.8
    %
    
    
    20.0
    %
    
    
    152.8
    %Motor
    
    
    86.3
    
    
    
    18.4
    
    
    
    104.7
    
    
    
    84.8
    
    
    
    22.8
    
    
    
    107.6
    
    
    
    83.2
    
    
    
    21.8
    
    
    
    105.0Personal accident (assumed from non-life insurers)
    
    
    68.9
    
    
    
    23.1
    
    
    
    92.0
    
    
    
    69.4
    
    
    
    18.1
    
    
    
    87.5
    
    
    
    94.6
    
    
    
    11.2
    
    
    
    105.8Property
    
    
    46.2
    
    
    
    24.8
    
    
    
    71.0
    
    
    
    52.3
    
    
    
    23.8
    
    
    
    76.1
    
    
    
    84.8
    
    
    
    18.1
    
    
    
    102.9Agribusiness
    
    
    87.0
    
    
    
    8.6
    
    
    
    95.6
    
    
    
    100.9
    
    
    
    4.8
    
    
    
    105.7
    
    
    
    57.0
    
    
    
    8.3
    
    
    
    65.3Aviation & space
    
    
    44.3
    
    
    
    15.4
    
    
    
    59.7
    
    
    
    69.9
    
    
    
    13.0
    
    
    
    82.9
    
    
    
    179.9
    
    
    
    21.8
    
    
    
    201.7Credit & surety
    
    
    59.8
    
    
    
    30.2
    
    
    
    90.0
    
    
    
    64.8
    
    
    
    28.8
    
    
    
    93.6
    
    
    
    113.3
    
    
    
    34.2
    
    
    
    147.5Engineering
    
    
    64.7
    
    
    
    29.7
    
    
    
    94.4
    
    
    
    81.7
    
    
    
    21.9
    
    
    
    103.6
    
    
    
    97.8
    
    
    
    24.2
    
    
    
    122.0Marine & energy
    
    
    73.5
    
    
    
    18.6
    
    
    
    92.1
    
    
    
    86.3
    
    
    
    23.3
    
    
    
    109.6
    
    
    
    99.6
    
    
    
    23.0
    
    
    
    122.6Professional liability and other special liability
    
    
    79.2
    
    
    
    26.5
    
    
    
    105.7
    
    
    
    101.0
    
    
    
    19.5
    
    
    
    120.5
    
    
    
    106.8
    
    
    
    31.7
    
    
    
    138.5Workers compensation
    
    
    114.3
    
    
    
    13.0
    
    
    
    127.3
    
    
    
    61.1
    
    
    
    24.3
    
    
    
    85.4
    
    
    
    73.4
    
    
    
    34.3
    
    
    
    107.7Proportional
    
    
    65.0
    
    
    
    25.1
    
    
    
    90.1
    
    
    
    75.7
    
    
    
    24.3
    
    
    
    100.0
    
    
    
    82.0
    
    
    
    31.8
    
    
    
    113.8Non-Proportional
    
    
    84.3
    
    
    
    13.1
    
    
    
    97.4
    
    
    
    80.8
    
    
    
    15.6
    
    
    
    96.4
    
    
    
    121.6
    
    
    
    16.4
    
    
    
    138.0Structured/Finite
    
    
    74.4
    
    
    
    27.4
    
    
    
    101.8
    
    
    
    82.5
    
    
    
    19.2
    
    
    
    101.7
    
    
    
    136.7
    
    
    
    -1.6
    
    
    
    135.1Total
    
    
    71.5
    
    
    
    22.0
    
    
    
    93.5
    
    
    
    78.2
    
    
    
    21.1
    
    
    
    99.3
    
    
    
    99.9
    
    
    
    23.4
    
    
    
    123.3
  (1)
    
    The combined ratios presented in this table exclude administration
expenses. For an explanation of ratio calculations, please refer to the Schedule of
Segment Data on pages F-7 and F-8 of the financial statements. For an explanation of significant loss activity, see Item 5   Operating and
Financial Review and Prospects  A. Operating Results. Standard Property & Casualty Reinsurance The Standard Property & Casualty Reinsurance segments role in the current
market environment and at the present stage of our development is to continue
to position us as a core player in the global reinsurance marketplace. In so
doing, it yields the market presence necessary to gain access to new and
profitable business, to establish further geographical diversification of
assumed risks, and to continue to contribute to earnings and cash flows. The
lines of business of the Standard Property & Casualty Reinsurance segment are
as follows: General third party liability. We provide a broad range of coverage for
reinsurance of industrial, manufacturer, operational, environmental, product
and general third-party liability. We provide liability coverage on both a
proportional and non-proportional basis. Motor. We reinsure liability risks, collision damage and accident risks of
motor vehicles. Motor insurance can include coverage in three major areas -
liability, physical damage and accident benefits. Liability insurance provides
coverage payment for injuries and for property damage to third parties.
Physical damage provides for payment of damages to an insured automobile
arising from a collision with another object or from other risks such as fire
or theft. Accident benefits provide coverage for loss of income and medical and
rehabilitation expenses for insured persons who are injured in an automobile
accident, regardless of fault. Personal accident (assumed from non-life insurers).We provide accident
coverages for various business lines, including personal accident and travel
accident. 22




---



##### Table of Contents



Property. We reinsure liability for physical damage caused by fire and
allied perils such as explosion, lightning, storm, flood, earthquake and costs
of debris removal, as well as coverage of business interruption and loss of
rent as a result of an insured loss. Other sub-lines of property reinsurance
include cover for hail, burglary, water damage and glass breakage. The following table presents the distribution of net premiums written by
our Standard Property & Casualty Reinsurance segment for the years ended
December 31, 2003, 2002 and 2001. Year ended December 312003
    
    2002
    
    2001$
    
    
    
    
    
    $
    
    
    
    
    
    $millions
    
    % of total
    
    millions
    
    % of total
    
    millions
    
    % of totalStandard Property & Casualty
Reinsurance:General third party liability
    
    $
    335.0
    
    
    
    20.4
    %
    
    $
    337.7
    
    
    
    23.2
    %
    
    $
    271.6
    
    
    
    21.2
    %Motor
    
    
    488.5
    
    
    
    29.7
    
    
    
    453.5
    
    
    
    31.2
    
    
    
    436.9
    
    
    
    34.1Personal accident (assumed
from non-life insurers)
    
    
    35.1
    
    
    
    2.1
    
    
    
    35.0
    
    
    
    2.4
    
    
    
    21.1
    
    
    
    1.6Property
    
    
    787.0
    
    
    
    47.8
    
    
    
    626.0
    
    
    
    43.2
    
    
    
    550.4
    
    
    
    43.1Total standard property &
casualty reinsurance
    
    $
    1,645.6
    
    
    
    100.0
    %
    
    $
    1,452.2
    
    
    
    100.0
    %
    
    $
    1,280.0
    
    
    
    100.0
    %
 The following table presents the loss, underwriting expense and combined
ratios of our Standard Property & Casualty Reinsurance segment by line of
business and type of reinsurance for the years ended December 31, 2003, 2002
and 2001. Loss, Expense and Combined Ratios
Year Ended December 31, 2003
    
    2002
    
    2001U/W
    
    
    
    
    
    
    
    
    
    U/W
    
    
    
    
    
    
    
    
    
    U/WLoss
    
    Expense
    
    Combined
    
    Loss
    
    Expense
    
    Combined
    
    Loss
    
    Expense
    
    CombinedRatio
    
    Ratio
    
    Ratio(1)
    
    Ratio
    
    Ratio
    
    Ratio(1)
    
    Ratio
    
    Ratio
    
    Ratio(1)%
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %General third party liability
    
    
    92.1
    %
    
    
    22.1
    %
    
    
    114.2
    %
    
    
    109.4
    %
    
    
    19.0
    %
    
    
    128.4
    %
    
    
    132.8
    %
    
    
    20.0
    %
    
    
    152.8
    %Motor
    
    
    86.3
    
    
    
    18.4
    
    
    
    104.7
    
    
    
    84.8
    
    
    
    22.8
    
    
    
    107.6
    
    
    
    83.2
    
    
    
    21.8
    
    
    
    105.0Personal accident (assumed
from non-life insurers)
    
    
    68.9
    
    
    
    23.1
    
    
    
    92.0
    
    
    
    69.4
    
    
    
    18.1
    
    
    
    87.5
    
    
    
    94.6
    
    
    
    11.2
    
    
    
    105.8Property
    
    
    46.2
    
    
    
    24.8
    
    
    
    71.0
    
    
    
    52.3
    
    
    
    23.8
    
    
    
    76.1
    
    
    
    84.8
    
    
    
    18.1
    
    
    
    102.9Proportional
    
    
    55.7
    
    
    
    26.0
    
    
    
    81.7
    
    
    
    77.9
    
    
    
    27.7
    
    
    
    105.6
    
    
    
    54.0
    
    
    
    35.2
    
    
    
    89.2Non-Proportional
    
    
    85.8
    
    
    
    13.7
    
    
    
    99.5
    
    
    
    76.8
    
    
    
    10.6
    
    
    
    87.4
    
    
    
    135.6
    
    
    
    7.9
    
    
    
    143.5Structured/Finite
    
    
    188.2
    
    
    
    40.2
    
    
    
    228.4
    
    
    
    64.0
    
    
    
    29.9
    
    
    
    93.9
    
    
    
    202.5
    
    
    
    -47.1
    
    
    
    155.4Total
    
    
    68.3
    
    
    
    22.3
    
    
    
    90.6
    
    
    
    76.3
    
    
    
    22.2
    
    
    
    98.5
    
    
    
    93.2
    
    
    
    19.6
    
    
    
    112.8
  (1)
    
    The combined ratios presented in this table exclude administration
expenses. For an explanation of ratio calculations, please refer to the Schedule of
Segment Data on pages F-7 and F-8 of the financial statements. For an explanation of significant loss activity, see Item 5  Operating and
Financial Review and Prospects  A. Operating Results. Specialty Lines Overview The Specialty Lines segments role is to develop several core specialty
lines of businesses in which we can position ourselves clearly as a market
leader and can effectively leverage our intellectual assets in risk analysis,
structuring, product design and risk modelling. The focus on specialty lines of
business is based upon the belief that Converium, with its intellectual and
structural assets, can offer unique service propositions to its chosen clients
that will allow for profit generation over the reinsurance cycle. The Specialty
Lines segment will try to capitalize on relationships developed through the
Standard Property & Casualty Reinsurance segment. In so doing, the segment
offers added value and additional service to clients, which may in turn yield
more business for the Standard Property & Casualty Reinsurance segment. 23




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##### Table of Contents



Due to the long-tail nature of much of the specialty lines of business,
the emergence of accounting profit (on the basis of U.S. GAAP) will come with a
certain time lag. Therefore, the Specialty Lines segment in its early growth
phases will be the generator of substantial operating cash flows and future
investment income, which will provide the platform for future earnings. The
high levels of carried reserves necessary for the specialty lines of business
underwritten by the segment will be capital consumptive during periods of
strong growth in written premium and may pose a constraint on the amount of
growth and business mix of the segment. Converiums challenge will be to
generate acceptable combined ratios in todays low interest rate environment,
so as to not distort published calendar year earnings. The lines of business of the Specialty Lines segment are as follows: Agribusiness.We provide covers for specific named perils, traditional crop
hail, and bundled risks. These covers can apply to almost any product in the
food and fiber chain: commodity crops, specialty crops and animal crops. Aviation & Space. We are a leading provider of reinsurance of personal
accident and liability risks and hull damage, in connection with the operation
of aircraft and the coverage of satellites during launch and in orbit. Credit & Surety.Our credit coverages provide reinsurance for financial
losses sustained through the failure for commercial reasons of an insureds
customers to pay for goods or services supplied to them. Our surety business
relates to the reinsurance of risks associated with performance bonds and other
forms of sureties or guarantees issued to third parties for the fulfilment of
contractual obligations. Engineering.We write all lines of engineering risks including project
risks (construction all risk and erection all risk) and annual covers such as
for machinery and electronic equipment, as well as consequential loss resulting
from both project and annual risk. Marine & Energy.We provide reinsurance relating to the property and
liability coverage of goods in transit (cargo insurance) and the means of their
conveyance (hull insurance). Professional liability and other special liability.We offer specialized
underwriting, actuarial and claims expertise for all lines of professional
liability, including medical malpractice, directors and officers, architects
and engineers, accountants and lawyers liability. We also provide errors and
omissions reinsurance coverage for specialized and other lines of business,
such as insurance agents and real estate agents. Our professional liability
operations also actively develop and reinsure emerging coverages for exposures
such as tax opinions, representations and warranties, and e-commerce risk
liability. Workers compensation.Our workers compensation coverages are flexible
solutions that can help our clients manage their global workers compensation
risks. Our products include reinsurance for statutory workers compensation
programs, as well as individual risk excess workers compensation. Our workers
compensation reinsurance offerings range from complete coverage of a full
workers compensation program to specific carve-out coverages that address a
clients targeted concerns. Converium aims at being an acknowledged reinsurance market leader in the
professional indemnity line of business in Europe. We intend to be among the
top reinsurance companies in credit and surety lines of business in the future
and expect to maintain our market position in aviation and space lines of
business. The importance of the agribusiness line of business in the global
portfolio will continue to increase. Outside the United States, in countries
where government social security schemes are expected to break down and private
sector solutions to grow in importance, the workers compensation line of
business is anticipated to become a more important market. The marine and
energy line of business is anticipated to remain a significant area. The following table presents the distribution of net premiums written by
our Specialty Lines segment for the years ended December 31, 2003, 2002 and
2001. Year
 ended December 312003
    
    2002
    
    2001$
    
    
    
    
    
    $
    
    
    
    
    
    $millions
    
    % of total
    
    millions
    
    % of total
    
    millions
    
    % of totalSpecialty Lines:Agribusiness
    
    $
    90.0
    
    
    
    5.0
    %
    
    $
    22.0
    
    
    
    1.4
    %
    
    $
    32.0
    
    
    
    3.3
    %Aviation & space
    
    
    341.8
    
    
    
    18.8
    
    
    
    365.3
    
    
    
    23.4
    
    
    
    182.8
    
    
    
    18.9Credit & surety
    
    
    236.0
    
    
    
    13.0
    
    
    
    200.1
    
    
    
    12.9
    
    
    
    178.5
    
    
    
    18.4Engineering
    
    
    139.9
    
    
    
    7.7
    
    
    
    116.1
    
    
    
    7.5
    
    
    
    81.5
    
    
    
    8.4Marine & energy
    
    
    95.3
    
    
    
    5.3
    
    
    
    94.3
    
    
    
    6.1
    
    
    
    73.6
    
    
    
    7.6Professional
liability and other
special liability
    
    
    598.0
    
    
    
    33.0
    
    
    
    536.9
    
    
    
    34.5
    
    
    
    241.2
    
    
    
    24.9Workers compensation
    
    
    310.9
    
    
    
    17.2
    
    
    
    220.6
    
    
    
    14.2
    
    
    
    178.8
    
    
    
    18.5Total specialty lines
    
    $
    1,811.9
    
    
    
    100.0
    %
    
    $
    1,555.3
    
    
    
    100.0
    %
    
    $
    968.4
    
    
    
    100.0
    %
 24




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##### Table of Contents



The following table presents the loss, underwriting expense and combined
ratios of our Specialty Lines segment by line of business and type of
reinsurance for the years ended December 31, 2003, 2002 and 2001. Loss, Expense and Combined Ratios
Year Ended December 31, 2003
    
    2002
    
    2001U/W
    
    
    
    
    
    
    
    
    
    U/W
    
    
    
    
    
    
    
    
    
    U/WLoss
    
    Expense
    
    Combined
    
    Loss
    
    Expense
    
    Combined
    
    Loss
    
    Expense
    
    CombinedRatio
    
    Ratio
    
    Ratio(1)
    
    Ratio
    
    Ratio
    
    Ratio(1)
    
    Ratio
    
    Ratio
    
    Ratio(1)%
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %
    
    %Agribusiness
    
    
    87.0
    %
    
    
    8.6
    %
    
    
    95.6
    %
    
    
    100.9
    %
    
    
    4.8
    %
    
    
    105.7
    %
    
    
    57.0
    %
    
    
    8.3
    %
    
    
    65.3
    %Aviation & space
    
    
    44.3
    
    
    
    15.4
    
    
    
    59.7
    
    
    
    69.9
    
    
    
    13.0
    
    
    
    82.9
    
    
    
    179.9
    
    
    
    21.8
    
    
    
    201.7Credit & surety
    
    
    59.8
    
    
    
    30.2
    
    
    
    90.0
    
    
    
    64.8
    
    
    
    28.8
    
    
    
    93.6
    
    
    
    113.3
    
    
    
    34.2
    
    
    
    147.5Engineering
    
    
    64.7
    
    
    
    29.7
    
    
    
    94.4
    
    
    
    81.7
    
    
    
    21.9
    
    
    
    103.6
    
    
    
    97.8
    
    
    
    24.2
    
    
    
    122.0Marine & energy
    
    
    73.5
    
    
    
    18.6
    
    
    
    92.1
    
    
    
    86.3
    
    
    
    23.3
    
    
    
    109.6
    
    
    
    99.6
    
    
    
    23.0
    
    
    
    122.6Professional
liability and other
special liability
    
    
    79.2
    
    
    
    26.5
    
    
    
    105.7
    
    
    
    101.0
    
    
    
    19.5
    
    
    
    120.5
    
    
    
    106.8
    
    
    
    31.7
    
    
    
    138.5Workers compensation
    
    
    114.3
    
    
    
    13.0
    
    
    
    127.3
    
    
    
    61.1
    
    
    
    24.3
    
    
    
    85.4
    
    
    
    73.4
    
    
    
    34.3
    
    
    
    107.7Proportional
    
    
    75.6
    
    
    
    24.1
    
    
    
    99.7
    
    
    
    73.5
    
    
    
    20.9
    
    
    
    94.4
    
    
    
    120.1
    
    
    
    27.2
    
    
    
    147.3Non-Proportional
    
    
    82.3
    
    
    
    12.4
    
    
    
    94.7
    
    
    
    86.7
    
    
    
    22.9
    
    
    
    109.6
    
    
    
    89.6
    
    
    
    35.7
    
    
    
    125.3Structured/Finite
    
    
    62.5
    
    
    
    26.0
    
    
    
    88.5
    
    
    
    89.4
    
    
    
    15.2
    
    
    
    104.6
    
    
    
    97.0
    
    
    
    25.9
    
    
    
    122.8Total
    
    
    74.6
    
    
    
    21.6
    
    
    
    96.2
    
    
    
    80.0
    
    
    
    20.0
    
    
    
    100.0
    
    
    
    109.5
    
    
    
    28.8
    
    
    
    138.3
  (1)
    
    The combined ratios presented in this table exclude administration
expenses.  For an explanation of ratio calculations, please refer to the Schedule of
Segment Data on pages F-7 and F-8 of the financial statements.For an explanation of significant loss activity, see Item 5  Operating and
Financial Review and Prospects  A. Operating Results. Life & Health Reinsurance Overview The Life & Health Reinsurance segment contains the following lines of
business:  
    
    Life and disability
    
    Accident and health We offer these lines of business on a global scale. We primarily conduct
our life and disability reinsurance business from Cologne, Germany whereas a
substantial block of our accident and health business is written in North
America. In September 1999, we implemented a strategy to substantially grow our
life reinsurance business. In 2000, we started our accident and health
business operations in North America. In addition, we have established branch
offices in Milan and Paris, and maintain life representatives in our Buenos
Aires office to locally serve the Latin American markets. We also utilize our
non-life offices in many parts of the world to facilitate direct contacts with
our life and health reinsurance clients. As a result of these initiatives, our life and disability lines in
Continental Europe and accident and health business in North America have grown
significantly in recent years, with our net premiums written increasing from
$234.2 million in 2001 to $369.5 million in 2003. Our primary goal is to write Life & Health Reinsurance business that
generates an attractive expected return. Our strategy focuses on:  
    
    maintaining underwriting discipline and pursuing business that is attractive on a risk-adjusted basis
    
    pursuing growth in markets we believe offer attractive opportunities, such as Germany, the United States, Italy, France,
the Middle East, and Latin America 25




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##### Table of Contents




    
    maintaining a low expense ratio
    
    selectively providing services in certain target markets to build loyalty and attract premiums
    
    providing structured/finite solutions
    
    leveraging our capital markets expertise which, among other things, provides us with additional capacity to write business We are seeking to grow our Life & Health business operations significantly
while not compromising our underwriting standards. We believe that Life &
Health reinsurance will represent an increasing percentage of our business in
the near future. We are focusing on the life reinsurance business because, among other
reasons, we believe that the market for life reinsurance is growing. In
addition, life reinsurance business tends to be less cyclical than non-life
reinsurance due to more predictable claims experience. We also believe that our health business will positively contribute to the
overall profitability of this segment. However, we have to carefully apply our
cycle management approach for the North American market because we write this
business in relatively large blocks with a small number of clients as compared
to our European market. In addition, we believe that we have acceptable risk
diversification. It is important to monitor the market development to be able
to recognize early indications of turning market conditions. We expect that the demand from life insurers for financial support and
reinsurance services will continue to increase, particularly in Europe. We
believe our capital markets and other non-traditional expertise will help us
bring additional innovative solutions to our clients and further enhance the
market position of our life operations. In addition to the growth in our life insurance markets described above,
we believe that the following factors will also contribute to increased demand
for life reinsurance:  
    
    demutualizations of life insurance companies
    
    the increasing importance of non-traditional and more sophisticated life products
    
    aging of the population
    
    privatization of benefits that used to be provided by governments
    
    deregulation and increased competition among primary insurance companies from new entrants, such as banks and other
financial services companies
    
    the increasing need for products that reduce the volatility of earnings following the increasing adoption of international
accounting standards in many of the markets we serve Competition The reinsurance business is competitive and, except for regulatory
considerations, there are relatively few barriers to entry. We compete with
other reinsurers based on many factors, primarily:  
    
    expertise, reputation, experience and qualifications of employees
    
    local presence
    
    client relationships
    
    products and services offered
    
    premium levels
    
    financial strength 26




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##### Table of Contents




    
    contract terms and conditions As a direct writer of reinsurance, we compete with a number of major
direct marketers of reinsurance both in local markets and internationally. We
also compete with a number of major reinsurers who write business through
reinsurance brokers, and with Lloyds of London. We believe that our largest
competitors, both locally and internationally, are:  
    
    Munich Reinsurance Company
    
    Swiss Reinsurance Company
    
    General Reinsurance Company, a subsidiary of Berkshire Hathaway, Inc.
    
    Employers Reinsurance Corporation, a subsidiary of General Electric Company
    
    Hannover Re Group, which is 51.2% owned by the mutual insurance group HDI Haftpflichtverband der Deutschen Industrie
    
    Lloyds syndicates active in the London market
    
    Everest Reinsurance Company
    
    Transatlantic Reinsurance Company
    
    SCOR
    
    companies active in the Bermuda Market, including the Partner Re Group, XL Capital Ltd., Ace Ltd. and RenaissanceRe
Holdings Ltd. Non-Life Underwriting, Pricing/Structuring and Accumulation Control We regard underwriting and pricing as a core skill. Underwriting is the
process by which we identify desirable clients and lines of business, cultivate
profitable opportunities, and assess and manage our exposure, claims settlement
and reserving risk for any particular exposure. In our view, underwriting
requires a deep understanding of the client, their business and the market in
which the client operates. In evaluating business opportunities, we rely
heavily on a collaborative underwriting process that emphasizes communication
and information sharing among our underwriting, actuarial/modeling, claims,
legal and finance personnel. We bring together all of those disciplines to
properly understand, assess, price and execute policies in a manner appropriate
to the nature of the risk. Our underwriters coordinate globally to access our expertise and balance
sheet capabilities to optimize solutions for our clients business needs. We
have underwriting specialists throughout our worldwide organization, covering a
wide range of disciplines that help us assess our global risk exposures. In an
effort to better serve our reinsurance clients, we combine our underwriters and
actuaries in client management teams. Specifically, we have access, on a global
basis, to significant internal actuarial expertise, which we deploy to assess
our non-life pricing and reserve adequacy and to develop associated capital
allocation approaches and risk models. Additionally, our underwriting process
draws upon our multidisciplinary specialists, who include engineers,
meteorologists, environmental scientists, economists, geologists, seismologists
and mathematicians. These specialists and actuaries are based around the world
and work together to ensure and facilitate the application of best practices
and the consideration of the most recent scientific developments. Moreover, we
actively utilize and develop risk models and other sophisticated tools, many of
which are proprietary. In developing underwriting guidelines, we assess market conditions,
quality of risks, past experience, and expectations about future exposure.
Where appropriate, we seek to limit our capacity on a per claim, per event and
per year basis, and employ aggregate annual limits and index clauses, which
reset retention in the event of claims inflation. The overall objective of
these procedures is to achieve an appropriate expected return on equity while
safeguarding our solvency and creditworthiness. In particular, we seek to
maintain a sufficient level of overall capital to retain a strong financial
strength rating under normal circumstances and a strong investment grade rating
in the event of a significant loss. During the underwriting process, we carefully seek to ensure that we
employ coherent and consistent structures, pricing and wording such that all of
our contracts and commitments are in line with our underwriting guidelines.
Compliance with 27




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these rules is regularly reviewed by our senior management, which may
effect adjustments as deemed appropriate. For non-standard transactions, our
legal staff is involved both in transaction structuring and contract wording
throughout the process. Additionally, during the underwriting process, we assess and seek to
control the amount and concentration of risk underwritten for various areas by
analyzing aggregates and accumulation by region, peril or line of business,
such as property catastrophe, aviation, marine, agribusiness and credit and
surety. We normally use proprietary as well as commercially available tools to
monitor our accumulations and relate them to our overall risk appetite.
Aggregates are revised regularly and adapted in line with our current strategy
and risk-bearing willingness and ability, and transformed into rules and
parameters for underwriting decisions. In pricing business, we analyze various aspects of a prospective non-life
reinsureds business including, but not limited to, historical and projected
loss and exposure data, future loss costs, financial stability and history,
classes and nature of underlying business and policy forms, underwriting and
claims guidelines, aggregation of loss potential (between contracts), the
dependence of risk factors relevant to the proposed policy with those relevant
to the rest of our portfolio, existing reinsurance programs (including
potential uncollectible reinsurance), and the quality and experience of
management. Our core pricing approach is to estimate the underlying frequency and
severity of distributions so that we can develop an aggregate probability
distribution of ultimate loss. In order to understand the cash flows, we
estimate premium collection and loss payout patterns. Taking into account the
transaction structure, we then create an aggregate probability distribution of
the profit function of the contract and reflect investment income generated by
the cash flows as well as all expenses and taxes. From this, we estimate the
expected performance excess of the profit expectation of the contract as well
as the risk capital required by the contract. The risk capital is a function of
the potential for loss from the contract, the duration of the liabilities and
the correlation of the risk factors with the remainder of our book of business.
The contracts expected performance excess of the profit is compared to its
risk based capital to determine its profitability level. We also consider other
items such as client and line of business desirability and associated business
opportunities. We develop or enhance additional tools to assess non-traditional
contracts where necessary or appropriate. For specialized lines, such as
aviation, agribusiness and credit and surety, we have developed and continue to
enhance pricing models that specify a particular pricing based on a number of
risk factors including, for instance, financial risks such as interest rate
volatility and stock or commodity market returns. Our comprehensive approach to
risk modeling, and our integration of analytical expertise in client-focused
teams, allows us to quantify the potential financial impact of these measurable
risks. Our models give us the capability to easily and quickly analyze a contract
under numerous structures. This in turn allows us to be creative, innovative
and responsive in seeking to create a structure that satisfies our profit goals
and risk appetite while simultaneously satisfying our clients objectives. Due
to our modeling expertise and development of very fast algorithms and
simulations, we are able to price different structures promptly. We are able to
access our pricing system and database online and from anywhere around the
world via telecommunication. In order to fully realize the value of this ability, we seek to gain a
deep and thorough understanding of the subject business being covered. For most
of our business, including all large and complex contracts, actuaries and other
technical experts are part of the transaction team. They visit the client,
build the models, and jointly with the underwriters price and structure the
transaction. For the remainder of our business, internal actuaries or other
experts including engineers, meteorologists, environmental scientists,
economists, geologists, seismologists and mathematicians provide the analytic
tools for the underwriters use. In order to provide maximum feedback to our underwriting teams, we have
developed management information systems that track the profitability of each
contract from the time it is written until the last dollar is paid. We compare
ultimate loss ratios with our original expectations. This information then
populates our database. We then have the ability to extract information from
our database and analyze the relationships between historic profitability and
such variables as size of contract, production source, structure of transaction
and size of client. Non-Life Claims Management Individual claims reported to our non-life operating units are monitored
and managed by the claims departments at each unit depending on their
respective thresholds. At this level, claims administration includes reviewing
initial loss reports, monitoring claims handling activities of clients,
requesting additional information where appropriate, establishing initial case
reserves and approving payment of individual claims. Authority for payment and
establishing reserves is always established in levels, depending upon rank and
experience in the company. In addition to managing reported claims and conferring with ceding
companies on claims matters, our claims departments conduct periodic audits of
specific claims and the overall claims procedures of our clients at the offices
of ceding companies. We rely on our ability to effectively monitor the claims
handling and claims reserving practices of ceding companies in order 28




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##### Table of Contents



to establish the proper reinsurance premium for reinsurance agreements and
to establish proper loss reserves. Moreover, prior to accepting certain risks,
our claims departments are often requested by underwriters to conduct
pre-underwriting claims audits of prospective ceding companies. We attempt to evaluate the ceding companys claims-handling practices,
including the organization of their claims departments, their fact-finding and
investigation techniques, their loss notifications, the adequacy of their
reserves, their negotiation and settlement practices and their adherence to
claims-handling guidelines. Following these audits, the claims departments
provide feedback to the ceding company, including an assessment of the claims
operation and, if appropriate, recommendations regarding procedures, processing
and personnel. Our three main hubs work together to coordinate global issues in a
cooperative effort involving claims services, actuarial, risk modeling and
underwriting functions. For example, our claims services personnel help
coordinate the establishment of proper reserving and risk assessment functions
across our global organization. The claims departments are available to provide value-added services to
customers, e.g., assessment, consultation, hosting professional seminars,
issuing publications, including surveys on topics of interest, as well as
maintaining a claims-related website. Our North American unit has developed Converium Claim, a website which
facilitates our North American claims management functions. Through Converium
Claim, our clients have convenient and secure access to our claims payment
database to inquire about the status of payments due on proof of loss claims. Life Operations Underwriting and Claims We have developed underwriting guidelines, policies and procedures with
the objective of controlling the quality and pricing of the life reinsurance
business we write. Our life reinsurance underwriting process emphasizes close
collaboration among our underwriting, actuarial, administration and claims
departments. We determine whether to write reinsurance business by considering
many factors, including the type of risks to be covered, ceding company
retention and binding authority, product and pricing assumptions and the ceding
companys underwriting standards, financial strength and distribution systems. We believe that one of our strengths is our expertise in medical
underwriting. We seek to work closely with our clients and, as a value-added
service, share this expertise in order to build client loyalty and better
understand their risks. Additionally, we maintain a website for the German
market that provides information on medical underwriting-related topics which
may be accessed and utilized by our ceding companies. We generally do not assume 100% of a life reinsurance risk and require the
ceding company to retain at least 20% of every reinsured risk. We regularly
update our underwriting policies, procedures and standards to take into account
changing industry conditions, market developments and changes in medical
technology. We also endeavor to ensure that the underwriting standards and
procedures of our ceding client entities are compatible with ours. Toward this
end, we conduct periodic reviews of our ceding companies underwriting and
claims procedures. Life, accident and disability claims generally are reported on an
individual basis by the ceding company. In case of large, difficult or doubtful
claims, cedents provide us with all supporting documents. We also investigate
claims generally for evidence of misrepresentation in the policy application
and approval process. In addition to reviewing and paying claims, we monitor
both specific claims and overall claims handling procedures of ceding
companies. We monitor the loss development of our life reinsurance treaties and
compare them to our expected returns on a regular basis. In the case of
significant deviations, we may seek to negotiate alternative contract
provisions, including increased premiums or higher retentions. For our life reinsurance business, the interaction between our actuaries
and underwriters is very close, as most of our underwriters are also
mathematicians. We use commercial as well as proprietary tools to assess the
profitability of the business. Our life underwriting seeks to ensure that our
expected stream of distributable profits will earn an adequate risk-adjusted
return. Our analysis also includes sensitivity measures to control the risk
exposure of our global portfolio. Catastrophe Risk Management Natural peril and man-made catastrophe risk management is an essential
part of our overall corporate risk management plan. To help us globally measure
and monitor our exposure to natural catastrophic events, we have established a
Global Catastrophe Group comprised of senior management members with
underwriting, actuarial, risk management and other 29




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##### Table of Contents



specialized expertise. This group meets on a quarterly basis to review
relevant aspects of our catastrophe underwriting and risk management. An integral part of our Global Catastrophe Group is our Natural Hazards
Team, located in Zurich. This specialized team provides services and support to
our underwriters and pricing actuaries in our offices around the world. Natural
Hazards Team members are integrated with our actuarial and risk modeling staff.
We believe that centralizing key catastrophe risk functions in our Natural
Hazards Team helps produce a consistent catastrophe exposure analysis across
our global operations. For example, our catastrophe risk specialists design,
maintain and support state-of-the-art risk modeling software to which our
underwriters have direct access. In addition, we have adopted a central monitoring system (our Global Cat
Data Platform), which helps us to manage our worldwide accumulations of
catastrophe risk by peril and region. In our global analyses we focus on key
zones where we face a geographic concentration or peak exposures, such as U.S.
hurricane risk. This centralized analysis is essential for a global reinsurer
such as Converium, since we may write business for the same peril or region
from more than one of our worldwide offices. Also, we endeavor to monitor clash
potential, both from lines other than property catastrophe as well as between
certain perils and regions. A major component of our natural catastrophe risk management approach is
to employ global portfolio optimization and geographic diversification.
Utilizing careful risk selection, pricing, and modeling of portfolio additions,
we seek to diversify our exposures while optimizing available capacity and
maximizing our expected return on equity. This approach helps us to fully
capitalize on the natural catastrophe reinsurance premiums our global balance
sheet will support, while reducing the expected net impact of catastrophe
losses. We believe this strategy leaves us well positioned to write additional
business during periods of improving market conditions. The principal goals of our natural hazard risk management procedures
include:  
    
    Measuring, monitoring and managing natural hazard exposures:For
measuring natural hazard exposures, we use specially developed
software and techniques. For example, we use third-party models
developed by specialized consultants to assist with catastrophe
underwriting and accumulation control. We also compare models for
certain perils or regions where our models indicate higher
variability. In addition, we have developed fully proprietary
probabilistic tools to enhance the utility of our models.
    
    Supporting risk mitigation measures:Our global monitoring system
helps us to measure our accumulation of individual risks by peril and
region. During renewal season, we seek to perform these functions on a
continuous basis. In addition, we conduct a combined analysis for our
worldwide portfolio at least on a quarterly basis. We believe that
this centralized, global review helps us to monitor and manage our
natural catastrophe loss potential and to take remedial action if our
accumulations reach unacceptable levels. In addition, our monitoring
system serves as the basis for structuring our own reinsurance
protection.
    
    Assisting with optimal capacity utilization:We use return on risk
based capital considerations to help us to optimize expected profits
from our catastrophe portfolio and to seek to improve its performance.
We do this by dynamically adjusting capacity allocation during renewal
periods as business is written, thereby optimizing our worldwide
capacity and exploiting our diversification potential. We also review
pricing levels in several markets prior to renewal, in order to
incorporate this information in our business strategy.
    
    Supporting clients in all elements of natural hazards risk management:
The expertise developed by our catastrophe risk specialists in
understanding and managing catastrophe risk allows us to assist our
clients in assessing their own loss potential and in designing
efficient risk transfer mechanisms. Further, we utilize our expertise
to influence property catastrophe exposure reporting in the industry.
For example, we led the enhancement of the market standard for the
exchange of exposure data (CRESTA plus) between primary and
reinsurance companies, thereby assisting market participants to adopt
common reporting and better understand their natural catastrophe
exposures. The data format is easy and flexible to use. It allows an
efficient exposure and loss data exchange between insurance and
reinsurance companies. We believe that the use of CRESTA plus improves
data quality, will enable more accurate risk assessment, and helps
save time and reduce costs.
    
    Following post-disaster loss developments:Our catastrophe risk
specialists produce estimates of our expected losses promptly after a
catastrophe event. This rapid review helps us assess our liquidity
needs and determine whether we need to take any remedial action. In
addition, we regularly study catastrophe developments to improve our
probabilistic models. 30




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The majority of the natural catastrophe reinsurance we write relates to
exposures within the United States, Europe and Japan. Accordingly, we are
exposed to natural catastrophic events which affect these regions, such as U.S.
hurricane, California earthquake, European windstorm and Japanese earthquake
events. Our estimated potential losses on a probable maximum loss (PML) basis,
before giving effect to our retrocessional protection, are currently managed to
a self-imposed maximum gross event limit of $500 million for a 250-year return
period loss. We use retrocessional reinsurance protection to assist our efforts to
ensure that our risk tolerance is not exceeded on a per event or aggregate
basis. We actively seek to combine traditional reinsurance protection with
capital market solutions, in order to diversify our sources of risk bearing
capital and, in particular, to provide us with additional protection in our
higher retrocessional layers for up to approximately a 250-year event. We have developed substantial capital markets expertise, which we can use
both to provide additional capacity to our clients and to improve our own
results and risk profile. The key business reasons for using a capital
markets-based solution rather than traditional reinsurance are as follows:  
    
    The lack of availability of high credit quality reinsurance protection at competitive prices for California earthquakes,
U.S. hurricanes and European windstorms
    
    The ability to achieve protection at stable prices for a multi-year period
    
    To obtain better post-event liquidity relief compared to traditional retrocessionaires practices
    
    To diversify sources of risk bearing capacity from more traditional reinsurance products For example, we have entered into a catastrophe agreement with Zurich
Insurance Company (ZIC) based on ZICs transaction with TRINOM Ltd. to reduce
our net retained loss for large catastrophe events that produce losses greater
than what is referred to in the industry as a once in 100 years magnitude.
Perils covered by TRINOM and our catastrophe agreement with ZIC, which we refer
to as the Catastrophe Agreement, include U.S. hurricane, U.S. earthquake, and
European windstorm losses that occur before June 13, 2004. See
 Catastrophe
Protection. Lastly, as respects man-made catastrophes such as acts of terrorism, we
have recently introduced a conservative monitoring and accumulation approach.
We utilize a matrix system to track for each contract the level of exclusion
(absolute or partial, sub limit or other) and its level of exposure. This
allows us to assess and estimate our current portfolio-wide terrorism
aggregates by adding contract exposure and taking into account its level of
exclusion. While our methodology is being further developed and refined, it
enables a conservative monitoring of our current exposure. Retrocessional Reinsurance We purchase retrocessional reinsurance to better manage risk exposures,
protect against catastrophic losses, access additional underwriting capacity
and to stabilize financial ratios. The insurance or indemnification of
reinsurance is called a retrocession, and a reinsurer of a reinsurer is called
a retrocessionaire. We aggregate our ceded risk across our operations to
achieve superior terms and pricing for our retrocessional coverage and to help
us better assess our overall portfolio risk. Additionally, we incorporate the
use of retrocessional coverage as a component of our underwriting process. The major types of retrocessional coverage we purchase include the
following:  
    
    specific coverage for certain property, engineering, marine, aviation, satellite, motor and liability exposures
    
    catastrophe coverage for property business
    
    casualty clash coverage for potential accumulation of liability from treaties and facultative agreements covering losses
arising from the same event or occurrence
    
    aggregate stop loss protections We have established a control procedure whereby our Chief Executive
Officer and Chief Technical Officer, along with the other members of our senior
executive team, reviews the business purpose for all reinsurance purchases. Our
senior executive team, generally our Chief Technical Officer, approves all
purchases before they are bound. Prior to entering into a retrocessional agreement, we analyze the
financial strength and rating of each retrocessionaire. 31




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##### Table of Contents



Afterwards, the financial performance and rating status of all material
retrocessionaires is monitored. Retrocessional reinsurance arrangements generally do not relieve us from
our direct obligations to our reinsureds. Thus, a credit exposure exists with
respect to reinsurance ceded to the extent that any retrocessionaire is unable
or unwilling to meet the obligations assumed under the retrocessional
agreements. At December 31, 2003, we held $635.3 million in collateral as
security under related retrocessional agreements in the form of deposits,
securities and/or letters of credit. We are able to access outside capacity for
both traditional and non-traditional coverage and therefore are not dependent
upon any single retrocessional market. In the event our retrocessionaires are not able or willing to fulfill
their obligations under our reinsurance agreements with them, we will not be
able to realize the full value of the reinsurance recoverable balance. We
record a reserve to the extent that reinsurance recoverables are believed to be
uncollectible. The reserve is based on an evaluation of each retrocessionaires
individual balances and an estimation of their uncollectible balances.
Allowances of $35.4 million and $17.4 million have been recorded for estimated
uncollectible receivables and reinsurance recoverables at December 31, 2003 and
2002, respectively. The following table sets forth Converiums ten largest retrocessionaires
as of December 31, 2003, based on 2003 ceded premiums written, and their
respective Standard & Poors or A.M. Best financial strength rating. Retrocessionaire
    
    Amount ceded
    
    
    
    
    
    S&P/A.M. BestRetrocessionaire
    
    Group
    
    $ millions
    
    % of total
    
    RatingPartnerRe U.S. Group
    
    PartnerRe Group
    
    $
    57.7
    
    
    
    14.6
    %
    
    AA-/A+National Indemnity Company
    
    Berkshire Hathaway Insurance Group
    
    
    41.9
    
    
    
    10.6
    
    
    AAA/A++Interpolis Reinsurance Services Ltd
    
    Rabobank
    
    
    32.0
    
    
    
    8.1
    
    
    NRManulife Europe
    
    Manulife Europe
    
    
    23.9
    
    
    
    6.0
    
    
    NRHelvetia Patria Versicherung
    
    Helvetia
    
    
    23.1
    
    
    
    5.8
    
    
    BBBpi/NRInter-Ocean Reinsurance Co. Ltd
    
    Inter-Ocean Holdings
    
    
    20.2
    
    
    
    5.1
    
    
    A/AFolksamerica Reinsurance Company
    
    White Mountains Insurance Group
    
    
    18.2
    
    
    
    4.6
    
    
    A-/APXRE Reinsurance Company
    
    PXRE Group
    
    
    13.3
    
    
    
    3.3
    
    
    A/ARoyal & Sun Alliance
    
    Royal & Sun Alliance Insurance Group
    
    
    12.5
    
    
    
    3.1
    
    
    A-/A-DR Swiss
    
    Deutsche Rück
    
    
    10.0
    
    
    
    2.5
    
    
    Api/NRTotal provided by top ten
retrocessionaires, and percentage
of total retrocessional reinsurance
    
    
    
    $
    252.7
    
    
    
    63.7
    %Total retrocessional reinsurance
    
    
    
    $
    396.9
    
    
    
    100.0
    %
 As a consequence of the Formation Transactions, Converium AG has assumed
both the benefits and the financial risks relating to third-party reinsurance
recoverables under the Quota Share Retrocession Agreement. We manage all
third-party retrocessions related to the business reinsured by Converium AG
under the Quota Share Retrocession Agreement. ZIC and Zurich International
Bermuda Ltd (ZIB) are obligated under the Quota Share Retrocession Agreement,
during its term, to maintain in force, renew or purchase third-party
retrocessions covering the business covered by the Quota Share Retrocession
Agreement at the sole discretion of Converium. In addition, Zurich Financial Services, through its subsidiaries, provided
us with a degree of retrocessional reinsurance coverage following the Formation
Transactions. In particular, Zurich Financial Services, through its
subsidiaries, has agreed to arrangements that cap our net exposure for losses
and loss adjustment expenses arising out of the September 11th terrorist
attacks at $289.2 million, the amount of loss and loss adjustment expenses we
recorded as of September 30, 2001. As part of these arrangements, subsidiaries
of Zurich Financial Services have agreed to take responsibility for non-payment
by the retrocessionaires of Converium AG and Converium Rückversicherung
(Deutschland) AG with regard to losses arising out of the September 11th
attacks. While the cap does not cover non-payment by the retrocessionaires of
Converium Reinsurance (North America) Inc., our only retrocessionaire for this
business is a unit of Zurich Financial Services. Therefore, we are not exposed
to potential non-payments by retrocessionaires for this event in excess of the
$289.2 million cap, although we will be exposed to the risk of non-payment of
Zurich Financial Services units and we will be exposed to credit risk from
these subsidiaries of Zurich Financial Services. Catastrophe Protection As of December 31, 2003, Converium has entered into agreements for
coverage of losses related to certain catastrophic loss events. These
agreements include both traditional reinsurance as well as a catastrophe
agreement described more fully below. The traditional reinsurance agreements
cover losses from a first event in excess of $75.0 million. 32




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In June 2001, ZIC entered into a transaction with Trinom Ltd, a Bermuda
company that ultimately provides ZIC with specific high limit catastrophe
protection. Trinom is a special purpose entity (SPE) established by ZIC in
Bermuda, which issued all of its common shares to a Bermuda trust. Trinoms
business consists solely of issuing three-year catastrophe securities to
third-party qualified investors in the form of preference shares and two
classes of notes. Simultaneous with the offering of these securities, Trinom
entered into a counterparty contract with ZIC whereby Trinom will make payments
to ZIC from its funds to cover defined catastrophic losses in the United States
and Europe. ZIC is required to make payments to Trinom based on the balance of
Trinoms funds and the magnitude of its losses. The owners of the securities
are entitled to receive their original investment, plus interest on the notes
or dividends on the preference shares, both paid quarterly, less any loss
payments made to ZIC. Additionally, as part of the Formation Transactions, ZIC and Converium AG
have entered into a catastrophe derivative agreement (the Catastrophe
Agreement) in the form of a purchased option whereby Converium AG receives
protection from ZIC under terms similar to ZICs protection under the Trinom
transaction. Converium AG will pay ZIC amounts at least equal to the payments
made by ZIC to Trinom. Similarly, Converium AG is entitled to receive payments
from ZIC that are similar to those that ZIC is entitled to receive from Trinom.
However, there is no contractual relationship between Converium AG and Trinom
as only ZIC is the legal counterparty to the Trinom transaction. This
Catastrophe Agreement is effective as of June 18, 2001, and will remain in
effect for the same period as ZICs agreement with Trinom, including any
extension thereto. The coverage ZIC and ultimately Converium AG have obtained from the Trinom
transaction and the related Catastrophe Agreement is expected to reduce
Converium AGs net retained loss for large catastrophe events that produce
insured losses greater than what is referred to in the industry as once in 100
years magnitude. Perils covered by the Trinom transaction and the Catastrophe
Agreement include only U.S. hurricane, California earthquake, and European
windstorm losses that occur before June 13, 2004. Discussions are currently
underway to obtain reinsurance protection for catastrophic losses upon the
expiration of the Trinom transaction and the related Catastrophe Agreement in
June 2004. Payments from Trinom to ZIC, and similarly from ZIC to Converium AG, are
based on modeled reinsurance losses for ZIC and ultimately Converium AGs
exposures at the time of the Trinom transaction. In a modeled loss contract,
the covered partys aggregate exposure to each geographical region and type of
catastrophe, by line of business, is compared to industry-wide data in order to
produce the covered partys market share of particular loss events by line of
business using commercially available natural catastrophe loss simulation
modeling software. The software simulates a catastrophe, at various levels of
severity, by generating certain probabilistic loss distributions, in order to
calculate industry-wide losses and the corresponding losses for the covered
party on a ground-up basis, by line of business. These losses are then
compared to the modeled loss contracts to determine the amount of the covered
partys recovery in respect of such an event. Because the Trinom transaction is in two tranches, Converium AGs coverage
under the Catastrophe Agreement is also effectively in two tranches. The first
tranche provides first event coverages of approximately $65.0 million on 68% of
losses that exceed a modeled range of losses from $209.0 million to $227.0
million; and the second tranche provides $97.0 million of coverage on 100% of
second and subsequent event losses that exceed a modeled range of losses from
$100.0 million to $133.0 million. The amount of losses that must be incurred
before coverage applies relates to the type of loss event, e.g. earthquake,
hurricane or windstorm. The expected annual cost of the Catastrophe Agreement
to Converium AG is approximately $9.4 million. However, if Converium collects
amounts as a result of a loss event that is protected by the Catastrophe
Agreement, Converium will be required to pay higher amounts for the remainder
of the Catastrophe Agreements term, and to reduce the recovery by these higher
amounts. Loss and Loss Adjustment Expense Reserves Establishment of Loss and Loss Adjustment Expense Reserves We are required by applicable insurance laws and regulations and U.S. GAAP
to establish reserves for payment of losses and loss adjustment expenses that
arise from our products. These reserves are balance sheet liabilities
representing estimates of future amounts required to pay losses and loss
adjustment expenses for insured claims which have occurred at or before the
balance sheet date, whether already known to us or not yet reported.
Significant periods of time can elapse between the occurrence of an insured
claim, its reporting by the insured to the primary insurance company and from
the insurance company to its reinsurance company. Loss reserves fall into two
categories: reserves for reported losses and loss adjustment expenses, and
reserves for incurred but not reported, or IBNR, losses and loss adjustment
expenses. Upon receipt of a notice of claim from a ceding company, we establish a
case reserve for the estimated amount of the ultimate settlement. Case reserves
are usually based upon the amount of reserves reported by the primary insurance
company and may subsequently be supplemented or reduced as deemed necessary by
our claims departments. We also establish reserves for loss amounts that have
been incurred but not yet reported, including expected development of reported
claims. 33




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These IBNR reserves include estimated legal and other loss adjustment
expenses. We calculate IBNR reserves by using generally accepted actuarial
techniques. We utilize actuarial tools that rely on historical and pricing
information and statistical models as well as our pricing analyses. We revise
these reserves for losses and loss adjustment expenses as additional
information becomes available and as claims are reported and paid. Our estimates of reserves from reported and unreported losses and related
reinsurance recoverable assets are reviewed and updated. Adjustments resulting
from this process are reflected in current income. The analysis relies upon the
basic assumption that past experience, adjusted for the effect of current
developments and likely trends, is an appropriate basis to estimate our current
loss and loss adjustment expense liabilities. Because estimation of loss
reserves is an inherently uncertain process, quantitative techniques frequently
have to be supplemented by professional and managerial judgment. In addition,
trends that have affected development of reserves in the past may not
necessarily occur or affect reserve development to the same degree in the
future. The uncertainty inherent in loss estimation is particularly pronounced for
long-tail lines such as umbrella, general and professional liability and motor
liability, where information, such as required medical treatment and costs for
bodily injury claims, will only emerge over time. In the overall reserve
setting process, provisions for economic inflation and changes in the social
and legal environment are considered. The uncertainty inherent in the reserving
process for primary insurance companies is even greater for the reinsurer. This
is because of, but not limited to, the time lag inherent in reporting
information from the insurer to the reinsurer and differing reserving practices
among ceding companies. As a result, actual losses and loss adjustment expenses
may deviate, perhaps materially, from expected ultimate costs reflected in our
current reserves. In setting reserves, we utilize the same integrated, multi-disciplinary
approach we use to establish our reinsurance prices. After an initial analysis
by members of our actuarial staff, preliminary results are shared with
appropriate underwriters, pricing actuaries, claims and finance professionals
and senior management. Final actuarial recommendations incorporate feedback
from these professionals. We have developed a proprietary global loss reserve estimation system,
which we refer to as FRAME. It applies a number of standard actuarial reserving
methods on a contract-by-contract basis. This allows us to calculate estimates
of IBNR for each transaction based on its own characteristics. FRAME Reserving Methodology Expected Loss/Expected Loss Ratio Reinsurance contracts are typically priced using proprietary pricing
models. The expected loss ratio for each reinsurance contract is normally the
expected loss ratio derived at the pricing of the reinsurance contract and may
be subject to adjustments based on re-pricing of the reinsurance contract. All reserve indications are conducted at the reinsurance contract level
typically on a gross and retro basis; net loss and allocated loss adjustment
expense reserve indications are typically derived by netting gross and retro
loss and allocated loss adjustment expense reserve indications. Unallocated
loss adjustments expense reserve provisions are derived at the business segment
level. Every reinsurance contract is assigned to a reserving group referred to as
a Reserve Equity Cell or REC. Each REC typically contains reinsurance contracts
with identical or similar characteristics in respect to:  
    
    underlying risk (e.g. line of business), geographic region or treaty type (i.e. proportional or non-proportional); and
    
    the time period at which losses are expected to be paid and reported (i.e. expected paid loss development factors and
expected reported loss development factors). For each REC, expected paid loss development factors and expected reported
loss development factors are derived from either:  
    
    statistics developed by pricing actuaries, or
    
    actual paid loss and reported loss (of the reinsurance contracts
assigned to a given REC) aggregated into underwriting year triangles. 34




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It is our policy to review regularly expected paid loss development
factors and expected reported loss development factors for each REC. For each REC and underwriting year, ultimate losses are projected using
the following five standard actuarial methods:  
    
    Expected Loss Method (normally derived from pricing as described above)
    
    Paid Loss Bornhuetter Ferguson Method
    
    Incurred Loss Bornhuetter Ferguson Method
    
    Paid Loss Development Method
    
    Incurred Loss Development Method For each reinsurance contract within a given REC and underwriting year,
one reserving method is selected based on professional actuarial judgment.
Standard practice is to select the expected loss method for a relatively
immature underwriting year (i.e. underwriting year and REC for which the
expected reported loss as at the valuation period (e.g., December 31, 2003) is
less than 50% of the ultimate loss that will eventually be reported) when the
actual loss experience is not yet deemed credible. In addition, actual reported
losses and expected reported losses are compared and in cases where the actual
versus expected are materially different, the reserving actuary may (especially
if the actual losses reported are higher than expected) either:  
    
    select a different actuarial method (i.e. to be more responsive to actual loss experience)
    
    revise the expected loss (see expected loss / expected loss ratio above)
    
    revise the expected paid loss and / or expected reporting loss patterns The indicated ultimate loss is intended to represent the expected ultimate
loss for the full exposure of each contract at the reserving date (e.g.
December 31, 2003). Additional reserve provisions can be added for known losses
(notified) that have not been recorded yet in our system. Typically the indicated ultimate loss for each contract is then adjusted
by the ratio of base earned premium to ultimate base premium in order to
calculate a reserve provision (IBNR) only to the exposed / expired portion of
the reinsurance contract as of the reserving date. A base premium is a premium
which excludes loss sensitive premium adjustments. In essence, for each REC and underwriting year we select best estimate of
ultimate losses within a reasonable range. The range estimates are done at the
REC level and are not aggregated to the business segment or consolidated level. In addition to these bottom-up approaches we utilize standard top down
analyses. For these methods we aggregate the majority of our business into a
limited number of homogeneous classes and apply standard actuarial reserving
techniques. This provides an alternative view that is less dependent on pricing
information. In accordance with U.S. GAAP, we do not establish contingency reserves for
future catastrophic losses in advance of the events occurrence. As a result, a
catastrophe event may cause material volatility in our incurred losses and
reserves and a material impact on our reported income, subject to the effects
of our retrocessional reinsurance. For further details on our catastrophe risk
and reinsurance programs, see  Catastrophe Risk
Management and 
Retrocessional Reinsurance. Adequacy of Reserves Given the inherent uncertainty of the loss estimation process described
above, we employ a number of methods to develop a range of estimates. On the
basis of our actuarial reviews, we believe our liability for gross losses and
loss adjustment expenses, referred to as gross reserves, and our gross reserves
less reinsurance recoverables for losses and loss adjustment expenses ceded,
referred to as net reserves, at the end of all periods presented in our
financial statements were determined in accordance with our established
policies and were reasonable estimates based on the information known at the
time our estimates were made. These analyses were based on, among other things,
original pricing analyses as well as our experience with similar lines of
business, and historical trends, such as reserving patterns, exposure growth,
loss payments, pending levels of unpaid claims and product mix, as well as
court decisions and economic conditions. However, since the establishment of 35




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loss reserves is an inherently uncertain process, the ultimate cost of
settling claims may exceed our existing loss and loss adjustment expense
reserves, perhaps materially. Any adjustments that result from changes in
reserve estimates are reflected in our results of operations. Unforeseen losses, the type or magnitude of which we cannot predict, may
emerge in the future. These additional losses could arise from newly acquired
lines of business, changes in the legal environment, extraordinary events
affecting our clients such as reorganizations and liquidations or changes in
general economic conditions. We continue to conduct pricing and loss reserving
studies for many casualty lines of business, including those in which
preliminary loss trends are noted. In 2003, there was $31.3 million net
positive development on prior years loss reserves, consisting of positive
development of $49.4 million in the Standard Property & Casualty Reinsurance
segment, offset by $18.1 million of adverse development in the Specialty Lines
segment. Risk diversification is a basic risk management tool in the insurance
and reinsurance industry; as a multi-line reinsurer there are always likely to
be reserve adjustments at the line of business level. Our book of business is
broadly diversified by line of business as well as balanced by region and by
the expected duration of its claims obligations. The reserve strengthening of $148.5 million in 2002 and $123.6 million in
2001 as described below in the   Loss Reserve Development section was
determined in accordance with our loss reserving policies as
described in 
Establishment of Loss and Loss Adjustment Expense Reserves, and was recorded
in accordance with our established accounting policies as described in Note
2(c) of our financial statements. Under these policies, we review and update
our reserves as experience develops and new information becomes known, and we
bring our reserves to a reasonable level within a range of reserve estimates by
recording an adjustment in the period when the new information confirms the
need for an adjustment. Effects of Currency Fluctuations A significant factor affecting movements in our net reserve balances has
been currency exchange rate fluctuations. These fluctuations affect our
reserves because we report our results in U.S. dollars. As of December 31,
2003, approximately 39% of our non-life reinsurance reserves are for
liabilities that will be paid in a currency other than the U.S. dollar. We
establish these reserves in original currency, and then, during our
consolidation process, translate them to U.S. dollars using the exchange rates
as of the balance sheet date. Any increase or decrease in reserves resulting
from this translation process is recorded directly to shareholders equity and
has no impact on current earnings. When new losses are incurred or adjustments
to prior years reserve estimates are made, these amounts are reflected in the
current year net income at the average exchange rates for the period. Loss Reserve Development The first table below presents changes in the historical non-life loss and
loss adjustment expense reserves that we established in 1994 and subsequent
years. The top lines of the tables show the estimated loss and loss adjustment
reserves, gross and net of reinsurance, for unpaid losses and loss adjustment
expenses as of each balance sheet date, which represent the estimated amount of
future payments for all losses occurring prior to that date. The upper, or
paid, portion of the first table presents the cumulative amount of payments of
the loss and loss adjustment expense amounts through each subsequent year in
respect of the reserves established at each initial year-end. Losses paid in
currencies other than the U.S. dollar are translated at consolidation into U.S.
dollars using the average foreign exchange rates for periods in which they are
paid. The lower, or reserve re-estimated portion, gross and net of reinsurance,
of the first table shows the re-estimate of the initially recorded loss and
loss adjustment expense reserve as of each succeeding period-end, including
claims paid, but recalculated using the foreign exchange rates for each
subsequent period-end. The reserve estimates change as more information becomes
known about the actual losses for which the initial reserves were established.
The cumulative redundancy/(deficiency) lines at the bottom of the table are
equal to the initial reserves less the liability re-estimated as of December
31, 2003. Conditions and trends that have affected the development of our reserves
for losses and loss adjustment expenses in the past may or may not necessarily
occur in the future, and accordingly, our future results may or may not be
similar to the information presented in the tables below. Zurich Financial Services and its subsidiaries, including the entities
then operating under the Zurich Re brand name, retroactively adopted
International Accounting Standards, or IAS, as of January 1, 1995. As a
consequence, consolidated loss development data for Converium entities is not
available on a consistent accounting basis prior to December 31, 1994 and is
therefore not presented in this annual report. The inconsistencies prior to
December 31, 1994 principally arise from Converium entities having used
different reserving methodologies on a country-by-country basis as was allowed
under generally accepted accounting principles in Switzerland. As an example,
some European reserving practices have historically tended to be highly
conservative, and therefore not consistent with IAS and U.S. GAAP best
estimate practices. Accordingly, we have only been able to provide a
consolidated loss development table commencing with December 31, 1994. As of
December 31, 2003, net reserves for losses and loss adjustment expenses
included approximately $181.1 million of reserves related to losses from
accident years 1994 and prior, or 2.8% of net reserves as of December 31, 2003. 36




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The table below presents our loss and loss adjustment expense reserve
development as of the dates indicated. As of December 31,1994
    
    
    
    
    
    1995
    
    1996
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003($ in millions)Gross reserves for losses and loss
adjustment expenses
    
    $
    1,468.9
    
    
    
    
    
    
    $
    1,891.4
    
    
    $
    2,245.3
    
    
    $
    2,636.4
    
    
    $
    2,988.1
    
    
    $
    3,545.7
    
    
    $
    4,546.0
    
    
    $
    5,710.5
    
    
    $
    6,821.3
    
    
    $
    7,842.8Reinsurance recoverable
    
    
    59.6
    
    
    
    
    
    
    
    102.9
    
    
    
    106.9
    
    
    
    290.1
    
    
    
    457.3
    
    
    
    704.9
    
    
    
    1,212.2
    
    
    
    1,545.0
    
    
    
    1,459.8
    
    
    
    1,385.4Initial net reserves for losses and
loss adjustment expenses
    
    $
    1,409.3
    
    
    
    
    
    
    $
    1,788.5
    
    
    $
    2,138.4
    
    
    $
    2,346.3
    
    
    $
    2,530.8
    
    
    $
    2,840.8
    
    
    $
    3,333.8
    
    
    $
    4,165.5
    
    
    $
    5,361.5
    
    
    $
    6,457.4Cumulative paid as of:One year later
    
    
    405.9
    
    
    
    
    
    
    
    443.9
    
    
    
    466.0
    
    
    
    514.5
    
    
    
    610.0
    
    
    
    850.6
    
    
    
    885.2
    
    
    
    1,101.6
    
    
    
    1,464.7Two years later
    
    
    611.1
    
    
    
    
    
    
    
    669.4
    
    
    
    721.2
    
    
    
    843.0
    
    
    
    968.8
    
    
    
    1,339.2
    
    
    
    1,501.0
    
    
    
    2,010.2Three years later
    
    
    736.2
    
    
    
    
    
    
    
    803.1
    
    
    
    921.7
    
    
    
    1,064.4
    
    
    
    1,250.7
    
    
    
    1,670.1
    
    
    
    2,066.2Four years later
    
    
    815.4
    
    
    
    
    
    
    
    927.0
    
    
    
    1,062.2
    
    
    
    1,261.7
    
    
    
    1,438.6
    
    
    
    2,023.5Five years later
    
    
    896.9
    
    
    
    
    
    
    
    1,007.7
    
    
    
    1,178.3
    
    
    
    1,336.5
    
    
    
    1,622.3Six years later
    
    
    949.9
    
    
    
    
    
    
    
    1,093.8
    
    
    
    1,197.5
    
    
    
    1,436.7Seven years later
    
    
    1,006.5
    
    
    
    
    
    
    
    1,087.1
    
    
    
    1,249.3Eight years later
    
    
    986.5
    
    
    
    
    
    
    
    1,115.7Nine years later
    
    
    1,004.1Net reserves re-estimated as of:One year later
    
    
    1,457.6
    
    
    
    
    
    
    
    1,763.3
    
    
    
    1,901.5
    
    
    
    2,145.6
    
    
    
    2,292.7
    
    
    
    2,815.5
    
    
    
    3,405.3
    
    
    
    4,292.4
    
    
    
    5,597.8Two years later
    
    
    1,499.0
    
    
    
    
    
    
    
    1,642.6
    
    
    
    1,853.5
    
    
    
    2,051.3
    
    
    
    2,274.9
    
    
    
    2,922.4
    
    
    
    3,599.5
    
    
    
    4,551.5Three years later
    
    
    1,364.6
    
    
    
    
    
    
    
    1,617.7
    
    
    
    1,736.4
    
    
    
    1,970.4
    
    
    
    2,300.8
    
    
    
    3,027.2
    
    
    
    3,802.1Four years later
    
    
    1,396.2
    
    
    
    
    
    
    
    1,541.1
    
    
    
    1,677.3
    
    
    
    1,989.1
    
    
    
    2,333.7
    
    
    
    3,171.9Five years later
    
    
    1,339.0
    
    
    
    
    
    
    
    1,468.9
    
    
    
    1,661.2
    
    
    
    1,990.7
    
    
    
    2,410.7Six years later
    
    
    1,284.5
    
    
    
    
    
    
    
    1,452.9
    
    
    
    1,645.9
    
    
    
    2,013.0Seven years later
    
    
    1,260.1
    
    
    
    
    
    
    
    1,446.1
    
    
    
    1,649.3Eight years later
    
    
    1,263.3
    
    
    
    
    
    
    
    1,448.7Nine years later
    
    
    1,272.4Reinsurance recoverable re-estimated
as of December 31, 2003
    
    
    130.5
    
    
    
    
    
    
    
    246.5
    
    
    
    337.6
    
    
    
    427.0
    
    
    
    692.1
    
    
    
    1,307.3
    
    
    
    1,758.6
    
    
    
    1,703.8
    
    
    
    1,510.6Gross reserves re-estimated as of
December 31, 2003
    
    
    1,402.9
    
    
    
    
    
    
    
    1,695.2
    
    
    
    1,986.9
    
    
    
    2,440.0
    
    
    
    3,102.9
    
    
    
    4,479.2
    
    
    
    5,560.7
    
    
    
    6,255.4
    
    
    
    7,108.4Cumulative net redundancy/(deficiency)
    
    
    136.9
    
    
    
    
    
    
    
    339.8
    
    
    
    489.1
    
    
    
    333.3
    
    
    
    120.1
    
    
    
    (331.0
    )
    
    
    (468.4
    )
    
    
    (386.0
    )
    
    
    (236.3
    )Cumulative redundancy/(deficiency)
as a percentage of initial net reserves
    
    
    9.7
    %
    
    
    
    
    
    
    19.0
    %
    
    
    22.9
    %
    
    
    14.2
    %
    
    
    4.7
    %
    
    
    (11.7
    )%
    
    
    (14.0
    )%
    
    
    (9.3
    )%
    
    
    (4.4
    )%Cumulative gross
redundancy/(deficiency)
    
    
    66.0
    
    
    
    
    
    
    
    196.2
    
    
    
    258.4
    
    
    
    196.4
    
    
    
    (114.8
    )
    
    
    (933.5
    )
    
    
    (1,014.8
    )
    
    
    (545.0
    )
    
    
    (287.1
    )Cumulative redundancy/(deficiency)
as a percentage of initial gross
reserves
    
    
    4.5
    %
    
    
    
    
    
    
    10.4
    %
    
    
    11.5
    %
    
    
    7.4
    %
    
    
    (3.8
    )%
    
    
    (26.3
    )%
    
    
    (22.3
    )%
    
    
    (9.5
    )%
    
    
    (4.2
    )%
 As a significant portion of our reserves relate to liabilities payable in
currencies other than U.S. dollars, any fluctuations of the U.S. dollar to
those currencies will have an impact on the reserve redundancy/(deficiency). As
seen from the table above, the net reserve position for 1998 developed
favorably from $2,530.8 million as of December 31, 1998 to $2,410.7 million as
of December 31, 2003, thereby reflecting a redundancy of $120.1 million.
However, as seen from the table below, applying the exchange rate as of
December 31, 1998 to the 1998 reserves re-estimated as of December 31, 2003
would result in re-estimated reserves of $2,507.7 million, or a redundancy of
$23.2 million, illustrating that a substantial part of the apparent redundancy
is due to currency movements, which may or may not persist to the date claims
are actually paid. As a result of these currency movements, the cumulative
redundancy/(deficiency) shown above is considerably higher/(lower) as of
December 31, 2003 than if the reserves were shown on a constant exchange rate
basis for all years presented. Due to inherent volatility of exchange rates,
this effect may change in the future. Accordingly, we expect that future
changes in foreign exchange rates will impact our reserve adequacy
re-estimates. However, with respect to our primary currencies, we believe that
the potential volatility of our liabilities is offset to a large extent by our
efforts to invest in assets denominated in the same currency. The table above also shows that our net loss reserves have developed
larger redundancies/(lower deficiencies) than our gross loss reserves. Changes
in estimates of our net losses directly impact our reported results.
Accordingly, our estimates of reinsurance recoveries on incurred losses and our
collections of those recoveries from our retrocessionaires also directly impact
our reported results. See  Retrocessional Reinsurance above for a discussion
of the types of retrocessional reinsurance coverage that we purchase. At December 31, 2003 and 2002, we recorded $1,385.4 million and $1,459.8
million, respectively, of reinsurance recoverables on loss and loss adjustment
expense reserves. Approximately 27.7% and 41.0%, respectively, of this amount
relates to workers compensation business and 27.8% and 23.1%, respectively,
relates to recoverables in connection with the September 11th terrorist
attacks. 37




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##### Table of Contents



The following table shows the development of our initial reserves net of
reinsurance using the same exchange rates in effect when each of the initial
reserves was set to re-estimate the reserves in subsequent years. As of December 31,1994
    
    1995
    
    1996
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003($ in millions)Initial net reserves for losses
and loss adjustment expenses
    
    $
    1,409.3
    
    
    $
    1,788.5
    
    
    $
    2,138.4
    
    
    $
    2,346.3
    
    
    $
    2,530.8
    
    
    $
    2,840.8
    
    
    $
    3,333.8
    
    
    $
    4,165.5
    
    
    $
    5,361.5
    
    
    $
    6,457.4Net reserves re-estimated as of:One year later
    
    
    1,410.1
    
    
    
    1,805.6
    
    
    
    2,004.9
    
    
    
    2,108.6
    
    
    
    2,394.8
    
    
    
    2,907.9
    
    
    
    3,457.4
    
    
    
    4,268.1
    
    
    
    5,337.9Two years later
    
    
    1,479.5
    
    
    
    1,758.2
    
    
    
    1,925.4
    
    
    
    2,078.8
    
    
    
    2,412.6
    
    
    
    3,035.5
    
    
    
    3,602.4
    
    
    
    4,436.9Three years later
    
    
    1,387.9
    
    
    
    1,707.3
    
    
    
    1,865.4
    
    
    
    2,016.6
    
    
    
    2,463.0
    
    
    
    3,118.1
    
    
    
    3,734.8Four years later
    
    
    1,405.6
    
    
    
    1,674.5
    
    
    
    1,819.3
    
    
    
    2,035.0
    
    
    
    2,469.9
    
    
    
    3,213.4Five years later
    
    
    1,382.7
    
    
    
    1,612.4
    
    
    
    1,799.4
    
    
    
    2,023.7
    
    
    
    2,507.7Six years later
    
    
    1,338.7
    
    
    
    1,589.9
    
    
    
    1,775.9
    
    
    
    2,017.9Seven years later
    
    
    1,306.6
    
    
    
    1,588.4
    
    
    
    1,755.5Eight years later
    
    
    1,316.7
    
    
    
    1,574.4Nine years later
    
    
    1,313.6Cumulative
redundancy/(deficiency)
    
    
    95.7
    
    
    
    214.1
    
    
    
    382.9
    
    
    
    328.5
    
    
    
    23.2
    
    
    
    (372.6
    )
    
    
    (401.0
    )
    
    
    (271.4
    )
    
    
    23.6Cumulative
redundancy/(deficiency) as a
percentage of initial net reserves
    
    
    6.8
    %
    
    
    12.0
    %
    
    
    17.9
    %
    
    
    14.0
    %
    
    
    0.9
    %
    
    
    (13.1
    )%
    
    
    (12.0
    )%
    
    
    (6.5
    )%
    
    
    0.4
    %
 As described below, the loss development triangles show net cumulative
redundancies for 1994 through 1998 and 2002 and net cumulative deficiencies for
1999 through 2001. The payment pattern of our loss and loss adjustment reserves varies from
year to year. Based on historical payment patterns and other relevant data, we
estimate that the mean time to payment, on an undiscounted basis, of our loss
and loss adjustment provisions, including future life benefits, as of December
31, 2003, was 3.9 years. We expect this average payment period to change as our
mix of business changes, as well as due to changes of payment patterns and
fluctuations in currency exchange rates. Reconciliation of Beginning and Ending Loss and Loss Adjustment Expense
Reserves The table below is a summary reconciliation of the beginning and ending
reserves for losses and loss adjustment expenses, net of reinsurance, for the
years ended December 31, 2003, 2002 and 2001. 2003
    
    2002
    
    2001As of January 1,Gross reserves for losses and loss adjustment expenses
    
    $
    6,821.3
    
    
    $
    5,710.5
    
    
    $
    4,546.0Less reinsurance recoverable
    
    
    1,459.8
    
    
    
    1,545.0
    
    
    
    1,212.2Net reserves for losses and loss adjustment expenses
    
    
    5,361.5
    
    
    
    4,165.5
    
    
    
    3,333.8Losses and loss adjustment expenses incurred:Current year
    
    
    2,527.9
    
    
    
    2,186.8
    
    
    
    2,039.5Prior years
    
    
    (31.3
    )
    
    
    148.5
    
    
    
    123.6Total
    
    
    2,496.6
    
    
    
    2,335.3
    
    
    
    2,163.1Losses and loss adjustment expenses paid:Current year
    
    
    324.7
    
    
    
    299.4
    
    
    
    359.1Prior years
    
    
    1,464.7
    
    
    
    1,095.5
    
    
    
    885.2Total
    
    
    1,789.4
    
    
    
    1,394.9
    
    
    
    1,244.3Foreign currency translation effects
    
    
    388.7
    
    
    
    255.6
    
    
    
    (87.1
    )As of December 31,Net reserves for losses and loss adjustment expenses
    
    
    6,457.4
    
    
    
    5,361.5
    
    
    
    4,165.5Reinsurance recoverable
    
    
    1,385.4
    
    
    
    1,459.8
    
    
    
    1,545.0Gross reserves for losses and loss adjustment expenses
    
    $
    7,842.8
    
    
    $
    6,821.3
    
    
    $
    5,710.5
 In 2003, Converium recorded $31.3 million at the 2003 average exchange
rate ($23.6 million at the 2002 exchange rate) of net positive development. See
 Adequacy of Reserves. In 2002, Converium strengthened reserves for prior years by $148.5
million. Throughout the year, increased loss experience related to prior years
continued to emerge, and Converium performed an in-depth actuarial reserve
analysis of certain lines of business. This resulted in an additional $148.5
million provision for losses, primarily related to underwriting 38




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##### Table of Contents



years 1997 through 2000. In the Standard Property & Casualty Reinsurance
segment, there were additional provisions of $62.2 million for the motor,
general third party liability and property lines of business. In the Specialty
Lines segment, there were additional provisions of $86.3 million, primarily
related to commercial umbrella and medical errors and omissions liability lines
of business. In 2001, Converium strengthened reserves for prior years by $123.6
million. Converium retained an actuarial consulting firm to perform an
independent review of non-life net reserves as of December 31, 2000. This
review reflected certain information that became available after the issuance
of the December 31, 2000 financial statements, including most fourth quarter
2000 and some first quarter 2001 reports from ceding companies, who typically
report on a one-quarter lag. Based on the independent review and Converiums
own evaluations of these new developments, additional provisions of $123.6
million, net of reinsurance, were recorded in 2001, principally related to
accident years 2000 and prior at Converium Reinsurance (North America) Inc. In
the Standard Property & Casualty Reinsurance segment, there were additional net
provisions of $46.6 million, primarily for the motor and property lines of
business. In the Specialty Lines segment, there were additional net provisions
of $77.0 million, primarily related to the excess and surplus, commercial
umbrella and marine and energy lines of business, offset by positive
development in aviation and space. Reserves for Asbestos and Environmental Losses We have exposure to liabilities for asbestos and environmental impairment
from our assumed reinsurance contracts, primarily arising from business written
by Converium Rückversicherung (Deutschland) AG, historically
known as Agrippina Rückversicherung AG and subsequently known as
Zürich Rückverscherung (Köln) AG or ZRK. Our asbestos and environmental exposure
primarily originates from U.S. business written through the London Market and
from treaties directly written with reinsurers in the United States. We
cancelled our relevant London Market reinsurance contracts in 1966 and 1967. At
the time, we reduced our participation in asbestos and environmental-exposed
U.S. treaties, with the eventual result that Converium Rückversicherung
(Deutschland) AG ceased property and liability underwriting in the United
States in 1990. Due to uncertainties as to the definitions and to incomplete
reporting from clients, exact separation of asbestos and environmental
exposures cannot be reached. We believe that Converium Reinsurance (North
America) Inc.s exposure to asbestos-related and environmental pollution claims
is limited due to the diminutive amount of business written prior to 1987 and
the protection provided by the continuing reinsurance protections described
below under Item 10.  Additional Information  C. Material Contracts. In
addition, Converium AGs exposure is also minimal because, under the terms of
the Quota Share Retrocession Agreement, Converium AG will only reinsure
business written with an inception or renewal date on or after January 1, 1987.
In 1986, our contract wording was revised, consistent with a general industry
change, such that asbestos and environmental claims were generally excluded. As of December 31, 2003 and 2002, our total loss and adjustment expense
reserves, including additional reserves and IBNR reserves, for U.S.-originated
asbestos and environmental losses were approximately $45.8 million or 0.7% and
$44.6 million or 0.8% of our total net reserves for losses and loss adjustment
expenses, respectively. This provision includes reserves originally
communicated by our cedents, together with additional reserves we established. We estimate that the survival ratio of our asbestos and environmental risk
portfolio, calculated as the ratio of reserves held, including IBNR, over
claims paid over the average of the last three years, is approximately 13.6
years and 13.5 years as of December 31, 2003 and 2002, respectively. Survival
ratio is an industry measure of the number of years it would take a company to
exhaust its reserves for asbestos and environmental liabilities based on that
companys current level of claims payments. We currently have no retrocessional
protection for our U.S.-originated asbestos and environmental exposure, other
than the arrangements with Zurich Financial Services provided by the stop-loss
agreement described above and the other arrangements described below under
Item 10.  Additional Information  C. Material Contracts. Reserving for asbestos and environmental claims is subject to a range of
uncertainties that has historically been greater than those presented by other
types of claims. Among the complications are a lack of historical data, long
reporting delays and uncertainty as to the number and identity of insureds with
potential exposure. In addition, there are complex, unresolved legal issues
regarding policy coverage and the extent and timing of contractual liability. In the environmental context, for example, such legal issues include:  
    
    whether administrative actions by environmental authorities constitute a suit which triggers an insurers duty to defend
    
    the timing of injury or damage which triggers comprehensive general liability coverage
    
    the allocation of indemnity and defense costs among triggered policy years or, in some circumstances, to the policyholders 39




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##### Table of Contents




    
    the number of occurrences where environmental claims arise from one or more causes and result in one or more effects
    
    the efficacy of policy exclusions for pollution and related matters
    
    the extent to which personal injury insurance may apply in the context of environmental losses
    
    whether environmental clean-up costs are property damage within the intent of a comprehensive general liability policy,
and whether an action requiring the insured to undertake clean-up measures is an action for damages within the intent of
such a policy
    
    the applicability of so-called owned property exclusions in comprehensive general liability policies in the context of
environmental claims
    
    whether sums expended by an insured to investigate the remediation of hazardous waste constitute loss or expense within
the intent of a comprehensive general liability policyIn the asbestos context, many of these same issues exist, and other issues may arise concerning:
    
    the scope of so-called asbestosis exclusions
    
    the extent to which policy aggregate limits for product liability or completed operations apply in the context of a
particular asbestos exposure
    
    the interplay between various insurers policy wordings, especially in the context of the trigger of coverage, when
determining insurers defense and indemnity obligations for a particular asbestos loss
    
    the existence and nature of defense or defense reimbursement obligations under various policy forms
    
    the disposition of asbestos claims in the context of policyholder or insurer insolvencies. These issues are not likely to be resolved in the near future.
Consequently, traditional loss reserving techniques cannot wholly be relied on
and, therefore, the uncertainty with respect to the ultimate cost of these
types of claims is greater than the uncertainty relating to standard lines of
business. In addition, changes to existing legal interpretation, new
legislation or new court decisions could materially impact our reserves,
results of operations, cash flows and financial position in future periods. Investments Our overall financial results are in large part dependent upon the quality
and performance of our investment portfolio. Net investment income and net
realized capital gains (losses) accounted for 6.4%, 7.1% and 8.4% of our
revenues for the years ended December 31, 2003, 2002 and 2001, respectively. Our assets are invested with the objective of achieving investment returns
consistent with those of the markets in which we invest, using appropriate risk
management, diversification, tax and regulatory considerations, and to provide
sufficient liquidity to enable us to meet our obligations on a timely basis. We
principally focus on high quality, liquid securities, and seek to invest in
securities whose durations correspond to the estimated duration of the
reinsurance liabilities they support. Our approach to fixed income investments is to limit credit risk by
focusing on investments rated A or better and to reduce concentration risk by
limiting the amount that may be invested in securities of any single issuer or
group of issuers. With respect to equity investments, we seek to diversify our
equity portfolio so as to provide a broad exposure across major sectors of
individual stock markets. To reduce the effects of currency exchange rate
fluctuations, we seek to match the currencies of our investments with the
currencies of our underlying reinsurance liabilities. Our investments are managed mostly by external investment managers, and
their performance is measured against benchmarks. Our investment practices are
governed by guidelines established and approved by our Board of Directors.
Although these guidelines stress diversification of risks, conservation of
principal and liquidity, these investments are subject to market-wide risks and
fluctuations, as well as risks inherent in particular securities. At December 31, 2003, total invested assets were $7.5 billion compared to
$6.1 billion as of December 31, 2002, an increase of $1.4 billion, or 23.1%.
This increase is mainly due to strong operating cash flow as well as increases
in unrealized gains on investments, and changes in currency translation due to
the weakening of the U.S. dollar. 40




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##### Table of Contents



The table below presents the carrying value of our consolidated investment
portfolios as of December 31, 2003, 2002 and 2001. As of December 31,2003
    
    2002
    
    2001$
    
    % of
    
    $
    
    % of
    
    $
    
    % ofmillions
    
    Total
    
    millions
    
    Total
    
    millions
    
    TotalFixed maturities securities
    
    $
    4,928.6
    
    
    
    65.5
    %
    
    $
    3,443.1
    
    
    
    56.3
    %
    
    $
    2,331.4
    
    
    
    47.4
    %Equity securities
    
    
    840.2
    
    
    
    11.2
    
    
    
    530.8
    
    
    
    8.7
    
    
    
    701.4
    
    
    
    14.3Funds Withheld Asset
    
    
    1,530.6
    
    
    
    20.3
    
    
    
    1,648.1
    
    
    
    27.0
    
    
    
    1,598.5
    
    
    
    32.5Short-term investments
    
    
    55.8
    
    
    
    0.7
    
    
    
    318.0
    
    
    
    5.2
    
    
    
    89.5
    
    
    
    1.8Other investments
    
    
    173.5
    
    
    
    2.3
    
    
    
    177.3
    
    
    
    2.8
    
    
    
    195.1
    
    
    
    4.0Total investments
    
    $
    7,528.7
    
    
    
    100.0
    %
    
    $
    6,117.3
    
    
    
    100.0
    %
    
    $
    4,915.9
    
    
    
    100.0
    %
 Fixed Maturities As of December 31, 2003, our fixed maturities portfolio, excluding the
Funds Withheld Asset (described more fully below), had a carrying value of $4.9
billion and represented 63.1% of our total investment portfolio including cash
and cash equivalents (82.7% including the Funds Withheld Asset). This
represents an increase in carrying value of $1,485.5 million, or 43.1%, from
December 31, 2002, excluding the Funds Withheld Asset. This increase was mainly
due to the reinvestment of 2003 cash flows from operations, the reinvestment in
2003 of proceeds received in late 2002 from our guaranteed subordinated notes
and unrealized gains on fixed maturities and currency translation adjustments. To protect our balance sheet from a possible rise of the yield curves, we
stabilized the modified duration of our bond portfolio, excluding
held-to-maturity securities, at 3.6. Additionally, we created a portfolio of
held-to-maturity government bonds totalling $500.4 million (10.2% of our fixed
maturities portfolio, excluding the Funds Withheld Asset), of which $308.0
million were transferred from available-for-sale to held-to-maturity and $192.4
million were directly invested from operational cash flow. We invest in government, agency and corporate fixed income securities of
issuers from around the world that meet our liquidity and credit standards. We
place an emphasis on investing in listed fixed income securities that we
believe to be liquid. The table below presents the composition of our fixed income maturities
portfolio, excluding short-term investments, based on carrying value by
scheduled maturity. (US$ million)
    
    Estimated fair value
    
    % of total
    
    Carrying value
    
    % of totalAs of December 31, 2003
    
    Available-for-sale (AFS)
    
    AFS
    
    Held-to-maturity (HTM)
    
    HTMLess than one year
    
    $
    48.9
    
    
    
    1.1
    %
    
    $
    19.0
    
    
    
    3.8
    %One year through five years
    
    
    2,241.7
    
    
    
    50.6
    
    
    
    78.8
    
    
    
    15.7Five years through ten years
    
    
    939.0
    
    
    
    21.2
    
    
    
    364.7
    
    
    
    72.9Over ten years
    
    
    162.1
    
    
    
    3.7
    
    
    
    37.9
    
    
    
    7.6Subtotal
    
    
    3,391.7
    
    
    
    76.6
    
    
    
    500.4
    
    
    
    100.0Mortgage and asset-backed securities
    
    
    849.1
    
    
    
    19.2
    
    
    
    
    
    
    
    Unit trust bonds
    
    
    187.4
    
    
    
    4.2
    
    
    
    
    
    
    
    Total as of December 31, 2003
    
    $
    4,428.2
    
    
    
    100.0
    %
    
    $
    500.4
    
    
    
    100.0
    %
 Most of our fixed income securities are rated by Standard & Poors,
Moodys or similar rating agencies. As of December 31, 2003, approximately
99.5% of our fixed maturities securities portfolio was invested in securities
rated A or better by these agencies and approximately 81.2% was invested in
AAA/Aaa-rated securities. The table below presents the composition of our fixed income securities
portfolio by rating as assigned by Standard & Poors or Moodys, using the
lower of these ratings for any security where there is a split rating. (US$ million)
    
    Estimated fair value
    
    % of total
    
    Carrying value
    
    % of totalAs of December 31, 2003
    
    Available-for-sale (AFS)
    
    AFS
    
    Held-to-maturity (HTM)
    
    HTMAAA/Aaa
    
    $
    3,514.8
    
    
    
    79.4
    %
    
    $
    485.2
    
    
    
    97.0
    %AA/Aa2
    
    
    501.5
    
    
    
    11.3
    
    
    
    15.2
    
    
    
    3.0A/A2
    
    
    388.5
    
    
    
    8.8
    
    
    
    
    
    
    
    BBB/Baa2
    
    
    9.3
    
    
    
    0.2
    
    
    
    
    
    
    
    BB
    
    
    10.1
    
    
    
    0.2
    
    
    
    
    
    
    
    Not rated
    
    
    4.0
    
    
    
    0.1
    
    
    
    
    
    
    
    Total as of December 31, 2003
    
    $
    4,428.2
    
    
    
    100.0
    %
    
    $
    500.4
    
    
    
    100.0
    %
 Our guidelines also restrict our maximum investment in bonds issued by any
group or industry sector by reference to local 41




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benchmarks and applicable insurance regulations. As of December 31, 2003,
no aggregated amount of bonds issued by a single group (excluding governments
and funds) represented more than 5% of our fixed maturities securities
portfolio. Equity Securities As of December 31, 2003, our equity securities portfolio had a carrying
value of $840.2 million. This represents an increase in carrying value of
$309.4 million, or 58.3%, from December 31, 2002. This increase was primarily
due to purchases, as well as unrealized gains due to the continued recovery of
the capital markets and changes in currency translation due to the weakening of
the U.S. dollar. This brought our equity allocation, excluding our investment
in PSP Swiss Property AG, back to approximately 9.7% of our total investment
portfolio as of December 31, 2003, including cash and cash equivalents. Substantially our entire equity portfolio consists of listed securities,
held directly or through funds. Currently our entire equity portfolio is in
developed markets. Our exposure to private equity fund investments as of December 31, 2003
was approximately $59.9 million. This represents the sum of the fair value of
invested capital (as determined by the fund managers) and remaining unpaid
commitments. Of this total, the value of remaining unpaid commitments was
approximately $12.6 million. At December 31, 2003 and 2002, gross unrealized gains on our equity
portfolio were $96.2 million and $2.6 million and gross unrealized losses were
$1.7 million and $56.2 million, respectively. We have reviewed the securities
that have declined in value and have recorded impairments accordingly. Our impairment policy requires us to record, as realized capital losses,
declines in value that exceed 20% over a period of six months, or that exceed
50% regardless of the period of decline. To continue to adhere to emerging
asset impairment standards, beginning in the second quarter of 2003, we revised
our impairment policy to also record as realized capital losses any declines in
value of equity securities over a period of more than twelve months. The same
policy applies to fixed maturities securities when the decline in value is
attributable to the deteriorating credit-worthiness of the issuer. At
managements judgment, we impair additional securities based on prevailing
market conditions by considering various factors such as the financial
condition of the issuer, the market value and the expected future cash flows of
the security. Our guidelines also restrict our maximum investment in any one equity
security or industry sector by reference to local benchmarks and applicable
insurance regulations. As of December 31, 2003, excluding our investments in
funds and PSP Swiss Property AG, no single equity security represented more
than 5% of our equity securities portfolio. Funds Withheld Asset The transfer of certain historical reinsurance business to Converium was
effective as of July 1, 2001 by means of the Quota Share Retrocession
Agreement. In addition, on that date, the Funds Withheld Asset was established.
Its initial balance was set to match the net balance of the liabilities, less
the premium receivables (including outstanding collectible balances and
reinsurance deposits) on the business to which the Quota Share Retrocession
Agreement applies. As of December 31, 2003, the Funds Withheld Asset was
$1,530.6 million compared to $1,648.1 million at December 31, 2002. The
decrease of $117.5 million was substantially due to paid claims and
commutations offset by changes in foreign exchange rates. In general, the Funds Withheld Asset is reduced by paid claims, profit
commissions, amounts paid to maintain the retrocession agreements and other
amounts paid on the business subject to the Quota Share Retrocession Agreement,
and is increased by premiums (less premium refunds), salvage and subrogation,
recoveries under retrocession agreements, profit commissions and other amounts
received for the business subject to the Quota Share Retrocession Agreement.
The balance of the Funds Withheld Asset will decrease over time. However,
business historically written on the ZIC and ZIB balance sheets is being
renewed and written on the Converium balance sheet. As a result, we will
generate invested assets from the new and renewal business written on the
Converium balance sheet which we expect to at least partially offset reductions
of the balance of the Funds Withheld Asset. We do not expect the Funds Withheld
Asset to have a material impact on our liquidity, as we will not be required to
access our own liquidity sources for claims under the Quota Share Retrocession
Agreement. Under the Quota Share Retrocession Agreement, the interest payable to
Converium AG on the Funds Withheld Asset is based on fixed interest rates tied
to each of our major functional currencies. These interest rates were
calculated as if the assets had been invested in fixed income securities
denominated in the functional currencies payable on the Funds Withheld Asset as
of July 1, 2001 and reflected the estimated duration of the underlying
reinsurance liabilities as of that date. During 2003, the weighted average
interest rate was 5.4%. Under the Quota Share Retrocession Agreement, the Funds Withheld Asset may
be prepaid to us in whole or in part as of 42




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the end of any calendar quarter. In the event that the Funds Withheld
Asset is prepaid, we would have to reinvest these assets in investments which
may not provide yields comparable to those under the Quota Share Retrocession
Agreement. To the extent we are not able to invest these funds at comparable
yields, our investment income could be adversely affected. Short-Term Investments Our short-term investment portfolio includes investments in fixed-term
deposits and fiduciary investments. These investments generally have maturities
of between three months and one year. As of December 31, 2003, we had
short-term investments with a carrying value of $55.8 million, representing
0.7% of our total investment portfolio, including cash and cash equivalents.
Short-term investments at December 31, 2002 were $318.0 million, and included
$193.7 million in proceeds received on December 23, 2002 from the issuance of
our guaranteed subordinated notes. These proceeds were substantially invested
in January 2003. None of our short-term investments portfolio is restricted as
to its use. Real Estate At December 31, 2003 and 2002, we had real estate held for investment of
$130.2 million and $167.9 million, respectively, consisting primarily of
investments in residential and commercial rental properties located in
Switzerland. The reduction of the allocation is due to the sale of some
non-core properties, partially offset by the impact of the weakening U.S.
dollar. Our direct real estate portfolio represented 1.7% of our total
investment portfolio, including cash and cash equivalents. In addition to these properties, Converium owns a 7.4% participation in
PSP Swiss Property AG (an indirect real estate investment, included in equity
securities) with a market value of $80.0 million as of December 31, 2003. Premiums Receivable We had premiums receivable of $2.0 billion at December 31, 2003 compared
to $1.7 billion at December 31, 2002, an increase of $287.0 million, or 16.7%.
This increase is due to strong growth in premium volume in 2003. Premiums
receivable include those currently due, as well as deferred premiums
receivable, which is comprised primarily of accruals on premium balances which
have not yet been reported and which are not contractually due to be paid until
sometime in the future. Current premiums receivable represented 9.1% and 7.6%
of total premiums receivable at December 31, 2003 and 2002, respectively, and
accrued premiums receivable represented 90.9% and 92.4%, respectively. Reinsurance Assets Retrocessional reinsurance arrangements generally do not relieve Converium
from its direct obligations to its reinsureds. Thus, a credit exposure exists
with respect to reinsurance ceded to the extent that any retrocessionaire is
unable or unwilling to meet the obligations assumed under the retrocessional
agreements. At December 31, 2003, we held $635.3 million in collateral as
security under related retrocessional agreements in the form of deposits,
securities and/or letters of credit. Converium is able to access outside
capacity for both traditional and non-traditional coverage and therefore is not
dependent upon any single retrocessional market. As of December 31, 2003 we had reinsurance recoverables from
retrocessionaires of approximately $1.7 billion on paid and unpaid losses and
loss adjustments expenses, unearned premium reserves and future life benefits,
an increase of 5.6% from December 31, 2002. Recoverables from subsidiaries of
Zurich Financial Services total 19.5% of equity at December 31, 2003.
Recoverables from one other third-party retrocessionaire were 10.2% of equity
at December 31, 2003. Recoverables from retrocessionaires relating to contracts
in arbitration were 7.9% of equity at December 31, 2003. There were no
recoverables from any other retrocessionaire that exceeded 10% of equity at
December 31, 2003. Allowances of $35.4 million and $17.4 million have been
recorded for estimated uncollectible receivables and reinsurance recoverables
at December 31, 2003 and 2002, respectively. Capital Expenditures In the three years ending December 31, 2003, we invested a total of $63.7
million in fixed assets. Most of these amounts were invested in equipment and
information technology, and were financed from our free cash flow. We currently
intend to continue to make capital investments at a similar pace and, in
particular, to further enhance our global intellectual information technology
platforms. Ratings Converium is rated A (Strong), stable outlook, by Standard & Poors
Corporation and A (Excellent), stable outlook, by A.M. Best Company, Inc. 43




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Standard & Poors A range (A+, A and A-) is the second highest of
three ratings ranges within what Standard & Poors considers the secure
category. An insurer rated A is believed by Standard & Poors to have strong
financial security characteristics, but to be somewhat more likely to be
affected by business conditions than are insurers with higher ratings. A plus
(+) or minus (-) shows relative standing in a rating category. A.M. Best states that its A (Excellent) rating is assigned to those
companies which, in its opinion, have, on balance, achieved excellent financial
strength, operating performance and market profile when compared to the
standards established by A.M. Best and have demonstrated a strong ability to
meet their ongoing obligations to policyholders. The A (Excellent) rating is
the third highest of fifteen ratings assigned by A.M. Best, which range from
A++ (Superior) to F (In liquidation). Other agencies may rate Converium or one or more of our subsidiaries on an
unsolicited basis. Our Standard & Poors and A.M. Best ratings are not designed to be, and do
not serve as, measures of protection or valuation offered to investors and
these financial strength ratings should not be relied on with respect to making
an investment in our securities. Standard & Poors and A.M. Best review their
ratings periodically and we cannot assure you that we will maintain our current
ratings in the future. On December 23, 2002, Converium Finance S.A. issued $200.0 million of
30-year subordinated notes. Converium Holding AG and Converium AG, jointly and
severally, guaranteed, on a subordinated basis, payments on the notes. The
guaranteed subordinated notes due 2032 are listed on the New York Stock
Exchange under the ticker symbol CHF. The notes are callable from 2007. The
securities were rated Baa1/BBB+ by Moodys and Standard & Poors and carry a
8.25% coupon, payable quarterly. Regulation General The business of reinsurance is regulated in most countries, although the
degree and type of regulation varies significantly from one jurisdiction to
another. Reinsurers are generally subject to less direct regulation than
primary insurers in most countries. In Switzerland and Germany, we operate
under relatively less intensive regulatory regimes. Historically, neither Swiss
nor German regulations have materially restricted our business. However, in the
United States, licensed reinsurers must comply with financial supervision
standards comparable to those governing primary insurers. Accordingly, our U.S.
subsidiaries are subject to extensive regulation under state statutes, which
delegate regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, which is described in more detail below, generally is
designed to protect policyholders rather than investors, and relates to such
matters as rate setting; limitations on dividends and transactions with
affiliates; solvency standards which must be met and maintained; the licensing
of insurers and their agents; the examination of the affairs of insurance
companies, which includes periodic market conduct examinations by the
regulatory authorities; annual and other reports, prepared on a statutory
accounting basis; establishment and maintenance of reserves for unearned
premiums and losses; and requirements regarding numerous other matters. U.S.
regulations accordingly have in the past materially affected our U.S. business
operations, although not, we believe, in a manner disproportionate to or
unusual in our industry. We allocate considerable time and resources to comply
with these requirements, and could be adversely affected if a regulatory
authority believed we had failed to comply with applicable law or regulation. We believe that Converium and all of its subsidiaries are in material
compliance with all applicable laws and regulations pertaining to their
business and operations. Set forth below is a summary of the material
regulations applicable to us. Switzerland Converium AG has received an operating license from the Swiss Federal
Ministry of Justice and Police (Eidgenoessisches Justiz-und Polizeidepartement)
(the Swiss Ministry of Justice and Police). Converium AG is subject to
continued supervision by the Federal Office for Private Insurance (Bundesamt
für Privatversicherungswesen) (the FOPI), an administrative unit of the Swiss
Ministry of Justice and Police, pursuant to the Swiss Insurance Supervisory Act
of June 23, 1978, as amended (Versicherungsaufsichtsgesetz). The FOPI has
supervisory authority as well as the authority to make decisions to the extent
that the Swiss Ministry of Justice and Police is not explicitly designated by
law. Unlike insurance business, which is strictly regulated in Switzerland,
regulation of reinsurance business is less intensive and most of the technical
rules for direct insurers are not applicable to the reinsurance business. The
supervision exercised by the FOPI is mainly indirect through the supervision of
direct insurance companies and the reinsurance arrangements which 44




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they have established. Reinsurance companies from other countries which
conduct only reinsurance business in Switzerland from their foreign domicile
are exempt from supervision by the FOPI. Based upon a decree of the Federal
Council of November 30, 2001, a commission has been constituted to consider a
revision of the overall framework of the Swiss banking and insurance
supervision. The full report by the commission is expected to be released this
summer. The proposal will include the formation of a uniform financial services
authority which will comprise the supervision on banks (currently by the
Federal Banking Commission) and insurance (currently by the FOPI). Under current regulations, Swiss insurance and reinsurance companies
cannot operate in any field other than reinsurance and insurance. This rule is
subject to exceptions, which are granted by the FOPI. Generally, these
exceptions apply if the nature and volume of the proposed non-insurance or
non-reinsurance business does not threaten the solvency of the company.
Investments in an entity operating outside the reinsurance or insurance field
are subject to supervisory authority approval if the investment represents more
than 20% (or 10% in the case of a life insurance business) of the share or
cooperative capital of the non-insurance entity or if the investment represents
more than 10% of the insurers or reinsurers shareholders equity. Approval is
granted if the investment does not threaten the solvency of the company. The FOPI requires each reinsurance company to submit a business plan which
provides details about the calculation of its technical reserves and about its
retrocession policies, and information about the reinsurers solvency. The FOPI
initially examines documents relating to the companys solvency, organization
and management. If all legal requirements are met, an operating license is
granted by the Swiss Ministry of Justice and Police. Thereafter, companies must
submit an annual business report, including financial statements, detailing
information on all aspects of their business activities, such as premium
income, paid out benefits, reserves and profits. The Versicherungsaufsichtsgesetz is currently subject to a total revision.
The draft proposal passed by the Swiss Federal Council, on May 9, 2003, is
currently subject of the discussions in the Swiss parliament. The final revised
Act is expected to become effective as of January 1, 2005. The main changes
resulting from the revised Act relate to the amended definition of solvency
(Art. 9 of the proposal), which will include consideration of financial and
operational risks, an emphasis on the control of corporate governance elements
by the Swiss insurance supervisory authority and an increased transparency and
consumer protection. The solvency related amendments will result in the Swiss
regulatory system introducing a system, which pre-empts the forthcoming changes
in the EU, based upon Solvency II. United States General U.S. State Supervision Insurance and reinsurance regulation is enforced by the various state
insurance departments and the extent and nature of regulation varies from state
to state. Converium Reinsurance (North America) Inc. is a Connecticut-domiciled
reinsurer which is licensed, accredited or approved in all 50 states, is an
accredited reinsurer in the District of Columbia and is an admitted reinsurer
for the United States Treasury. Converium Insurance (North America) Inc. is a
New Jersey-domiciled insurer licensed in 49 states (excluding only New
Hampshire) and the District of Columbia (as a reinsurer). In addition, some
states consider an insurer to be commercially domiciled in their states if
the insurer writes insurance premiums that exceed certain specified thresholds.
As a commercially domiciled insurer, an insurer would be subject to some of
the requirements normally applicable only to insurers domiciled in those
states, including, in particular, certain requirements of the insurance holding
company laws. Converium Insurance (North America) Inc. is currently
commercially domiciled in California. Insurance Holding Company Regulation We and our U.S. insurance and reinsurance subsidiaries are subject to
regulation under the insurance holding company laws of various states. The
insurance holding company laws and regulations vary from state to state, but
generally require insurers and reinsurers that are subsidiaries of insurance
holding companies to register and file with state regulatory authorities
certain reports including information concerning their capital structure,
ownership, financial condition and general business operations. Generally, all
transactions involving the insurers in a holding company system and their
affiliates must be fair and, if material, require prior notice and approval or
non-disapproval by the state insurance department. Further, state insurance
holding company laws typically place limitations on the amounts of dividends or
other distributions payable by insurers and reinsurers. Connecticut and New
Jersey, the jurisdictions in which Converium Reinsurance (North America) Inc.
and Converium Insurance (North America) Inc. are domiciled, each provide that,
unless the prior approval of the state insurance commissioner has been
obtained, dividends may be paid only from earned surplus and the annual amount
payable is limited to the greater of 10% of policyholder surplus at the end of
the prior year or 100% of statutory net income for the prior year (excluding
realized gains, in the case of the New Jersey insurer). In addition, Converium
Reinsurance (North America) Inc. may not, for a period of two years from the
date of any change of control, make any dividends to its shareholders without
the prior approval of the Insurance Commissioner. 45




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State insurance holding company laws also require prior notice or state
insurance department approval of changes in control of an insurer or reinsurer
or its holding company. The insurance laws of Connecticut and New Jersey
provide that no corporation or other person may acquire control of a domestic
insurance or reinsurance company unless it has given notice to such company and
obtained prior written approval of the state insurance commissioner. Any
purchaser of 10% or more of the outstanding voting securities of an insurance
or reinsurance company or its holding company is presumed to have acquired
control, unless this presumption is rebutted. Therefore, an investor who
intends to acquire 10% or more of our outstanding voting securities may need to
comply with these laws and would be required to file notices and reports with
the Connecticut and New Jersey insurance commissioners prior to such
acquisition. In addition, many state insurance laws require prior notification to the
state insurance department of a change in control of a non-domiciliary
insurance company licensed to transact insurance in that state. While these
pre-notification statutes do not authorize the state insurance departments to
disapprove the change in control, they authorize regulatory action in the
affected state if particular conditions exist such as undue market
concentration. Any future transactions that would constitute a change in
control of Converium Holdings (North America) Inc. or either of its U.S.
insurance subsidiaries may require prior notification in the states that have
adopted pre-acquisition notification laws. Insurance Regulation Converium Insurance (North America) Inc. is subject to broad state
insurance department administrative powers with respect to all aspects of the
insurance business including: licensing to transact business, licensing agents,
admittance of assets to statutory surplus, regulating premium rates, approving
policy forms, regulating unfair trade and claims practices, methods of
accounting, establishing reserve requirements and solvency standards, and
regulating the type, amounts and valuations of investments permitted and other
matters. State insurance laws and regulations require our U.S. insurance and
reinsurance subsidiaries to file financial statements with insurance
departments everywhere they do business, and the operations of our U.S.
insurance and reinsurance subsidiaries and accounts are subject to the
examination by those departments at any time. Our U.S. insurance and
reinsurance subsidiaries prepare statutory financial statements in accordance
with accounting practices and procedures prescribed or permitted by these
departments. State insurance departments conduct periodic examinations of the books and
records, financial reporting, policy filings and market conduct of insurance
companies domiciled in their states, generally once every three to five years.
Examinations are generally carried out in cooperation with the insurance
departments of other states under guidelines promulgated by the National
Association of Insurance Commissioners. The Connecticut Insurance Department
last completed a financial examination of Converium Reinsurance (North America)
Inc. (CRNA) for the five-year period ending December 31, 2002. The New
Jersey Department of Banking and Insurance last completed a financial
examination of Converium Insurance (North America) Inc. (CINA) for the
five-year period ending December 31, 2000. Reinsurance Regulation Converium Reinsurance (North America) Inc. is subject to regulation and
supervision that is similar to the regulation of licensed primary insurers in
many respects. Generally, state regulatory authorities monitor compliance with,
and periodically conduct examinations regarding, state mandated standards of
solvency, licensing requirements, investment limitations, restrictions on the
size of risks which may be reinsured, deposits of securities for the benefit of
reinsureds, methods of accounting, and reserves for unearned premiums, losses
and other purposes. However, in contrast with primary insurance policies which
are regulated as to rate, form, and content, the terms and conditions of
reinsurance agreements generally are not subject to regulation by state
insurance regulators. Converium Reinsurance (North America) Inc. is accredited or approved to
write reinsurance in certain states. The ability of any primary insurer, as
reinsured, to take credit for the reinsurance placed with reinsurers is a
significant component of reinsurance regulation. Typically, a primary insurer
will only enter into a reinsurance agreement if it can obtain credit on its
statutory financial statements for the reinsurance ceded to the reinsurer.
Credit is usually granted when the reinsurer is licensed or accredited in the
state where the primary insurer is domiciled. In addition, many states allow
credit for reinsurance ceded to a reinsurer that is licensed in another state
and which meets certain financial requirements, or if the primary insurer is
provided with collateral to secure the reinsurers obligations. U.S. Reinsurance Regulation of our Non-U.S. Reinsurance Subsidiaries Converium AG and Converium Rückversicherung (Deutschland) AG, our non-U.S.
reinsurance subsidiaries, also assume reinsurance from primary U.S. insurers.
In order for primary U.S. insurers to obtain financial statement credit for the
reinsurance obligations of our non-U.S. reinsurers, our non-U.S. reinsurers
must satisfy reinsurance requirements. Non-U.S. 46




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reinsurers that are not licensed in a state generally may become
accredited by filing certain financial information with the relevant state
commissioner and maintaining a U.S. trust fund for the payment of valid
reinsurance claims in an amount equal to the reinsurers U.S. reinsurance
liabilities covered by the trust plus an additional $20 million. In addition,
unlicensed and unaccredited reinsurers may secure the U.S. primary insurer with
funds equal to its reinsurance obligations in the form of cash, securities,
letters of credit or reinsurance trusts. NAIC Ratios The NAIC has developed a set of financial relationships or tests known as
the NAIC Insurance Regulatory Information System to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or action by insurance regulatory
authorities. Insurance companies generally submit data quarterly to the NAIC,
which in turn analyzes the data using prescribed financial data ratios, each
with defined usual ranges. If an insurance companys results vary
significantly from expected ranges, regulators may make further inquiries.
Regulators have the authority to impose remedies ranging from increased
monitoring to certain business limitations to various degrees of supervision.
For example, as a result of having two IRIS loss reserve tests fall outside of
the specified parameters as of December 31, 2001 and December 31, 2002,
Converium Reinsurance (North America) Inc. was required by the State of New
York Insurance Department to engage a qualified independent loss reserve
specialist to render an opinion as to the adequacy of its loss and loss
adjustment expense reserves at December 31, 2002 and December 31, 2003,
respectively. Neither our U.S. insurance nor our reinsurance subsidiary are
currently subject to any other increased regulatory scrutiny based on these
ratios. Risk-Based Capital The Risk-Based Capital for Insurers Model Act, or the Model Act, as it
applies to non-life insurers and reinsurers, was adopted by the NAIC in 1993.
The main purpose of the Model Act is to provide a tool for insurance regulators
to evaluate the capital of insurers relative to the risks assumed by them and
determine whether there is a need for possible corrective action. U.S. insurers
and reinsurers are required to report the results of their risk-based capital
calculations as part of the statutory annual statements filed with state
insurance regulatory authorities. The Model Act provides for four different
levels of regulatory actions based on annual statements, each of which may be
triggered if an insurers Total Adjusted Capital, as defined in the Model Act,
is less than a corresponding level of risk-based capital (RBC). The Company Action Level is triggered if an insurers Total Adjusted
Capital is less than 200% of its Authorized Control Level RBC, as defined in
the Model Act. At the Company Action Level, the insurer must submit a RBC plan
to the regulatory authority that discusses proposed corrective actions to
improve its capital position. The Regulatory Action Level is triggered if an
insurers Total Adjusted Capital is less than 150% of its Authorized Control
Level RBC. At the Regulatory Action Level, the regulatory authority will
perform a special examination of the insurer and issue an order specifying
corrective actions that must be followed. The Authorized Control Level is
triggered if an insurers Total Adjusted Capital is less than 100% of its
Authorized Control Level RBC, and at that level the regulatory authority is
authorized (although not mandated) to take regulatory control of the insurer.
The Mandatory Control Level is triggered if an insurers Total Adjusted Capital
is less than 70% of its Authorized Control Level RBC, and at that level the
regulatory authority must take regulatory control of the insurer. Regulatory
control may lead to rehabilitation or liquidation of an insurer. As of December
31, 2003, the Total Adjusted Capital of each of our U.S. reinsurance subsidiary
and our U.S. insurance subsidiary exceeded amounts requiring company or
regulatory action at any of the four levels. The Gramm-Leach-Bliley Act In November 1999, the Gramm-Leach-Bliley Act of 1999, or the GLBA, was
enacted, implementing fundamental changes in the regulation of the financial
services industry in the United States. The GLBA permits the transformation of
the already converging banking, insurance and securities industries by
permitting mergers that combine commercial banks, insurers and securities firms
under one holding company, a financial holding company. Bank holding
companies and other entities that qualify and elect to be treated as financial
holding companies may engage in activities, and acquire companies engaged in
activities that are financial in nature or incidental or complementary to
such financial activities. Such financial activities include acting as
principal, agent or broker in the underwriting and sale of life, property,
casualty and other forms of insurance and annuities. However, although a bank
cannot act as an insurer nor can it own an insurer as a subsidiary in most
circumstances, a financial holding company can own any kind of insurer,
insurance broker or agent. Under the GLBA, national banks retain their existing
ability to sell insurance products in some circumstances. Under state law, the financial holding company must apply to the insurance
commissioner in the insurers state of domicile for prior approval of the
acquisition of the insurer. Under the GLBA, no state may prevent or restrict
affiliations between banks and insurers, insurance agents or brokers. Further,
states cannot prevent or significantly interfere with bank or bank subsidiary
sales activities. Finally, both bank and bank affiliates can obtain licenses as
producers. 47




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Until the passage of the GLBA, the Glass-Steagall Act of 1933, as amended,
had limited the ability of banks to engage in securities-related businesses,
and the Bank Holding Company Act of 1956, as amended, had restricted banks from
being affiliated with insurers. With the passage of the GLBA, among other
things, bank holding companies may acquire insurers, and insurance holding
companies may acquire banks. The ability of banks to affiliate with insurers
may materially affect our U.S. insurance and reinsurance subsidiaries product
lines by substantially increasing the number, size and financial strength of
potential competitors. Insurance Guaranty Association Assessments Each state has insurance guaranty association laws under which property
and casualty insurers doing business in the state may be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. These laws do not apply to
reinsurers. Typically, states assess each member insurer in an amount related
to the member insurers proportionate share of the business written by all
member insurers in the state. Losses caused by the September 11th terrorist
attacks, loss reserve deficiencies, or prior investment results may result in
the insolvency of certain U.S. insurance companies, increasing the possibility
that we will be assessed by state insurance guaranty associations. While we
cannot predict the amount and timing of any future assessments on our insurance
companies under these laws, we have established reserves that we believe are
adequate for assessments relating to insurance companies that are currently
subject to insolvency proceedings. Terrorism Legislation On November 26, 2002, President George W. Bush signed into law the
Terrorism Risk Insurance Act of 2002 (TRIA). This legislation establishes a
program under which the Federal government will share the risk of loss arising
from future terrorist attacks with the insurance industry. The law does not
apply to reinsurers, and the federal government does not share in the risk of
loss emanating from future terrorist attacks with the reinsurance industry.
Each reinsurer is free to make its own contractual arrangements with its ceding
partners, as it deems appropriate. Regarding our ceding companies, TRIA offers a three-year program, imposes
a deductible that must be satisfied before federal assistance is triggered and
contains a coinsurance feature. The deductible is based on a percentage of
direct earned premiums for commercial insurance lines from the previous
calendar year. It rises from 1% during the transition period, running from the
date of enactment to December 31, 2002, to 7% during year one of the program
(2003), 10% during year two, and 15% in year three. The federal program covers
90% of losses in excess of the applicable deductible, while the insurance
company retains the remaining 10%. The program imposes an annual of cap of $100
billion on covered losses. Participation in the program for insurers providing
commercial property and casualty insurance is mandatory. While TRIA appears to
provide the property and casualty sector with an increased ability to withstand
the effect of potential terrorist events during the next three years, any
companys results of operations or equity could nevertheless be materially
adversely impacted, in light of the unpredictability of the nature, targets,
severity or frequency of such potential events. Germany Converium Rückversicherung (Deutschland) AG is regulated in Germany and is
engaged exclusively in the reinsurance business. It is thus an insurance
enterprise within the meaning of the German Insurance Supervision Act and as
such is subject to governmental supervision. This supervision is exercised by
the Federal Insurance Supervisory Office located in Bonn. In contrast to insurance enterprises, companies that engage exclusively in
reinsurance activities are subject to a less extensive scope of governmental
supervision. The supervisory authoritys monitoring of reinsurers consists of
ensuring that they comply with the specific accounting regulations applicable
to insurance enterprises. For this purpose, reinsurance enterprises are
required to submit quarterly and annual financial statements to the supervisory
authority. In addition, reinsurers are obligated to submit detailed reports on the
nature and volume of their business to the supervisory authority in accordance
with the Ordinance on Reporting by Insurance Enterprises to the Federal
Insurance Supervisory Office. The supervisory authority may, at its discretion, perform inspections at
the reinsurers premises to verify compliance with these statutory obligations. In current practice, for the most part German reinsurers are only
indirectly supervised, principally through the supervision of primary insurance
companies. Exploration of subjecting German reinsurance companies to a more
extensive form of regulation and supervision has not progressed very far to
date. However, German reinsurance companies may become subject to more intense
regulation in the future. In particular, the Federal Insurance Supervisory
Office requires German insurance companies to monitor their reinsurance
agreements, which has led to the installation of internal rating systems for
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by German insurance companies. A draft act is currently being discussed in Germany to fully integrate the
reinsurance industry into the whole scope of supervision comparable with the
already existing situation in the primary insurance industry. This would follow
the new EU guidance for reinsurers The new law is intended to become effective
by January 1, 2005. The main objects affecting the reinsurance industry include
topics such as legal form of the company, location of the headquarters,
qualification of the executive management, control procedures towards
shareholders, investment principles and special intervention rights for the
supervision bodies. United Kingdom Converium Insurance (UK) Ltd. (CIL) is subject to UK insurance
regulation and the supervision by the UK Financial Services Authority (FSA). It
is anticipated that the UK regulatory environment will be subject to
considerable change between 2004 and 2006. This will include adoption of
increased solvency requirements, which are based upon the EU Solvency I
Directive. The latter will trigger increased capital requirements for certain
liability business. Prior to the introduction of the EU Solvency II Directive,
the FSA is expected to introduce enhanced capital requirements for general
insurers, which will include capital charges based upon assets, claims and
premium (Consultation Paper CP 190). CIL has taken steps to
anticipate the new requirements, in particular the initial capitalization of
the company has been set at a level that is expected to meet the enhanced
capital requirements for general insurers set out in CP190. European Union Directives Our businesses in the United Kingdom and Germany, as well as in the other
member states of the European Union (EU) and the European Economic Area, or
EEA, are impacted by EU directives. These directives are implemented through
legislation in each member state. Switzerland, which is not a member state of
the EU, entered into a treaty with the EU in 1989 which allows Swiss direct
insurers, other than life insurers, the free establishment of branches and
subsidiaries within the EU. Without being part of the EEA nor being bound by
contract, Switzerland reviews and largely conforms its financial services
regulations with EU Directives. In October 2002, the European Commission, or EC, released a draft Proposal
for a Directive of the European Parliament and of the Council concerning
reinsurance and retrocession, which has been subject to a consultation process
in the interim. The proposed Directive, when adopted will essentially establish
the principles applicable to the taking-up of the business of reinsurance in a
Member State as well as rules regarding technical provisions and the solvency
requirements applicable to reinsurance companies. The Directive is based
largely on solvency related concepts stipulated in the prior Directive adopted
by the EU for insurance companies. The proposed Directive does not currently
provide for any discrimination of non-EU based reinsurance companies. However,
if the final adopted Directive should include such discriminatory regulations,
this could be a disadvantage for Converium AG in its doing business in the EU,
as Converium AG derives a substantial proportion of its revenues within the EU
and any competitive disadvantage we face there could have an adverse effect on
our result of operations. C. ORGANIZATIONAL STRUCTURE We are a multinational group of companies with insurance and reinsurance
subsidiaries and other companies organized in jurisdictions worldwide. Our
significant subsidiaries are Converium AG, Converium Finance S.A., Converium
Rückversicherung (Deutschland) AG and Converium Holdings (North America) Inc.,
which holds our subsidiaries Converium Reinsurance (North America) Inc. and
Converium Insurance (North America) Inc. Converium AG, owns, directly or
indirectly, 100% of all of our operating companies. In January 2003, Converium
purchased the remaining 1.37% interest in Converium Rückversicherung
(Deutschland) AG which increased its interest to 100.0%. 49




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The following chart summarizes our corporate structure. (FLOW CHART)  (1)
    
    The sale and purchase agreement to acquire an additional 5.1% stake in
GAUM was successfully completed in February 2004. The total shareholding
in GAUM is now 30.1%. D. PROPERTY, PLANTS AND EQUIPMENT Our operational head office is located at General Guisan  Quai 26, 8002
Zurich, Switzerland, where we lease an aggregate of 227,226 square feet. We
also maintain offices at:  
    
    our U.S. headquarters in New York, New York, at One Chase Manhattan
Plaza, New York, NY 10005 where we sublease an aggregate of 77,013
square feet and
    
    our German headquarters in Cologne, Germany, at Clever Strasse 36,
50668 Köln, Germany where we lease an aggregate of 44,918 square feet In addition to our headquarter offices, we lease space for our branch and
marketing offices. In addition, we have administrative offices in Stamford,
Connecticut. We believe that these facilities are adequate for our present
needs in all material respects. We also hold other properties for investment
purposes. 
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. OPERATING RESULTS You should read the following discussion and analysis in conjunction with
our consolidated financial statements including the related notes to those
financial statements. Our consolidated financial statements have been prepared
in accordance with U.S. GAAP. This discussion contains forward-looking
statements that involve risks and uncertainties and actual results may differ
materially from the results described or implied by these forward-looking
statements. You should read the information under Risk Factors on page 6 of
this annual report for information about material risks and uncertainties that
affect our 50




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business and Cautionary Note Regarding Forward-Looking Statements on page 3
for information about our presentation of forward-looking information. Overview Converium Holding AG and subsidiaries (Converium) is a leading global
professional reinsurer, which offers a full range of traditional non-life and
life reinsurance products as well as innovative non-traditional solutions to
help clients manage capital and risk. Our principal lines of non-life
reinsurance include general third party liability, motor, personal accident,
property, agribusiness, aviation and space, credit and surety, engineering,
marine and energy, professional liability and other special liability and
workers compensation. The principal life reinsurance products are ordinary
life and disability reinsurance, including quota share, surplus coverage and
financing contracts, and accident and health. Converium was formed through the restructuring and integration of
substantially all of the third-party assumed reinsurance business of Zurich
Financial Services through a series of transactions (Formation Transactions).
On December 1, 2001, Converium entered into a Master Agreement with Zurich
Financial Services (the Master Agreement), which set forth the terms of the
separation from Zurich Financial Services. In December 2001, Zurich Financial
Services sold 87.5% of its interest in Converium through an initial public
offering, which date represented the legal separation from Zurich Financial
Services. Zurich Financial Services remaining 12.5% interest in Converium was
sold in January 2002. Subsequent to these Formation Transactions, Converium has operated as an
independent company. However, under the Master Agreement, Converium has several
ongoing business relationships with Zurich Financial Services. See
Item 10.  Additional Information  C. Material Contracts and the notes to the
consolidated financial statements. Based on calendar year 2002 third-party net premiums written, Converium
ranks among the ten largest global reinsurers. Converium is rated A (Strong),
stable outlook, by Standard & Poors Corporation and A (Excellent), stable
outlook, by A.M. Best Company, Inc. Our Standard & Poors and A.M. Best ratings
are not designed to be, and do not serve as, measures of protection or
valuation offered to investors and these financial strength ratings should not
be relied on with respect to making an investment in our securities. Standard &
Poors and A.M. Best review their ratings periodically and we cannot assure you
that we will maintain our current ratings in the future. In October 2003, Converium implemented changes to its organizational and
financial reporting structures. At the time of its IPO in December 2001,
Converium adopted an organizational model based on geography. This was largely
driven by the historical development of its then parent, Zurich Financial
Services. Over its first two years as an independent reinsurer, Converium has
become more globally integrated and has seen its business strategy evolve. As a
result, the issues of legal entity and geography have become less relevant
criteria when evaluating business strategy and capital and resource allocation. Converiums business is now organized around three operating segments:
Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health
Reinsurance, which are based principally on global lines of business. In
addition to the three segments financial results, the Corporate Center carries
certain administration expenses, such as costs of the Board of Directors, the
Global Executive Committee, and other global functions. We prepare segregated financial information for each of our operating
segments. In the future, we plan to continue conducting our business and
measuring our financial and operating performance based on these segments. We derive our revenues principally from:  
    
    premiums from our non-life and life reinsurance and insurance businesses  
    
    investment income and investment gains from our portfolio of invested assets, net of investment expenses  
    
    interest on premium and loss deposits withheld by our clients Our costs and expenses principally consist of:  
    
    losses and loss adjustment expenses, which include:  
    
    non-life reinsurance and insurance losses and loss adjustment expenses
    
    death and other life reinsurance benefits 51




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
    
    operating and administration costs, which include:  
    
    treaty and individual risk underwriting acquisition costs, commonly referred to as commissions
    
    overhead costs, predominantly consisting of salaries and related costs
    
    interest expenses
    
    income taxes  Our profitability depends to a large extent on:  
    
    the quality of our underwriting and pricing  
    
    the level of incurred losses and commissions  
    
    the timing of loss and benefit payments  
    
    our ability to earn appropriate yields on our investment portfolio  
    
    our ability to manage operating and administration costs  
    
    our ability to efficiently and effectively manage risk, including retrocessions When reviewing our financial statements, there are certain business
characteristics that affect the reporting of our results. The most significant
factors are set forth below. Formation Transactions and Consolidated Financial Statements We prepare our financial statements on a U.S. GAAP basis. For periods
prior to December 11, 2001, we derived the financial information in this annual
report from the historical financial statements of Zurich Financial Services.
These statements present the financial condition, results of operations and
cash flows of the businesses which, prior to the Formation Transactions, were
owned by Zurich Financial Services and now comprise Converium. The Formation
Transactions included the:  
    
    creation of Converium Holding AG, based in Zug, Switzerland, as a separate legal entity  
    
    reinsurance by Converium AG under the Quota Share Retrocession Agreement (described below) of substantially all of the
third-party reinsurance business historically underwritten under the Zurich Re brand name by the Zurich Re Zurich
business unit of Zurich Financial Services  
    
    establishment of the Funds Withheld Asset contemplated by the Quota Share Retrocession Agreement  
    
    transfer by Zurich Financial Services and its subsidiaries of cash and other assets and liabilities to Converium The assets transferred to us included:  
    
    the shareholders equity of the legal entities comprising our operating businesses  
    
    the operating assets of the Converium AG business  
    
    cash and investments The following is a description of certain transactions that have been
entered into by Converium and Zurich Financial Services and their respective
subsidiaries to establish Converium as a stand-alone legal entity. Converium AG. Historically, Converium AG was not a separate legal entity
and underwrote substantially all of its business pursuant to reinsurance
policies issued by ZIC and Zurich International (Bermuda) Limited, or ZIB, both
subsidiaries of Zurich Financial Services, and was operated as the Zurich Re
Zurich business unit of Zurich Financial Services. These
subsidiaries were retained by Zurich Financial Services. In June 2001, we
incorporated Converium AG, based in Zurich, 52




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which is a wholly owned subsidiary
of Converium Holding AG. Since October 1, 2001, Converium AG has written its
new and renewal business on the balance sheet of the new legal entity. The
third-party reinsurance business written by ZIC and ZIB under the Zurich Re
brand name with an inception date on or after January 1, 1987 was reinsured by
Converium AG pursuant to the Quota Share Retrocession Agreement. See Item 10.
 Additional Information  C. Material Contracts  Acquisition of the Converium
AG Business  Quota Share Retrocession Agreement for a description of this
agreement. This business is reflected in our financial statements as if it had
been written by Converium AG from the date of inception of the business. The transfer of the Converium AG business was accomplished pursuant to the
Quota Share Retrocession Agreement, on a funds withheld basis. This means that
Converium AG assumed all the liabilities (except certain liabilities arising
from the September 11th terrorist attacks), primarily consisting of loss and
loss adjustment expense reserves plus unearned premium balances, relating to
the business. ZIC and ZIB retained the assets which support this business, and
Converium AG receives an investment return derived from these assets in the
form of interest. In this annual report, we refer to the assets retained by ZIC
and ZIB as the Funds Withheld Asset. See  Investment Results and Item 4.
 Information on the Company  B. Business Overview  Investments. Under the
Quota Share Retrocession Agreement, ZIC and ZIB remain the legal
counter-parties for the original insureds and Converium AG reinsures ZIC and
ZIB. Converium AG retains the profits and losses from this business. Converium AG has financial risks relating to the gross loss and loss
adjustment expense reserves and related third-party reinsurance recoverables
arising out of the business reinsured under the Quota Share Retrocession
Agreement. We manage all third-party retrocessions related to the reinsured
business and bear the credit risk for uncollectible reinsurance balances (with
the exception of reinsurance for September 11th events). Additionally, we have
a right of offset under the Quota Share Retrocession Agreement so that
reinsurance balances owed to ZIC and ZIB may be offset against the Funds
Withheld Asset directly. The Quota Share Retrocession Agreement provides that
ZIC and ZIB may not, during its term, cancel these existing third-party
retrocessions for the benefit of the reinsurance policies covered under the
agreement without the consent of Converium. Under the Quota Share Retrocession Agreement, the interest payable to
Converium AG on the Funds Withheld Asset is based on fixed interest rates tied
to each of our major functional currencies. These interest rates were
calculated as if the assets had been invested in fixed income securities
denominated in the functional currencies as of July 1, 2001 and reflect the
estimated duration of the underlying reinsurance liabilities as of that date.
Interest on the Funds Withheld Asset is payable quarterly in the currencies of
the assets held and the amount of interest payable will vary due to changes in
the currency mix of the Funds Withheld Asset and changes in foreign exchange
rates. Among other things, this structure is designed to reduce our exposure to
foreign currency movements. Converium Reinsurance (North America) Inc. In North America, our business
is conducted through the legal entities Converium Reinsurance (North America)
Inc. and Converium Insurance (North America) Inc., which are held through
Converium Holdings (North America) Inc. Converium Reinsurance (North America)
Inc. and Converium Insurance (North America) Inc. were historically known as
Zurich Reinsurance (North America), Inc., and ZC Insurance Company, or ZCIC,
respectively. Converium Holdings (North America) Inc. is a Delaware holding
company established to own our North American reinsurance and insurance
operations. Historically, a number of Zurich Financial Services business units wrote
business not managed by us on the Converium Reinsurance (North America) Inc.
balance sheet. These units included Zurich Financial Services internal
reinsurance division, referred to as GRI, and the Centre Group of companies,
referred to as Centre Group. As part of the Formation Transactions, the
business underwritten by GRI and Centre Group has been either novated or
retroceded to affiliates of Zurich Financial Services pursuant to certain
reinsurance and novation agreements. See Item 10. 
Additional Information  C. Material Contracts  Acquisition of the Converium Reinsurance (North America)
Inc. Business for a description of these agreements. Our financial statements
reflect the business that remains the financial responsibility of Converium
Reinsurance (North America) Inc. and exclude novated business from all periods
presented. The business that was retroceded is reported as 100% ceded for all
periods presented. Converium Reinsurance (North America) Inc. will only have
financial responsibility for the retroceded business if these affiliates of
Zurich Financial Services do not meet their reinsurance obligations. However,
this risk is mitigated by the fact that we hold reinsurance deposits to
collateralize the retroceded liabilities. Converium Rückversicherung (Deutschland) AG.Converium Rückversicherung
(Deutschland) AG was historically known as Agrippina
Rückversicherung and subsequently known as Zürich Rückversicherung (Köln) AG,
or ZRK. Historically, Zurich Re Zurich, ZIC and GRI all wrote reinsurance
business through policies issued by ZRK. As part of the Formation Transactions,
business not managed by us but written on contracts issued by ZRK was novated,
commuted or retroceded to affiliates of Zurich Financial Services or third
parties. Our financial statements reflect the business that remains the
financial responsibility of Converium Rückversicherung (Deutschland) AG and
exclude novated and commuted business from all periods presented. 53




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Critical Accounting Policies Our discussion and analysis of the financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America (U.S. GAAP). The preparation of these financial
statements in accordance with U.S. GAAP requires the use of estimates and
judgments that affect the reported amounts and related disclosures. Changes in
our financial and operating environment could influence the accounting
estimates that support our financial statements. The following presents those
accounting policies that management believes are the most critical to its
operations and those policies that require significant judgment on the part of
management. The assumptions and judgments used by management are the ones they
believe to be the most appropriate at this time. However, as described below,
these estimates could change materially if different information or assumptions
were used. The descriptions below are summarized and have been simplified for
clarity. A more detailed description of these and other significant accounting
policies used by us in preparing our financial statements is included in the
Notes to the Consolidated Financial Statements. Non-life loss and loss adjustment reserves.We are required by applicable
insurance laws and regulations, as well as U.S. GAAP, to establish reserves for
payment of losses and loss adjustment expenses that arise from our non-life
reinsurance and insurance businesses. Loss and loss adjustment reserves are
based on estimates of future payments to settle claims, including legal and
other expenses. The liability for unpaid losses and loss adjustment expenses
for property and casualty business includes amounts determined from loss
reports on individual cases and amounts for losses incurred but not reported.
We estimate our loss and loss adjustment reserves on the basis of facts
reported to us by ceding companies, in conjunction with actuarial estimates and
methodologies, which are commonly used in our industry, for instances where we
have not received reports from ceding companies. Our estimates of losses and
loss adjustment expenses are subject to assumptions reflecting economic and
other factors such as inflation rates, changes in legislation, court rulings,
case law and prevailing concepts of liability, which can change over time. In
addition, if ceding company data is not provided to us on a timely basis, this
could potentially impact the accuracy of our estimates. We review and update
our estimates and record changes to our loss and loss adjustment reserves in
current income. The impact of changes in loss estimates can be mitigated by risk
diversification. Risk diversification is a basic risk management tool in the
insurance and reinsurance industry; as a multi-line reinsurer there are always
likely to be reserve adjustments at the line of business level. Our book of
business is broadly diversified by line of business as well as balanced by
region and by the expected duration of its claims obligations. Premiums.When we underwrite business, we receive premiums for assuming
the risk. Premiums written in any given period include premiums reported to us
by our clients and those we estimate and accrue on contracts underwritten. In a typical reporting period, we generally earn a portion of the premiums
written during that period together with premiums that were written during
earlier periods. Likewise, some part of our premiums written will not be earned
until future periods. We allocate premiums written but not yet earned to an
unearned premium reserve, which represents a liability on our balance sheet. As
time passes, the unearned premium reserve is gradually reduced and the
corresponding amount is released through the income statement as premiums
earned. Premiums are typically earned on a pro rata basis over the period that
the coverage is in effect. Our premium earned and written estimates are
regularly reviewed and enhanced as information is reported to us by our clients
and we are able to refine our estimates and assumptions. Our estimation
procedures are also affected by the timeliness and comprehensiveness of the
information our clients provide to us. We write a wide range of different types of insurance and reinsurance
policies, some of which are earned during periods shorter than one reporting
period, while some are earned during substantially longer periods. This mix of
business can change significantly from one period to the next and these changes
can cause the relationship between written and earned premiums to differ,
perhaps significantly, on a year-to-year basis. In our analysis of trends, we
relate the change in premiums earned to the change in premiums written.
Typically, differences in the percentage growth or decline between premiums
written and earned mainly reflect differences in our mix of business from year
to year. Reinsurance recoverables.We cede reinsurance to retrocessionaires in the
normal course of business. Under U.S. GAAP, reinsurance is recorded gross in
the balance sheet. Reinsurance assets (recoverables) include the balances due
from retrocessionaires for paid and unpaid losses and loss adjustment expenses,
ceded unearned premiums, and ceded future life benefits. Amounts recoverable
from retrocessionaires are estimated in a manner consistent with the
liabilities associated with the reinsured contracts. Retrocessional reinsurance arrangements generally do not relieve us from
our direct obligations to our reinsureds. Thus, a credit exposure exists with
respect to reinsurance ceded to the extent that any retrocessionaire is unable
or unwilling to meet the obligations assumed under the retrocessional
agreements. Failure of retrocessionaires to indemnify us due to insolvencies
or disputes could result in uncollectible amounts and losses to us. We
establish an allowance for potentially uncollectible 54




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recoverables from
retrocessionaires for amounts owed to us that management believes will not be
collected. In addition, we immediately charge operations for any recoverable
balances that are deemed to be uncollectible. Collateral and other offsets are
considered in determining the allowance or expense. Foreign currency translation.In view of our global scale and the fact
that more of our business is transacted in U.S. dollars than in any other
currency, we report our financial information in U.S. dollars. However, a large
portion of our revenues and expenses are denominated in other currencies
including the Euro, UK pound, Swiss franc, and Japanese yen. Since these
currencies are functional currencies for our business units, translation
differences are recorded directly in shareholders equity. Exchange rate
differences arising from holding assets, other than investment assets, and
liabilities denominated in non-functional currencies are recorded as income or
expense, as the case may be, in our income statement. Invested assets.The majority of our fixed maturities and equity
securities are classified as available-for-sale; these investments are carried
at fair value. Fixed maturities for which we have the intent and ability to
hold to maturity are classified as held-to-maturity. Held-to-maturity
securities are carried at amortized cost, if purchased, or carrying value, if
transferred from the available-for-sale category to the held-to-maturity
category. The difference between the fair value and amortized cost at the date
of transfer of such securities is amortized over the life of the respective
securities. The carrying value of transferred securities is the fair value at
the date of transfer less unamortized net unrealized gains. Fixed maturities
and equity securities which we buy with the intention to resell in the near
term, are classified as trading and are carried at fair value. Unrealized gains
or losses on investments carried at fair value, except those designated as
trading are recorded in other comprehensive income, net of deferred income
taxes. When declines in values of securities below cost or amortized cost are
considered to be other than temporary, an impairment charge is recorded as a
realized capital loss in the statement of income for the difference between
cost or amortized cost and estimated fair value. Other than temporary
declines are declines in value of the security that exceed 20% over a period
of six months, or that exceed of 50% regardless of the period of decline. To
continue to adhere to emerging asset impairment standards, beginning in the
second quarter of 2003, we revised our impairment policy to also record as
realized capital losses any declines in value of equity securities over a
period of more than twelve months. The same policy applies to fixed maturities
securities when the decline in value is attributable to the deteriorating
credit-worthiness of the issuer. At managements judgment, we impair additional
securities based on prevailing market conditions by considering various factors
such as the financial condition of the issuer, the market value and the
expected future cash flows of the security. Income taxes.Deferred income taxes are provided for all temporary
differences, which are based on the difference between financial statement
carrying amounts and the income tax bases of assets and liabilities using
enacted local income tax rates and laws. In addition, a deferred tax asset is
established for net operating loss carryforwards. We have significant net
operating loss carryforwards that we can use to offset future taxable income.
Realization of the deferred tax asset related to these carryforwards is
dependent upon generating sufficient taxable income within specified future
periods. We establish a valuation allowance against our deferred tax asset
based upon our assessment if it is more than likely than not that some or all
of the deferred tax asset will not be realized in the applicable jurisdiction.
In establishing the appropriate value of the deferred tax asset, we must make
judgments about our ability to recognize the benefit of the asset over time,
including our ability to utilize the net operating loss carryforwards. In the
event that we are unable to realize a deferred tax asset, net income would be
adversely affected to the extent a valuation allowance has not been
established. Investment Results Investment results are an important part of our overall profitability. Our
net investment income was $233.0 million for the year ended December 31, 2003,
representing a decrease of $18.8 million, or 7.5% as compared to the same
period of 2002. The decrease reflects lower investment income yields offset by
an increase in invested assets from operating cash flows. Our net investment
income increased $23.1 million, or 10.1% for 2002 as compared to 2001. The
increase is primarily from an increase in invested assets due to our additional
capitalization in late 2001 and the investment of cash flows from operating
activities during 2002. We had net realized capital gains for the year ended December 31, 2003 of
$18.4 million, compared to net realized capital losses of $10.3 million and
$18.4 million in 2002 and 2001, respectively. Included in the 2002 realized
amounts were gains on the restructuring of the fixed maturities portfolio of
$62.9 million, offset by losses on the restructuring of the equity portfolio of
$48.2 million, and losses realized on the sale of WorldCom fixed income
investments of $15.8 million. We recorded $27.4 million, $48.3 million and $82.5 million of impairment
charges during 2003, 2002 and 2001, respectively, primarily on our equity
portfolio. To continue to adhere to emerging asset impairment standards,
beginning in the second quarter of 2003, we revised our impairment policy to
also record as realized capital losses any declines in value of equity
securities over a period of more than twelve months. The same policy applies to
fixed maturities securities when the
decline in value is attributable to the deteriorating credit-worthiness of
the issuer. This resulted in additional impairment 55




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charges of $3.4 million in
2003. The following table shows the average pre-tax yields and investment
results on our investment portfolio for the years ended December 31, 2003, 2002
and 2001. Net Investment Income and Net Realized and Unrealized Capital Gains (Losses)Year Ended December 31,2003
    
    2002
    
    2001Realized
    
    
    
    
    
    
    
    
    
    Realized
    
    
    
    
    
    
    
    
    
    RealizedNet Investment
    
    Pre-tax
    
    gains
    
    Net Investment
    
    Pre-tax
    
    gains
    
    Net Investment
    
    Pre-tax
    
    gainsIncome
    
    yield
    
    (losses)
    
    Income
    
    yield
    
    (losses)
    
    Income
    
    yield
    
    (losses)($ in millions, except for percentages)Fixed
maturities securities
    
    $
    121.0
    
    
    
    3.0
    %
    
    $
    34.5
    
    
    $
    132.7
    
    
    
    4.6
    %
    
    $
    88.0
    
    
    $
    130.0
    
    
    
    5.7
    %
    
    $
    45.9Equity securities
    
    
    11.4
    
    
    
    1.7
    
    
    
    (16.1
    )
    
    
    14.5
    
    
    
    2.4
    
    
    
    (101.2
    )
    
    
    9.7
    
    
    
    1.5
    
    
    
    (64.6
    )Funds Withheld Asset /
Zurich Financing Agreement
    
    
    85.6
    
    
    
    5.4
    
    
    
    
    
    
    
    81.1
    
    
    
    5.3
    
    
    
    
    
    
    
    75.7
    
    
    
    5.2
    
    
    
    Short-term and other
    
    
    26.0
    
    
    
    3.8
    
    
    
    
    
    
    
    35.4
    
    
    
    4.5
    
    
    
    2.9
    
    
    
    18.1
    
    
    
    3.6
    
    
    
    0.3Less investment expenses
    
    
    (11.0
    )
    
    
    
    
    
    
    
    
    
    
    (11.9
    )
    
    
    
    
    
    
    
    
    
    
    (4.8
    )
    
    
    Total
    
    
    233.0
    
    
    
    3.3
    
    
    
    
    
    
    
    251.8
    
    
    
    4.3
    
    
    
    
    
    
    
    228.7
    
    
    
    4.7Net realized capital gains (losses)
    
    
    18.4
    
    
    
    
    
    
    
    
    
    
    
    (10.3
    )
    
    
    
    
    
    
    
    
    
    
    (18.4
    )Net investment income and net
realized capital gains (losses)
    
    
    251.4
    
    
    
    3.5
    
    
    
    
    
    
    
    241.5
    
    
    
    4.1
    
    
    
    
    
    
    
    210.3
    
    
    
    4.3Change in net unrealized gains
(losses)
    
    
    154.2
    
    
    
    
    
    
    
    
    
    
    
    (109.0
    )
    
    
    
    
    
    
    
    
    
    
    14.4Total investment return
    
    $
    405.6
    
    
    
    5.7
    %
    
    
    
    
    
    $
    132.5
    
    
    
    2.2
    %
    
    
    
    
    
    $
    224.7
    
    
    
    4.6
    %
 Our average net investment income yield was 3.3% for the year ended
December 31, 2003, as compared to 4.3% and 4.7% for the same periods in 2002
and 2001, respectively. Our average total investment income yield was 3.5% for the year ended
December 31, 2003, as compared to 4.1% and 4.3% for the same periods in 2002
and 2001, respectively. Yields are calculated based on the average of beginning
and ending investment balances (including cash and cash equivalents). The
decrease in yield in 2003 is due to sustained lower interest rates worldwide.
In addition, we positioned our fixed income portfolios to a shorter duration in
anticipation of a potential interest rate increase. We paid fees in the amount
of $8.0 million, $6.1 million and $4.7 million to our asset managers and
custodians in 2003, 2002 and 2001, respectively, including other investment
related costs. Our average total investment return was 5.7% for the year ended December
31, 2003 as compared to 2.2% and 4.6% for 2002 and 2001, respectively. This
resulted from a recovery in the global capital markets which positively
impacted changes to the unrealized capital positions of both our fixed income
and equity instruments. The average total investment return in 2002 and 2001
included the effect of foreign currency on the change in net unrealized capital
gains and losses of $(50.3) million and $(1.2) million, respectively. While the
effect was fairly insignificant for 2001, in 2002 this lowered the average
total investment return by 0.8%. As of 2003, the currency effect on the change
in net unrealized capital gains and losses is directly booked to cumulative
currency translation adjustments, and therefore no longer affects the
investment return. This approach is also consistent with our aim to match the
currency of our assets with our liabilities, which implies that any currency
impact on the assets is essentially offset by the impact on the corresponding
liability. Under the Quota Share Retrocession Agreement, the Funds Withheld Asset may
be prepaid to us in whole or in part as of the end of any calendar quarter. In
the event that the Funds Withheld Asset is prepaid, we would have to reinvest
these assets in investments which may not provide yields comparable to those
payable under the Quota Share Retrocession Agreement. To the extent we are not
able to invest these funds at comparable yields, our investment income could be
adversely affected. Restructuring Charge In connection with the Formation Transactions, Converium incurred $50.0
million in restructuring costs during 2001. Any restructuring costs relating to
the Formation Transactions in excess of this amount were borne by Zurich
Financial Services. The restructuring costs, according to the Master Agreement,
included the costs and expenses of the Formation Transactions, including
advisors fees, retention plan costs expensed in 2001 and stamp duty taxes.
Converium did not incur any restructuring costs during 2003 or 2002. Income Tax We are subject to local income tax requirements in the jurisdictions in
which we operate. The income tax expense reflected in our financial statements
therefore reflects a number of different local tax rates, and as a result may
change from one period to the next depending on both the amount and the
geographic contribution of our taxable income. In addition, the income tax
we pay is based on local tax statements in which our reported income and
expenses may differ from that reported in our 56




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financial statements. As a result of changes in our geographic contribution of taxable income as
well as changes in the amount of our non-taxable income and expense, the
relationship between our reported income before tax and our income tax expense
may change significantly from one period to the next. For more information
about our income tax expenses, see Note 11 to our consolidated financial
statements. Regulatory and Legislative Environment Our business is subject to regulation in all of the jurisdictions in which
we operate. Regulation includes compliance with applicable laws covering
operating and reporting requirements, monitoring of solvency and reserves and
asset valuation. Changes in government policy or taxation also may affect our
results of operations. In addition, political, judicial and legislative
developments could broaden the intent and scope of coverage of existing
policies written by our clients, which may result in additional liabilities for
reinsurers. See Item 4.  Information on the Company  B. Business Overview 
Regulation. Results of Operations The table below presents summary income statement data for the years ended
December 31, 2003, 2002 and 2001. Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Revenues:Gross premiums written
    
    $
    4,223.9
    
    
    $
    3,535.8
    
    
    $
    2,881.2Net premiums written
    
    $
    3,827.0
    
    
    $
    3,322.2
    
    
    $
    2,482.6Net premiums earned
    
    $
    3,676.5
    
    
    $
    3,165.5
    
    
    $
    2,295.2Net investment income and net realized capital gains
(losses)
    
    
    251.4
    
    
    
    241.5
    
    
    
    210.3Other income (loss)
    
    
    2.7
    
    
    
    (1.2
    )
    
    
    (5.8
    )Total revenues
    
    
    3,930.6
    
    
    
    3,405.8
    
    
    
    2,499.7Benefits, losses and expenses:Losses, loss adjustment expenses and life benefits
    
    
    (2,674.2
    )
    
    
    (2,492.0
    )
    
    
    (2,300.5
    )Underwriting acquisition costs
    
    
    (803.2
    )
    
    
    (666.7
    )
    
    
    (508.1
    )Other operating and administration expenses
    
    
    (197.8
    )
    
    
    (173.3
    )
    
    
    (146.4
    )Interest expense
    
    
    (31.0
    )
    
    
    (16.4
    )
    
    
    (24.2
    )Amortization of goodwill and restructuring costs
    
    
    
    
    
    
    
    
    
    
    (57.8
    )Total benefits, losses and expenses
    
    
    (3,706.2
    )
    
    
    (3,348.4
    )
    
    
    (3,037.0
    )Income (loss) before taxes
    
    
    224.4
    
    
    
    57.4
    
    
    
    (537.3
    )Income tax (expense) benefit
    
    
    (39.3
    )
    
    
    49.4
    
    
    
    169.9Net income (loss)
    
    $
    185.1
    
    
    $
    106.8
    
    
    $
    (367.4
    )
 The table below shows the reconciliation between pre-tax income and
pre-tax operating income. We use pre-tax operating results to measure
performance, as these measures focus on the underlying fundamentals of our
operations without the influence of realized gains and losses from the sale of
investments, which are driven by the timing of the disposition of investments
and not by our operating performance. Pre-Tax Operating Income (Loss) Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Income (loss) before taxes
    
    $
    224.4
    
    
    $
    57.4
    
    
    $
    (537.3
    )Net realized capital gains (losses)
    
    
    18.4
    
    
    
    (10.3
    )
    
    
    (18.4
    )Amortization of goodwill and restructuring costs
    
    
    
    
    
    
    
    
    
    
    57.8Pre-tax operating income (loss)
    
    $
    206.0
    
    
    $
    67.7
    
    
    $
    (461.1
    )Net income (loss)
    
    $
    185.1
    
    
    $
    106.8
    
    
    $
    (367.4
    )
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Converium Consolidated Net Income Converium reported net income of $185.1 million for the year ended
December 31, 2003, an improvement of $78.3 million as compared to net income of
$106.8 million for 2002. The increase is due to continued improvements in the
non-life
underwriting results, as well as pre-tax net realized capital gains in
2003 versus pre-tax net realized capital losses in 2002. 57




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Developments on our
Guaranteed Minimum Death Benefit (GMDB) book were offset by an overall improved
non-life combined ratio. Converium reported pre-tax operating income (defined as pre-tax income or
loss excluding pre-tax net realized capital gains or losses, amortization of
goodwill and restructuring costs) of $206.0 million for the year ended December
31, 2003, an improvement of $138.3 million as compared to pre-tax operating
income of $67.7 million for 2002. The improvement in pre-tax operating income
was due to significant premium growth and an overall improved non-life combined
ratio. For the year ended December 31, 2003, gross premiums written increased
19.5%, net premiums written increased 15.2% and net premiums earned increased
16.1%. The growth was spread across most lines of business and resulted from
increased rates and increasing the share of clients business upon renewing
existing business or writing new business. In 2003, we recorded $31.3 million of net positive development on prior
years loss reserves. In 2002, our results were impacted by losses from the
European floods of $51.1 million (net of reinstatement premiums of $3.1
million) and the recognition of a $148.5 million provision for net adverse
development on prior years reserves. Our non-life combined ratio was 97.9% for
the year ended December 31, 2003 as compared to 103.7% in the same period of
2002. Converium recorded pre-tax net realized capital gains of $18.4 million for
the year ended December 31, 2003 as compared to pre-tax net realized capital
losses of $10.3 million for the same period of 2002. The pre-tax net realized
capital gains in 2003 included $27.4 million of impairment charges on our
equity portfolio as compared to $48.3 million of impairment charges in 2002. Converiums effective tax rate was 17.5% for the year ended December 31,
2003, compared to a benefit of 86.1% in 2002. The 2002 consolidated tax benefit
reflects a one-time benefit of $21.3 million as the result of a ruling received
from the Swiss tax authorities regarding a tax loss carryforward. Converium Consolidated Premiums Gross premiums written for the year ended December 31, 2003 increased
$688.1 million, or 19.5% compared to the same period of 2002. Net premiums
written for 2003 increased $504.8 million, or 15.2% compared to 2002. For the
year ended December 31, 2003, we retained 90.6% of our gross premiums written,
compared to 94.0% in 2002. Our net retention ratio decreased principally due to
the purchase of increased retrocessions to reduce peak exposures associated
with our increased participation in the Global Aerospace Underwriting Managers
Limited (GAUM) pool. The increases in non-life net premiums written predominately reflect the
continued improved market conditions, new client relationships in certain key
markets and the expansion of shares of business with existing clients. During
2003, we took advantage of growth opportunities in the Standard Property &
Casualty Reinsurance segment, where net premiums written grew by $193.4
million, or 13.3% for the year. This was due to increased penetration in all
lines of business, but predominantly within property and motor. At December 31,
2003, the Specialty Lines segment grew by $256.6 million or 16.5%, driven by
strong growth in agribusiness, workers compensation, credit and surety, and
professional liability and other special liability lines. The Life & Health
Reinsurance segment grew by $54.8 million or 17.4%, driven by growth in
accident and health business in North America and in Continental Europe. Net premiums earned for the year ended December 31, 2003 increased $511.0
million, or 16.1% compared to 2002. Net premiums earned increased at a higher
rate than net premiums written due to the seasonality of certain business
within our portfolio. Converium Consolidated Net Investment Income and Net Realized Capital Gains
(Losses) Investment results are an important part of our overall profitability. Our
net investment income was $233.0 million for the year ended December 31, 2003,
representing a decrease of $18.8 million, or 7.5% as compared to the same
period of 2002. The decrease reflects lower investment income yields offset by
an increase in invested assets from operating cash flows. Our average total investment income yield was 3.5% for the year ended
December 31, 2003, as compared to 4.1% for the same period in 2002. Yields are
calculated based on the average of beginning and ending investment balances
(including cash and cash equivalents). The decrease in yield in 2003 is due to
sustained lower interest rates worldwide. In addition, we positioned our fixed
income portfolios to a shorter duration in anticipation of a potential interest
rate increase. We paid fees in the amount of $8.0 million and $6.1 million to
our asset managers and custodians in 2003 and 2002, respectively, including
other investment related costs. We had net realized capital gains for the year ended December 31, 2003 of
$18.4 million, compared to net realized capital 58




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losses of $10.3 million for the
year ended December 31, 2002. Included in the 2002 realized amounts were gains
on the restructuring of the fixed maturities portfolio of $62.9 million, offset
by losses on the restructuring of the equity portfolio of $48.2 million, and
losses realized on the sale of WorldCom fixed income investments of $15.8
million. We recorded $27.4 million and $48.3 million of impairment charges during
2003 and 2002, respectively, primarily on our equity portfolio. To continue to
adhere to emerging asset impairment standards, beginning in the second quarter
of 2003, we revised our impairment policy to also record as realized capital
losses any declines in value of equity securities over a period of more than
twelve months. The same policy applies to fixed maturities securities when the
decline in value is attributable to the deteriorating credit-worthiness of the
issuer. This resulted in additional impairment charges of $3.4 million in 2003. Converium Consolidated Other Income (Loss) Other income for the year ended December 31, 2003 was $2.7 million as
compared to other losses of $1.2 million for the year ended December 31, 2002.
Other income (loss) includes interest income on reinsurance deposits, interest
expense on funds held under reinsurance contracts, fee income, write-off of
uncollectible balances and results from private equity funds. Converium Consolidated Losses, Loss Adjustment Expenses and Life Benefits Our losses, loss adjustment expenses and life benefits incurred increased
$182.2 million, or 7.3% in 2003 versus an increase of $191.5 million or 8.3% in
2002. The non-life loss and loss adjustment expense ratio was 71.5% in 2003 as
compared to 78.2% in 2002. Our reported losses, loss adjustment expenses and
life benefits have been impacted by the following loss events: Net reserve development:In 2003, there was $31.3 million net positive
development on prior years loss reserves, consisting of positive development
of $49.4 million in the Standard Property & Casualty Reinsurance segment,
offset by $18.1 million of adverse development in the Specialty Lines segment.
Risk diversification is a basic risk management tool in the insurance and
reinsurance industry; as a multi-line reinsurer there are always likely to be
reserve adjustments at the line of business level. Our book of business is
broadly diversified by line of business as well as balanced by region and by
the expected duration of its claims obligations. In 2002, Converium strengthened reserves for prior years by $148.5
million. Throughout the year, increased loss experience related to prior years
continued to emerge, which resulted in an in-depth actuarial reserve analysis
of certain lines of business. This resulted in an additional $148.5 million
provision for losses, primarily related to underwriting years 1997 through
2000. In the Standard Property & Casualty Reinsurance segment, there were
additional provisions of $62.2 million for the liability, motor and property
lines. In the Specialty Lines segment, there were additional provisions of
$86.3 million, primarily related to the commercial umbrella and medical errors
and omissions liability lines of business. Guaranteed Minimum Death Benefit (GMDB) Business:In addition to the
non-life reserve development described above, the Life & Health Reinsurance
segment strengthened reserves on a closed block of variable annuity business by
$20.5 million (to net $56.0 million) and $15.6 million in 2003 and 2002,
respectively. As a result of the strong performance of the U.S. stock markets,
the GMDBs net amount at risk further decreased to $809.7 million and $1,243.0
million at December 31, 2003 and 2002, respectively. Although Converium feels
that its currently carried reserves for its GMDB exposure are adequate, it has
exercised the call option it negotiated in the third quarter of 2003 to access
additional reinsurance protection of up to $75.0 million. This decision was
made in light of the current volatility and the valuation of the equity markets
in the United States. The annual expense associated with this protection is
expected to be less than $0.5 million per year. Based on information available
today, this additional reinsurance protection adequately addresses potential
adverse deviations to the key assumptions i.e., mortality risks, lapse rate
risks, surrenders, and investment risks, such as equity market performance and
volatility, incorporated in Converiums models. Impact of aviation and space business:Our aviation and space business
contributes substantially to the profitability of the Specialty Lines segment.
Related to this business, we had net premiums written of $341.8 million and
$365.3 million and a net non-life technical result (defined as net premiums
earned minus losses and loss adjustment expenses and underwriting acquisition
costs) of $126.0 million and $64.3 million in 2003 and 2002, respectively.
There were no large losses, defined as those in excess of $10.0 million or more
of net incurred losses to us, in either 2003 or 2002. Impact of property catastrophe business:A substantial portion of our
property catastrophe business is written on an excess of loss basis. Related to
this business, we had gross premiums written of $194.7 million and $172.9
million and a net non-life technical result (defined as net premiums earned
minus losses and loss adjustment expenses and underwriting acquisition costs)
of $74.4 million and $60.4 million in 2003 and 2002, respectively. Included in
the net technical results are the following large natural catastrophe losses,
defined as those in excess of $10.0 million or more of net incurred losses to
us: Typhoon
Maemi ($15.4 million) and the Algerian Earthquake ($10.6 million) in 2003
and the European floods in 2002 ($51.1 million). 59




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Asbestos and environmental exposures:As of December 31, 2003 and 2002, we
had reserves for environmental impairment liability and asbestos-related claims
of $45.8 million and $44.6 million, respectively. Our survival ratio
(calculated as the ratio of reserves held, including IBNR, over claims paid
over the average of the last three years) for asbestos and environmental
reserves was 13.6 years at December 31, 2003, compared to 13.5 years at
December 31, 2002. During 2003 and 2002, there was no additional development in net reserves
for the September 11th terrorist attacks (as losses are capped at $289.2
million by Zurich Financial Services or ZFS). In 2003 and 2002, the
ultimate losses related to Enron declined $17.2 million and $5.2 million,
respectively. Converium Consolidated Underwriting Acquisition Costs Underwriting acquisition costs primarily relate to commissions on treaty
and individual risk business. Our underwriting acquisition costs increased
$136.5 million or 20.5% in 2003 versus an increase of $158.6 million or 31.2%
in 2002. This increase is mainly related to the increase in net premiums
earned. The non-life underwriting expense ratio for the years ended December
31, 2003 and 2002 was 22.0% and 21.1%, respectively. Converium Consolidated Operating and Administration Expenses Operating and administration expenses increased 14.1% in 2003 and 18.4% in
2002. These increases primarily arose from expenditures to support the growth
in operations. Operating and administration expenses were also impacted in 2003
and 2002 by the decrease of the U.S. dollar against the hardening European
currencies. Despite the increase in operating and administration expenses, the
non-life administration expense ratio remained stable at 4.4% in 2003 and 2002.
This was due to continued strong premium growth relative to the growth in
expenses. We fully charge the cost of options to operating expense under the fair
value approach of SFAS No. 123,Accounting for Stock Based Compensation, and
recorded compensation expense of $6.1 million and $5.8 million for 2003 and
2002, respectively, in connection with our stock option plans. Converium Consolidated Interest Expense Interest expense for the year ended December 31, 2003 was $31.0 million
compared to $16.4 million in 2002. Interest expense on our Senior Notes was
$14.2 million in each year. The increase in 2003 was mainly due to $16.5
million in interest expense on our $200.0 million 8.25% guaranteed subordinated
notes issued in December 2002. Converium Consolidated Income Tax (Expense) Benefit Our income tax (expense) benefit was $(39.3) million and $49.4 million for
the years ended December 31, 2003 and 2002, respectively. Our effective tax
rate for 2003 was 17.5%, compared to a benefit of 86.1% in 2002. The 2002
consolidated tax benefit reflects a one-time benefit of $21.3 million as the
result of a ruling received from the Swiss tax authorities regarding a tax loss
carried forward. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Converium Consolidated Net Income (Loss) Converium reported pre-tax operating income of $67.7 million for the year
ended December 31, 2002, an improvement of $528.8 million as compared to the
pre-tax operating loss of $461.1 million in 2001. Net income improved $474.2
million to $106.8 million for the year ended December 31, 2002. Our 2002 results were impacted by the recognition of a $148.5 million
provision for net reserve development on prior years business, representing a
movement of 3.6% of the net non-life reserves at December 31, 2001. In the
Standard Property & Casualty Reinsurance segment, there were additional
provisions of $62.2 million for the liability, motor and property lines. In the
Specialty Lines segment, there were additional provisions of $86.3 million,
primarily related to the commercial umbrella and medical errors and omissions
liability lines of business. In addition, our results were also impacted by
losses from the August 2002 European floods of $51.1 million (net of
reinstatement premiums of $3.1 million), primarily from reinsurance contracts
written in Germany, the Czech Republic, Austria and Italy. Our 2001 results were impacted by pre-tax losses of $289.2 million related
to the September 11th terrorist attacks, net adverse development on prior
years loss reserves of $123.6 million, $67.0 million in losses related to the
Enron Chapter 11
reorganization and $28.5 million in ceded premiums for
September 11th
terrorist attacks and other coverages from Zurich 60




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Financial Services. Our net investment income increased 10.1% to $251.8 million for the year
ended December 31, 2002 as compared to the same period for 2001. We recorded
$10.3 million of pre-tax net realized capital losses on our investment
portfolio, which included $48.3 million of impairment charges on our equity
portfolio, as compared to $18.4 million of pre-tax net realized capital losses,
including $82.5 million of impairment charges in 2001. The above results were affected by a tax benefit of $49.4 million in 2002
compared to a benefit of $169.9 million in 2001. The 2002 consolidated tax
benefit reflects a one-time benefit of $21.3 million as the result of a ruling
received from the Swiss tax authorities regarding a tax loss carryforward. The
2001 consolidated tax benefit results from pre-tax losses. The components of net income (loss) are described below. Converium Consolidated Premiums Gross premiums written for the year ended December 31, 2002 increased
$654.6 million, or 22.7% compared to the same period for 2001. Net premiums
written for 2002 increased $839.6 million, or 33.8% compared to 2001. The
growth in net premiums written exceeded the growth in gross premiums written
due to an increased retention rate in 2002 compared to 2001, and a ceded
premiums charge in 2001 of $28.5 million related to coverage from Zurich
Financial Services for the September 11th terrorist attacks. For the year ended
December 31, 2002, we retained 94.0% of our gross premiums written, compared to
86.2% in 2001. The increase in net premiums written reflects the hardening market
conditions that emerged during 2002. As described in the following discussion
of results by business segment, Specialty Lines experienced the largest premium
growth, with net premiums written increasing $586.9 million, or 60.6% over
2001. Standard Property & Casualty Reinsurance grew by $172.2 million, or
13.5%, and Life & Health Reinsurance grew by $80.5 million, or 34.4% in 2002
compared to 2001. Net premiums earned for the year ended December 31, 2002 increased $870.3
million, or 37.9% compared to 2001. Net premiums earned increased at a higher
rate than net premiums written due to the growth and seasonality of certain
business within our portfolio. Converium Consolidated Net Investment Income and Net Realized Capital Losses Investment results are an important part of our overall profitability. Our
net investment income was $251.8 million for the year ended December 31, 2002,
representing an increase of $23.1 million, or 10.1% as compared to the same
period for 2001. The increase is primarily from an increase in invested assets due to our
additional capitalization in late 2001 and the investment of cash flows from
operating activities during 2002. Our average total investment income yield was
4.1% for the year ended December 31, 2002 as compared to 4.3% in 2001. The
decline in 2002 reflects lower interest rates worldwide relative to 2001.
Yields are calculated based on the average of beginning and ending investment
balances (including cash and cash equivalents). We paid fees in the amount of
$6.1 million and $4.7 million to our asset managers and custodians in 2002 and
2001, respectively. Our average total investment return was 2.2% for the year ended December
31, 2002 as compared to 4.6% for 2001. The average total investment return in
2002 and 2001 included the effect of foreign currency on the change in net
unrealized capital gains and losses of $(50.3) million and $(1.2) million,
respectively. While the effect was fairly insignificant for 2001, in 2002, this
lowered the average total investment return by 0.8%. We had net realized capital losses for the year ended December 31, 2002 of
$10.3 million, compared to net realized capital losses of $18.4 million in
2001. Included in the 2002 realized amounts were gains on the restructuring of
the fixed maturities portfolio of $62.9 million, offset by losses on the
restructuring of the equity portfolio of $48.2 million, and losses realized on
the sale of WorldCom fixed income investments of $15.8 million. We recorded $48.3 million of impairment charges on our equity portfolio
for the year ended December 31, 2002, compared to $82.5 million for 2001. The
decline in 2002 reflects the restructuring of our portfolios, whereby certain
unrealized losses were realized. Converium Consolidated Other Loss Other loss for the years ended December 31, 2002 and 2001 was $1.2 million
and $5.8 million, respectively. The other loss
in 2002 represents write-offs of certain uncollectible reinsurance
recoverables, offset by interest income on reinsurance 61




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deposits and interest relating to a dispute settlement. The other loss in 2001 is primarily due to
interest expense on funds held under reinsurance contracts and losses from
investments in private equity funds. Converium Consolidated Losses, Loss Adjustment Expenses and Life Benefits Our
losses, loss adjustment expenses and life benefits incurred
increased $191.5 million, or 8.3% in 2002 as compared to 2001. The non-life
loss and loss adjustment expense ratio was 78.2% in 2002, compared to 99.9% in
2001. Our reported losses, loss adjustment expenses and life benefits have been
impacted by the following loss events: Net reserve development:In 2002, Converium strengthened reserves for
prior years by $148.5 million. Throughout the year, increased loss experience
related to prior years continued to emerge, which resulted in an in-depth
actuarial reserve analysis of certain lines of business. This resulted in an
additional $148.5 million provision for losses, primarily related to
underwriting years 1997 through 2000. In the Standard Property & Casualty
Reinsurance segment, there were additional provisions of $62.2 million for the
liability, motor and property lines. In the Specialty Lines segment, there were
additional provisions of $86.3 million, primarily related to the commercial
umbrella and medical errors and omissions liability lines of business. In 2001, Converium strengthened reserves for prior years by $123.6
million. Converium retained an actuarial consulting firm to perform an
independent review of non-life net reserves as of December 31, 2000. This
review reflected certain information that became available after the issuance
of the December 31, 2000 financial statements, including most fourth quarter
2000 and some first quarter 2001 reports from ceding companies, who typically
report on a one-quarter lag. Based on the independent review and Converiums
own evaluations of these new developments, additional provisions of $123.6
million, net of reinsurance, were recorded in 2001, principally related to
accident years 2000 and prior at Converium Reinsurance (North America) Inc. In
the Standard Property & Casualty Reinsurance segment, there were additional net
provisions of $46.6 million, primarily for the motor and property lines of
business. In the Specialty Lines segment, there were additional net provisions
of $77.0 million, primarily related to the excess and surplus, commercial
umbrella and marine and energy lines of business, offset by positive
development in aviation and space. Guaranteed Minimum Death Benefit (GMDB) Business: In 2002, following the
ongoing downturn of the international equity markets, Converiums Life & Health
Reinsurance segment reported losses of $6.5 million, including paid claims of
$12.5 million and reserve strengthening of $15.6 million for a closed block of
variable annuity business in order to align the reserves to the expected future
life benefits. In 2001, Converiums Life & Health Reinsurance segment reported
losses of $17.7 million, including reserve strengthening of $13.4 million on
this business. Impact of aviation and space business:Our aviation and space business
contributes substantially to the profitability of the Specialty Lines segment.
Related to this business, we had net premiums written of $365.3 million and
$182.8 million and a net non-life technical result (defined as net premiums
earned minus losses and loss adjustment expenses and underwriting acquisition
costs) of $64.3 million and $(167.9) million in 2002 and 2001, respectively.
Included in the 2001 net technical result are net losses from the September
11th terrorist attacks of $168.7 million. There were no large losses, defined
as those in excess of $10.0 million or more of net incurred losses to us, in
2002. Impact of property catastrophe business:A substantial portion of our
property catastrophe business is written on an excess of loss basis. Related to
this business, we had gross premiums written of $172.9 million and $148.1
million and a net non-life technical result (defined as net premiums earned
minus losses and loss adjustment expenses and underwriting acquisition costs)
of $60.4 million and $29.8 million in 2002 and 2001, respectively. Included in
the net technical results are the following large natural catastrophe losses,
defined as those in excess of $10.0 million or more of net incurred losses to
us: the European floods in 2002 ($51.1 million) and the El Salvador earthquake
in 2001 ($14.2 million). September 11th terrorist attacks:The September 11th terrorist attacks in
the United States represented the largest loss event in the insurance
industrys history. In 2001, we recorded gross losses and loss adjustment
expenses of $692.9 million arising out of the terrorist attacks. Net of
retrocessional recoveries and the cap from Zurich Financial Services, our
recorded losses and loss adjustment expenses were $289.2 million, coming
primarily from our aviation and property lines of business. The remainder of
the losses were from our workers compensation, life and third-party liability
lines of business. Zurich Financial Services, through its subsidiaries, agreed
to arrangements that cap our net exposure for losses and loss adjustment
expenses arising out of the September 11th terrorist attacks at $289.2 million.
As part of these arrangements, these subsidiaries of Zurich Financial Services
have agreed to take responsibility for non-payment by the retrocessionaires of
Converium AG and Converium Rückversicherung (Deutschland) AG with regard to
losses arising out of the September 11th terrorist attacks in excess of the
$289.2 million cap. While the cap does not cover non-payment by the
retrocessionaires of Converium Reinsurance (North America) Inc., our only
retrocessionaire for this business is a unit of Zurich Financial Services. This
business is fully collateralized in the form of letters of credit. Therefore,
we are not exposed to potential non-payments by
retrocessionaires for these events in excess of the $289.2 million cap,
although we will be exposed to the risk of non-payment 62




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of Zurich Financial
Services units and we are exposed to credit risk from these subsidiaries of
Zurich Financial Services. During 2002, there was no additional development in net reserves for the
September 11th terrorist attacks (as losses are capped at $289.2 million by
Zurich Financial Services). Enron Chapter 11 reorganization:In December 2001, Enron Corp. announced
that it and certain of its subsidiaries had filed voluntary petitions for
Chapter 11 reorganization in the United States. Converium recorded incurred
losses of $67.0 million pre-tax ($48.0 million after-tax) for the year ended
December 31, 2001, representing Converiums aggregate limits under existing
reinsurance contracts in connection with Enron. These exposures result
principally from credit and surety and, to a lesser extent, liability lines of
business. The losses Converium may ultimately incur, and the timing of any loss
payment, will be affected by numerous factors including the actions of third
parties, possible judicial rulings and other contingencies. In 2002, the
ultimate losses related to Enron declined $5.2 million. Asbestos and environmental exposures:As of December 31, 2002 and 2001, we
had reserves for environmental impairment liability and asbestos-related claims
of $44.6 million for both years. Our survival ratio (calculated as the ratio of
reserves held, including IBNR, over claims paid over the average of the last
three years) for asbestos and environmental reserves was 13.5 years at December
31, 2002, compared to 13.8 years at December 31, 2001. Converium Consolidated Underwriting Acquisition Costs Underwriting acquisition costs primarily relate to commissions on treaty
and individual risk business. Our underwriting acquisition costs increased
31.2% in 2002 over 2001. This increase is mainly related to the increase in net
premiums earned. The non-life underwriting expense ratio for the years ended
December 31, 2002 and 2001 was 21.1% and 23.4%, respectively. Converium Consolidated Operating and Administration Expenses Operating and administration expenses increased 18.4% in 2002 over 2001.
This increase primarily arose from increases due to additional headcount and
related overhead costs, including information technology, needed to support
business growth, as well as an increased cost level required for new functions
and departments required as an independent company. Operating and
administration expenses were also impacted in 2002 by the decrease of the U.S.
dollar against the hardening European currencies. Various costs related to the
initial public offering increased operating and administration expenses in
2001. Despite the increase in operating and administration expenses, the
non-life administration expense ratio declined to 4.4% in 2002, compared to
6.0% in 2001. This decline was due to strong premium growth. We fully charge the cost of options to operating expense under the fair
value approach of SFAS No. 123, Accounting for Stock-Based Compensation, and
recorded compensation expense of $5.8 million and $3.5 million in 2002 and
2001, respectively, in connection with our stock option plans. Converium Consolidated Interest Expense, Amortization of Goodwill and
Restructuring Costs Our interest expense for the year ended December 31, 2002 was $16.4
million compared to $24.2 million in 2001. Interest expense on our Senior Notes
was $14.2 million in each year. The decrease in 2002 versus 2001 is principally
due to short-term borrowings from Zurich Financial Services, which had a high
average amount outstanding during 2001. At January 1, 2002 we adopted SFAS 142, Goodwill and Other Intangible
Assets, which prohibits the amortization of goodwill. Amortization of goodwill
in 2001 was $7.8 million. Restructuring costs were $50.0 million in 2001 and
were incurred relating to our initial public offering and related Formation
Transactions. No restructuring costs were incurred during 2002. Converium Consolidated Income Tax Benefit Our income tax benefit was $49.4 million and $169.9 million for the years
ended December 31, 2002 and 2001, respectively. Our effective tax rate for 2002
was a benefit of 86.1%, compared to an expected weighted average tax benefit
rate of 24.9%. This rate was derived by calculating the weighted average of the
expected statutory income tax in relation to the income (loss) generated in the
various territories in which we operate. Our 2002 taxes reflect a one-time
benefit of $21.3 million as the result of a ruling received from the Swiss tax
authorities regarding a tax loss carryforward. Other differences include the
impact from currency translation adjustments and changes in tax rates. Our
effective tax rate was 31.6% in 2001. Results of Operations by Operating Segment 63




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Converiums business is now organized around three operating segments:
Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health
Reinsurance, which are based principally on global lines of business. In
addition to the three segments financial results, the Corporate Center carries
certain administration expenses, such as costs of the Board of Directors, the
Global Executive Committee, and other global functions. To measure the
financial performance of our operating segments, we define segment income as
income before other income (loss), interest expense, amortization of goodwill,
restructuring costs and income taxes. Converiums financial results for 2003 were primarily driven by profitable
growth in Standard Property & Casualty Reinsurance and Specialty Lines, the
continued solid performance in non-life underwriting as well as the current
conditions in the capital markets. The following discusses Converiums segment
results for the years ended December 31, 2003, 2002 and 2001. A reconciliation
of segment results to income before taxes is as follows: Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Segment income (loss):Standard Property & Casualty Reinsurance
    
    $
    183.7
    
    
    $
    55.8
    
    
    $
    (147.3
    )Specialty Lines
    
    
    115.2
    
    
    
    56.0
    
    
    
    (277.2
    )Life & Health Reinsurance
    
    
    (11.9
    )
    
    
    (6.5
    )
    
    
    (17.7
    )Corporate Center
    
    
    (34.3
    )
    
    
    (30.3
    )
    
    
    (7.3
    )Total segment income (loss)
    
    
    252.7
    
    
    
    75.0
    
    
    
    (449.5
    )Other income (loss)
    
    
    2.7
    
    
    
    (1.2
    )
    
    
    (5.8
    )Interest expense
    
    
    (31.0
    )
    
    
    (16.4
    )
    
    
    (24.2
    )Amortization of goodwill and restructuring costs
    
    
    
    
    
    
    
    
    
    
    (57.8
    )Income (loss) before taxes
    
    
    224.4
    
    
    
    57.4
    
    
    
    (537.3
    )Income tax (expense) benefit
    
    
    (39.3
    )
    
    
    49.4
    
    
    
    169.9Net income (loss)
    
    $
    185.1
    
    
    $
    106.8
    
    
    $
    (367.4
    )
 Non-Life The table below presents information regarding results of operations of
our non-life business for the years ended December 31, 2003, 2002 and 2001.
This information is further discussed on a segment basis below. Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Revenues:Gross premiums written
    
    $
    3,817.4
    
    
    $
    3,192.6
    
    
    $
    2,624.7Net premiums written
    
    $
    3,457.5
    
    
    $
    3,007.5
    
    
    $
    2,248.4Net premiums earned
    
    $
    3,293.5
    
    
    $
    2,854.7
    
    
    $
    2,078.1Net investment income and net realized capital gains (losses)
    
    
    233.9
    
    
    
    223.4
    
    
    
    194.5Total revenues
    
    
    3,527.4
    
    
    
    3,078.1
    
    
    
    2,272.6Losses and expenses:Losses and loss adjustment expenses
    
    
    (2,354.6
    )
    
    
    (2,231.9
    )
    
    
    (2,076.6
    )Underwriting acquisition costs
    
    
    (723.2
    )
    
    
    (602.7
    )
    
    
    (486.3
    )Other operating and administration expenses
    
    
    (150.7
    )
    
    
    (131.7
    )
    
    
    (134.2
    )Total losses and expenses
    
    
    (3,228.5
    )
    
    
    (2,996.3
    )
    
    
    (2,697.1
    )Segment income (loss)
    
    $
    298.9
    
    
    $
    111.8
    
    
    $
    (424.5
    )Ratios:Loss ratio
    
    
    71.5
    %
    
    
    78.2
    %
    
    
    99.9
    %(1)Underwriting expense ratio
    
    
    22.0
    %
    
    
    21.1
    %
    
    
    23.4
    %Administration expense ratio
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    6.0
    %Combined ratio
    
    
    97.9
    %
    
    
    103.7
    %
    
    
    129.3
    %(1)
  (1)
    
    The impact on the non-life loss ratio and combined ratio of the September
11th terrorist attacks was 13.3%. Standard Property & Casualty Reinsurance The table below presents information regarding the results of operations
of our Standard Property & Casualty Reinsurance segment for the years ended
December 31, 2003, 2002 and 2001. 64




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Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Revenues:Gross premiums written
    
    $
    1,795.4
    
    
    $
    1,542.3
    
    
    $
    1,495.6Net premiums written
    
    $
    1,645.6
    
    
    $
    1,452.2
    
    
    $
    1,280.0Net premiums earned
    
    $
    1,629.9
    
    
    $
    1,396.7
    
    
    $
    1,220.5Net investment income and net realized capital gains (losses)
    
    
    101.5
    
    
    
    98.1
    
    
    
    86.2Total revenues
    
    
    1,731.4
    
    
    
    1,494.8
    
    
    
    1,306.7Losses and expenses:Losses and loss adjustment expenses
    
    
    (1,113.6
    )
    
    
    (1,065.0
    )
    
    
    (1,137.9
    )Underwriting acquisition costs
    
    
    (363.1
    )
    
    
    (310.4
    )
    
    
    (239.6
    )Other operating and administration expenses
    
    
    (71.0
    )
    
    
    (63.6
    )
    
    
    (76.5
    )Total losses and expenses
    
    
    (1,547.7
    )
    
    
    (1,439.0
    )
    
    
    (1,454.0
    )Segment income (loss)
    
    $
    183.7
    
    
    $
    55.8
    
    
    $
    (147.3
    )Ratios:Loss ratio
    
    
    68.3
    %
    
    
    76.3
    %
    
    
    93.2
    %Underwriting expense ratio
    
    
    22.3
    %
    
    
    22.2
    %
    
    
    19.6
    %Administration expense ratio
    
    
    4.3
    %
    
    
    4.4
    %
    
    
    6.0
    %Combined ratio
    
    
    94.9
    %
    
    
    102.9
    %
    
    
    118.8
    %
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Standard Property & Casualty Reinsurance Segment Income Standard Property & Casualty Reinsurance reported a segment income of
$183.7 million in 2003 compared to a segment income of $55.8 million in 2002.
The increase in segment income was primarily attributable to:  
    
    The non-life loss ratio improved by 8.0 percentage points for the year ended December 31, 2003, versus the same period in
2002. This improvement resulted from overall solid results in the property line of business, as 2003 was absent any major
catastrophe activity.  
    
    The investment results and return for 2003 were positively impacted by the recovery of the global capital markets. Standard Property & Casualty Reinsurance Premiums For the year ended December 31, 2003, gross premiums written increased
16.4% to $1,795.4 million, net premiums written increased 13.3% to $1,645.6
million and net premiums earned increased 16.7% to $1,629.9 million. For the year ended December 31, 2003, premium growth in Standard Property
& Casualty Reinsurance by line of business included:  
    
    Property (net premiums written in 2003 increased by 25.7% or $161.0 million to $787.0 million); and  
    
    Motor (net premiums written in 2003 increased by 7.7% or $35.0 million to $488.5 million). The above increases reflect strong market conditions and were offset by a
decrease in net premiums written in other miscellaneous standard lines. Standard Property & Casualty Reinsurance Net Investment Income and Net Realized
Capital Gains (Losses) Standard Property & Casualty Reinsurance reported net investment income
and net realized capital gains of $101.5 million for the year ended December
31, 2003, which was higher by $3.4 million, or 3.5%, compared to net investment
income and net realized capital losses of $98.1 million for the same period of
2002. The investment results and return for 2003 were positively impacted by
the recovery of the global capital markets. Standard Property & Casualty Reinsurance Losses and Loss Adjustment Expenses Standard Property & Casualty Reinsurance had losses and loss adjustment
expenses incurred of $1,113.6 million in 2003, an increase of $48.6 million, or
4.6% over 2002. The non-life loss and loss adjustment expense ratio was 68.3%
in 2003 as compared to 76.3% in 2002. This improvement resulted from overall
solid results in the property line of business, as 2003 was absent any major
catastrophe activity. In 2003, segment income was increased by $49.4 million from positive
developments of prior years reserves. Net positive 65




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development of prior years
loss reserves on property lines of $113.5 million (primarily from the 2002
year) was partially offset by net adverse development of the motor and general
third party liability lines of $64.1 million (primarily from 2001 and prior
years). The Standard Property & Casualty Reinsurance segments book of business
is broadly diversified by line of business as well as balanced by region and by
the expected duration of its claims obligations. In 2002, Standard Property & Casualty Reinsurance experienced $51.1
million (net of reinstatement premiums of $3.1 million) in losses from the
European floods and $62.2 million in net adverse loss development on prior
years business, primarily from the motor, general third party liability and
property lines of business. Standard Property & Casualty Reinsurance Underwriting Acquisition Costs Underwriting acquisition costs increased $52.7 million or 17.0% in 2003.
This increase is mainly related to the increase in net premiums earned. The
non-life underwriting expense ratio was 22.3% in 2003 as compared to 22.2% in
2002. Standard Property & Casualty Reinsurance Operating and Administration Expenses Operating and administration expenses increased 11.6% in 2003. The
increase primarily arose from expenditures to support the growth in operations.
Operating and administration expenses were also impacted in 2003 and 2002 by
the decrease of the U.S. dollar against the hardening European currencies.
Despite the increase in operating and administration expenses, the non-life
administration expense ratio was 4.3% in 2003, compared to 4.4% in 2002. This
was due to continued strong premium growth relative to the growth in expenses. Standard Property & Casualty Reinsurance Combined Ratios Standard Property & Casualty Reinsurances combined ratio was 94.9% in
2003 and 102.9% in 2002. The improvement in the combined ratio was largely the
result of overall solid results in the property line of business, as 2003 was
absent of any major catastrophe activity. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Standard Property & Casualty Reinsurance Segment Income (Loss) Standard Property & Casualty Reinsurance reported segment income of $55.8
million in 2002 as compared to a segment loss of $147.3 million in 2001. The
increase in segment income was primarily attributable to an improvement in the
non-life loss ratio by 16.9 percentage points in 2002 over 2001. Losses in
2001 were primarily attributable to the September 11th terrorist attacks, with
net losses in the amount of $108.5 million. Standard Property & Casualty Reinsurance Premiums For the year ended December 31, 2002, gross premiums written increased
3.1% to $1,542.3 million, net premiums written increased 13.5% to $1,452.2
million and net premiums earned increased 14.4% to $1,396.7 million. For the year ended December 31, 2002, premium growth in Standard Property
& Casualty Reinsurance by line of business included:  
    
    Property (net premiums written in 2002 increased by 13.7% or $75.6 million to $626.0 million); and  
    
    General third party liability (net premiums written in 2002 increased by 24.3% or $66.1 million to $337.7 million). Standard Property & Casualty Reinsurance Net Investment Income and Net Realized
Capital Losses Standard Property & Casualty Reinsurance reported net investment income
and net realized capital losses of $98.1 million for the year ended December
31, 2002, which was higher by $11.9 million, or 13.8%, compared to net
investment income and net realized capital losses of $86.2 million for the same
period of 2001. The increase is primarily from an increase in net investment
income on higher invested assets due to our additional capitalization in late
2001 and the investment of cash flows from operating activities during 2002. Standard Property & Casualty Reinsurance Losses and Loss Adjustment Expenses Standard Property & Casualty Reinsurances losses and loss adjustment
expenses incurred decreased $72.9 million, or 66




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6.4% in 2002. The non-life loss
and loss adjustment expense ratio was 76.3% in 2002 as compared to 93.2% in
2001. The decrease of 16.9 percentage points for the year ended December 31,
2002 was largely attributable to the losses reported in 2001 related to the
September 11th terrorist attacks, with net losses of $108.5 million. In 2002, Standard Property & Casualty Reinsurance experienced $51.1
million (net of reinstatement premiums of $3.1 million) in losses from the
European floods and $62.2 million in net adverse loss development on prior
years business, primarily from the motor, general third party liability and
property lines of business. In 2001, Standard Property & Casualty Reinsurance strengthened reserves
for prior years by $46.6 million, primarily for the motor and property lines of
business. The strengthening was principally related to accident years 2000 and
prior. Standard Property & Casualty Reinsurance Underwriting Acquisition Costs Underwriting acquisition costs increased $70.8 million or 29.5% in 2002.
This increase is mainly related to the increase in net premiums earned. The
non-life underwriting expense ratio was 22.2% in 2002 as compared to 19.6% in
2001. Standard Property & Casualty Reinsurance Operating and Administration Expenses Operating and administration expenses decreased 16.9% in 2002. The
decrease was primarily due to relatively small growth in premium in 2002
compared to 2001, as well as more functions and services were allocated to the
Corporate Center in 2002. The non-life administration expense ratio was 4.4% in
2002, compared to 6.0% in 2001, reflecting this decrease. Standard Property & Casualty Reinsurance Combined Ratios Standard Property & Casualty Reinsurances combined ratio was 102.9% in
2002 compared to 118.8% in 2001. The higher combined ratio in 2001 primarily
resulted from losses related to the September 11th terrorist attacks. Specialty Lines The table below presents information regarding results of operations of
our Specialty Lines segment for the years ended December 31, 2003, 2002 and
2001. Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Revenues:Gross premiums written
    
    $
    2,022.0
    
    
    $
    1,650.3
    
    
    $
    1,129.1Net premiums written
    
    $
    1,811.9
    
    
    $
    1,555.3
    
    
    $
    968.4Net premiums earned
    
    $
    1,663.6
    
    
    $
    1,458.0
    
    
    $
    857.6Net investment income and net realized capital gains (losses)
    
    
    132.4
    
    
    
    125.3
    
    
    
    108.3Total revenues
    
    
    1,796.0
    
    
    
    1,583.3
    
    
    
    965.9Losses and expenses:Losses and loss adjustment expenses
    
    
    (1,241.0
    )
    
    
    (1,166.9
    )
    
    
    (938.7
    )Underwriting acquisition costs
    
    
    (360.1
    )
    
    
    (292.3
    )
    
    
    (246.7
    )Other operating and administration expenses
    
    
    (79.7
    )
    
    
    (68.1
    )
    
    
    (57.7
    )Total losses and expenses
    
    
    (1,680.8
    )
    
    
    (1,527.3
    )
    
    
    (1,243.1
    )Segment income (loss)
    
    $
    115.2
    
    
    $
    56.0
    
    
    $
    (277.2
    )Ratios:Loss ratio
    
    
    74.6
    %
    
    
    80.0
    %
    
    
    109.5
    %Underwriting expense ratio
    
    
    21.6
    %
    
    
    20.0
    %
    
    
    28.8
    %Administration expense ratio
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    6.0
    %Combined ratio
    
    
    100.6
    %
    
    
    104.4
    %
    
    
    144.3
    %
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Specialty Lines Segment Income Specialty Lines reported segment income of $115.2 million in 2003 compared
to a segment income of $56.0 million in 2002. In addition to the positive
results for 2003, the cash flow generated by the continuing growth in longer
tail lines increased total invested assets. Therefore, a substantial part of
this segments expected profitability will emerge as investment
income in future periods. The increase in segment income was primarily
attributable to: 67




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
    
    The non-life loss ratio improved by 5.4 percentage points for the year ended December 31, 2003, versus the same period in
2002.  
    
    The investment results and return for 2003 were positively impacted by the recovery of the global capital markets. These improvements were somewhat offset by an increase of 1.6 percentage
points in the underwriting expense ratio in 2003, from 20.0% in 2002 to 21.6%
in 2003. The 2002 ratio was lowered as a result of a cumulative catch-up on one
of our retrocessionaires and certain aviation business. Specialty Lines Premiums For the year ended December 31, 2003, gross premiums written increased
22.5% to $2,022.0 million, net premiums written increased 16.5% to $1,811.9
million and net premiums earned increased 14.1% to $1,663.6 million. Specialty Lines growth was spread across most lines and primarily
resulted from increased rates, increasing the share of clients business upon
renewing existing business or writing new business. For the year ended December 31, 2003, premium growth in Specialty Lines
included:  
    
    Professional liability and other special liability (net premiums written in 2003 increased by 11.4% or $61.1 million to
$598.0 million), which grew as a result of the improving directors and officers market in the United States and new
business written in North America and sourced through the London broker market;  
    
    Workers compensation (net premiums written in 2003 increased by 40.9% or $90.3 million to $310.9 million), which grew as a
result of the renewal of a large program in 2003;  
    
    Credit and surety (net premiums written in 2003 increased by 17.9% or $35.9 million to $236.0 million); and  
    
    Agribusiness (net premiums written in 2003 increased by 309.1% or $68.0 million to $90.0 million), whose growth reflects
the hardening market which resulted from the exit of several insurers and reinsurers in mid-to-late 2002. The above increases were offset by a decrease in net premiums written in
the aviation and space line of business resulting from an increase in ceded
premiums for external reinsurance protection, principally associated with
Converiums increased participation in the GAUM pool, and softening markets as
a result of recent low loss activity. Specialty Lines Net Investment Income and Net Realized Capital Gains (Losses) Specialty Lines reported net investment income and net realized capital
gains of $132.4 million for the year ended December 31, 2003, an increase of
$7.1 million, or 5.7%, compared to net investment income and net realized
capital losses of $125.3 million for the same period of 2002. The investment
results and return for 2003 were positively impacted by the recovery of the
global capital markets. Specialty Lines Losses and Loss Adjustment Expenses Specialty Lines losses and loss adjustment expenses incurred increased
$74.1 million, or 6.4% in 2003. The non-life loss and loss adjustment expense
ratio was 74.6% in 2003 as compared to 80.0% in 2002, a decrease of 5.4
percentage points. This decrease was mostly due to lower reserve development in
2003. In 2003, segment income was decreased by $18.1 million from net adverse
developments of prior years loss reserves. Adverse development on workers
compensation and professional liability and other special liability lines of
$120.3 million (primarily from 2000 and prior years) was largely offset by net
positive development of prior years loss reserves on aviation and space of
$102.2 million (primarily from the 2002 year). As a multi-line reinsurer, there
are always likely to be reserve adjustments at the line of business level. The
Specialty Lines segments book of business is broadly diversified by line of
business as well as balanced by region and by the expected duration of its
claims obligations. In 2002, Specialty Lines experienced $86.3 million in net adverse loss
development on prior years business, primarily from the commercial umbrella
and medical errors and omissions liability lines of business. Specialty Lines Underwriting Acquisition Costs 68




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Underwriting acquisition costs increased $67.8 million or 23.2% in 2003.
This increase is mainly related to the increase in net premiums earned. The
non-life underwriting expense ratio was 21.6% in 2003 as compared to 20.0% in
2002. Specialty Lines Operating and Administration Expenses Operating and administration expenses increased $11.6 million or 17.0% in
2003. The increase primarily arose from expenditures to support the growth in
operations. Operating and administration expenses were also impacted in 2003
and 2002 by the decrease of the U.S. dollar against the hardening European
currencies. Despite the increase in operating and administration expenses, the
non-life administration expense ratio was 4.4% in 2003, compared to 4.4% in
2002. This was due to continued strong premium growth relative to the growth in
expenses. Specialty Lines Combined Ratios Specialty Lines combined ratio was 100.6% in 2003 and 104.4% in 2002. The
non-life loss ratio improved by 5.4 percentage points for the year ended
December 31, 2003, versus the same period in 2002. This improvement was
somewhat offset by an increase of 1.6 percentage points in the underwriting
expense ratio in 2003. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Specialty Lines Segment Income (Loss) Specialty Lines reported segment income of $56.0 million in 2002 as
compared to a segment loss of $277.2 million in 2001. The increase in segment
income was primarily attributable to an improvement in the non-life loss ratio
of 29.5 percentage points for the year ended December 31, 2002. Losses in 2001
were primarily attributable to the September 11th terrorist attacks, with net
losses in the amount of $168.7 million, as well as losses related to the Enron
Chapter 11 reorganization of $67.0 million. Specialty Lines Premiums For the year ended December 31, 2002, gross premiums written increased
46.2% to $1,650.3 million, net premiums written increased 60.6% to $1,555.3
million and net premiums earned increased 70.0% to $1,458.0 million. Specialty Lines growth was spread across most lines and primarily
resulted from increased rates, increasing the share of clients business upon
renewing existing business or writing new business. For the year ended December 31, 2002, premium growth in Specialty Lines
included:  
    
    Professional liability and other special liability (net premiums written in 2002 increased by 122.6% or $295.7 million to
$536.9 million),  
    
    Aviation & space (net premiums written in 2002 increased by 99.8% or $182.5 million to $365.3 million),  
    
    Workers compensation (net premiums written in 2002 increased by 23.4% or $41.8 million to $220.6 million); and  
    
    Engineering (net premiums written in 2002 increased by 42.5% or $34.6 million to $116.1 million). Specialty Lines Net Investment Income and Net Realized Capital Losses Specialty Lines reported net investment income and net realized capital
losses of $125.3 million for the year ended December 31, 2002, an increase of
$17.0 million, or 15.7%, compared to net investment income and net realized
capital losses of $108.3 million for the same period of 2001. The increase is
primarily from an increase in net investment income on higher invested assets
due to our additional capitalization in late 2001 and the investment of cash
flows from operating activities during 2002. Specialty Lines Losses and Loss Adjustment Expenses Specialty Lines losses and loss adjustment expenses incurred increased
$228.2 million, or 24.3% in 2002. The non-life loss and loss adjustment expense
ratio was 80.0% in 2002 as compared to 109.5% in 2001. The decrease of 29.5
percentage
points for the year ended December 31, 2002 was largely attributable to
the losses reported in 2001 related to the September 69




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11th terrorist attacks,
with net losses in the amount of $168.7 million, as well as losses related to
the Enron Chapter 11 reorganization of $67.0 million. In 2002, Specialty Lines experienced $86.3 million in net adverse loss
development on prior years business, primarily from the commercial umbrella
and medical errors and omissions liability lines of business. In 2001,
Specialty Lines strengthened reserves for prior years by $77.0 million,
primarily related to the excess and surplus, commercial umbrella and marine and
energy lines of business, offset by positive development in aviation and space.
The strengthening was principally related to accident years 2000 and prior. Specialty Lines Underwriting Acquisition Costs Underwriting acquisition costs increased $45.6 million or 18.5% in 2002.
This increase is mainly related to the increase in net premiums earned. The
non-life underwriting expense ratio was 20.0% in 2002 as compared to 28.8% in
2001. Specialty Lines Operating and Administration Expenses Operating and administration expenses increased 18.0% in 2002. This
increase was driven by the large growth in premiums. The non-life
administration expense ratio was 4.4% in 2002, compared to 6.0% in 2001,
reflecting this premium growth. Specialty Lines Combined Ratios Specialty Lines combined ratio was 104.4% in 2002 compared to 144.3% in
2001. The higher combined ratio in 2001 primarily resulted from losses related
to the September 11th terrorist attacks and the Enron Chapter 11
reorganization. Life & Health Reinsurance The table below presents information regarding results of operations of
our Life & Health Reinsurance segment for the years ended December 31, 2003,
2002 and 2001. Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Revenues:Gross premiums written
    
    $
    406.5
    
    
    $
    343.2
    
    
    $
    256.5Net premiums written
    
    $
    369.5
    
    
    $
    314.7
    
    
    $
    234.2Net premiums earned
    
    $
    383.0
    
    
    $
    310.8
    
    
    $
    217.1Net investment income and net realized capital gains (losses)
    
    
    17.5
    
    
    
    18.1
    
    
    
    15.8Total revenues
    
    
    400.5
    
    
    
    328.9
    
    
    
    232.9Losses and expenses:Losses, loss adjustment expenses and life benefits
    
    
    (319.6
    )
    
    
    (260.1
    )
    
    
    (223.9
    )Underwriting acquisition costs
    
    
    (80.0
    )
    
    
    (64.0
    )
    
    
    (21.8
    )Other operating and administration expenses
    
    
    (12.8
    )
    
    
    (11.3
    )
    
    
    (4.9
    )Total benefits, losses and expenses
    
    
    (412.4
    )
    
    
    (335.4
    )
    
    
    (250.6
    )Segment loss
    
    $
    (11.9
    )
    
    $
    (6.5
    )
    
    $
    (17.7
    )Ratios:Underwriting expense ratio
    
    
    20.9
    %
    
    
    20.6
    %
    
    
    10.0
    %Administration expense ratio
    
    
    3.5
    %
    
    
    3.6
    %
    
    
    2.1
    %
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Life & Health Reinsurance Segment Loss Life & Health Reinsurance reported segment loss of $11.9 million in 2003
compared to $6.5 million in 2002. The decrease in segment results in 2003 was
primarily attributable to the development on a closed block of Guaranteed
Minimum Death Benefit (GMDB) business. The Life & Health Reinsurance segment strengthened reserves on a closed
block of variable annuity business by $20.5 million (to net $56.0 million) in
2003 and $15.6 million in 2002. As a result of the strong performance of the
U.S. stock markets, the GMDBs net amount at risk further decreased to $809.7
million and $1,243.0 million at December 31, 2003 and 2002, respectively.
Although Converium feels that its currently carried reserves for its GMDB
exposure are adequate, it has
exercised the call option it negotiated in the third quarter of 2003, to
access additional reinsurance protection of up to $75.0 70




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million. This decision
was made in light of the current volatility and the valuation of the equity
markets in the United States. The annual expense associated with this
protection is expected to be less than $0.5 million per year. Based on
information available today, this additional reinsurance protection adequately
addresses potential adverse deviations to the key assumptions i.e., mortality
risks, lapse rate risks, surrenders, and investment risks, such as equity
market performance and volatility, incorporated in Converiums models. Life & Health Reinsurance Premiums For the year ended December 31, 2003, gross premiums written increased
18.4% to $406.5 million, net premiums written increased 17.4% to $369.5 million
and net premiums earned increased 23.2% to $383.0 million. For the year ended December 31, 2003, premium growth in the Life & Health
Reinsurance segment included:  
    
    Accident and health (net premiums written in 2003 increased by 29.6% or
$47.4 million to $207.4 million). This growth primarily resulted from the
further development of this line of business, which Converium began to
underwrite in North America in 2001, as well as growth of business written
in Continental Europe. Life & Health Reinsurance Net Investment Income and Net Realized Capital Gains
(Losses) Life & Health Reinsurance reported net investment income and net realized
capital gains of $17.5 million for the year ended December 31, 2003, which was
lower by $0.6 million, or 3.3%, compared to net investment income and net
realized capital losses of $18.1 million for the same period of 2002. Life & Health Reinsurance Losses, Loss Adjustment Expenses and Life Benefits Life & Health Reinsurance had losses, loss adjustment expenses and life
benefits incurred of $319.6 million, an increase of $59.5 million, or 22.9% in
2003. This increase mainly reflects the growth in the underlying business. The
Life & Health Reinsurance segment strengthened reserves on a closed block of
variable annuity business by $20.5 million (to net $56.0 million) and $15.6
million in 2003 and 2002, respectively. Life & Health Reinsurance Underwriting Acquisition Costs Underwriting acquisition costs increased $16.0 million or 25.0% in 2003.
This increase is mainly related to the increase in net premiums earned. The
underwriting expense ratio was 20.9% in 2003 as compared to 20.6% in 2002. Life & Health Reinsurance Operating and Administration Expenses Operating and administration expenses increased $1.5 million or 13.3% in
2003. The increase primarily arose from expenditures to support the growth in
operations. Operating and administration expenses were also impacted in 2003
and 2002 by the decrease of the U.S. dollar against the hardening European
currencies. Despite the increase in operating and administration expenses, the
non-life administration expense ratio was 3.5% in 2003, compared to 3.6% in
2002. This was due to continued strong premium growth relative to the growth in
expenses. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Life & Health Reinsurance Segment Loss Life & Health Reinsurance reported segment loss of $6.5 million in 2002 as
compared to a loss of $17.7 million in 2001. The results included net losses
related to the September 11th terrorist attacks of $12.0 million in 2001 and
net development on a closed block of variable annuity business of $15.6 million
in 2002 and $13.4 million in 2001. Life & Health Reinsurance Premiums For the year ended December 31, 2002, gross premiums written increased
33.8% to $343.2 million, net premiums written increased 34.4% to $314.7 million
and net premiums earned increased 43.2% to $310.8 million. For the year ended December 31, 2002, premium growth in the Life & Health
Reinsurance segment included:  
    
    Accident and health (net premiums written in 2002 increased by 63.6% or
$62.2 million to $160.0 million). This growth
primarily resulted from the further development of this line of business,
which Converium began to underwrite in North 71




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America in 2001, as well as
growth of business written in Continental Europe. Life & Health Reinsurance Net Investment Income and Net Realized Capital Losses Life & Health Reinsurance reported net investment income and net realized
capital losses of $18.1 million for the year ended December 31, 2002 which was
higher by $2.3 million, or 14.6%, compared to net investment income and net
realized capital losses of $15.8 million for the same period of 2001. The
increase is primarily from an increase in net investment income on higher
invested assets due to our additional capitalization in late 2001 and the
investment of cash flows from operating activities during 2002. Life & Health Reinsurance Losses, Loss Adjustment Expenses and Life Benefits Life & Health Reinsurances losses, loss adjustment expenses and life
benefits incurred increased $36.2 million, or 16.2% in 2002. This increase
mainly reflects the growth in the underlying business. The results included
net losses related to the September 11th terrorist attacks of $12.0 million in
2001 and net development on a closed block of variable annuity business of
$15.6 million in 2002 and $13.4 million in 2001. Life & Health Reinsurance Underwriting Acquisition Costs Underwriting acquisition costs increased $42.2 million or 193.6% in 2002.
The underwriting expense ratio was 20.6% in 2002 as compared to 10.0% in 2001.
In 2001, $10.6 million in commission benefits were recorded from the
commutation of a large contract and a refunding of commissions from our
strategic retrocessions, reducing the underwriting expense ratio by 4.9%. Life & Health Reinsurance Operating and Administration Expenses Operating and administration expenses increased 130.6% in 2002. The
increase was primarily due to the hiring of staff to support the growth in
business. The administration expense ratio was 3.6% in 2002, compared to 2.1%
in 2001. Corporate Center The table below presents information regarding results of operations of
our Corporate Center for the years ended December 31, 2003, 2002 and 2001. The
Corporate Center carries certain administration expenses, such as costs of the
Board of Directors, the Global Executive Committee, and other global functions. Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Other operating and administration expenses
    
    $
    (34.3
    )
    
    $
    (30.3
    )
    
    $
    (7.3
    )Segment loss
    
    $
    (34.3
    )
    
    $
    (30.3
    )
    
    $
    (7.3
    )
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Corporate Center Operating and Administration Expenses The Corporate Center reported operating and administration expenses of
$34.3 million in 2003, compared to $30.3 million in 2002. The increases
primarily arose from expenditures to support the growth in operations, and the
weakening of the U.S. dollar. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Corporate Center Operating and Administration Expenses The Corporate Center reported operating and administration expenses of
$30.3 million in 2002, compared to $7.3 million in 2001. Corporate Center
charges in 2001 were low as global functions were just being established to
prepare for the IPO in late 2001. B. LIQUIDITY AND CAPITAL RESOURCES We operate a treasury function responsible for managing our banking
relationships, capital raising activities, including
equity and debt issues, our overall cash, cash pooling and liquidity
positions and the payment of internal and external 72




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dividends. Individual
subsidiaries are responsible for managing local cash and liquidity positions,
including the repayment of debt. Liquidity Requirements Our principal cash requirements are for the payment of dividends to
shareholders, servicing debt, investment in businesses, capital expenditures,
servicing retrocessional arrangements and for paying reinsurance and insurance
claims, which could periodically include significant cash requirements related
to catastrophic events. Interest on debt and short-term borrowings was $31.0 million in 2003,
$16.4 million in 2002 and $24.2 million in 2001. We had no scheduled debt
repayments in 2003, 2002 or 2001. The carrying value of our outstanding debt
was at $390.6 million at December 31, 2003, $390.4 million at December 31, 2002
and $197.0 million at December 31, 2001. Liquidity Sources Our principal liquidity sources consist of premiums, fees, investment
income, proceeds from the sale and maturity of investment securities and
borrowings. Our business units pay reinsurance and insurance claims and
benefits and operating expenses predominantly from their own cash resources.
Most of our debt is funded by our businesses from their own cash resources. We
have generated combined net cash inflows from operating activities over the
last three years. As a reinsurer, our future cash flows are inherently
difficult to predict. We do not expect the Funds Withheld Asset to have a
material impact on our liquidity, as we will not be required to access our own
liquidity sources for claims under the Quota Share Retrocession Agreement.
Under the Quota Share Retrocession Agreement, ZIC and ZIB have the right to
prepay to us, in whole or in part, the balance of the Funds Withheld Asset. For
more detail on cash flows see  Capital Requirements. Dividends from Subsidiaries As a holding company, Converium relies in large part on cash dividends and
other permitted payments from its subsidiaries to make principal and interest
payments on debt, to pay other outstanding obligations and to pay dividends to
shareholders. Converium is subject to legal restrictions on the amount of
dividends it may pay to its shareholders. Similarly, the company laws of
countries in which our entities operate may restrict the amount of dividends
payable by such entities to their parent companies. In addition, the ability of
our entities to pay dividends may be restricted or influenced by minimum
capital and solvency requirements that are imposed by regulators in the
countries in which the entities operate. We do not consider current legal and
regulatory dividend constraints to be a material limitation on the ability of
Converium AG to pay dividends to Converium Holding AG. In Switzerland, insurance supervisory regulations require entities to fund
their statutory reserves at a minimum level of 20% of net profits until the
statutory reserve fund reaches an amount equal to 50% of the statutory share
capital, including freely disposable reserves, if any. For regulations
applicable to Converium Holding AG, see Item 8. 
Financial Information 
Dividends and Dividend Policy. In the United States, restrictions on payment of dividends are imposed by
the Insurance Commissioner of the state of domicile. For Converium Reinsurance
(North America) Inc., dividends are payable only from earned surplus and are
limited annually to the greater of 10% of the previous years policyholders
surplus or 100% of the previous years statutory net income. Dividends paid in
excess of these limitations require prior approval of the Insurance
Commissioner of the state of domicile. In Germany, the minimum amount of statutory capital reserves required is
10% of the nominal value of the common stock. If the 10% criterion is met,
dividends of up to 100% of current years surplus can be paid. If the 10%
criterion is not met, dividends are limited to a maximum of 95% of current
years surplus less the prior year loss carryover. Under German law, an
entitys executive board in consent with the supervisory board have the
authority to reclassify up to 100% of the current year surplus to retained
earnings, thereby not allowing dividends to be paid. Converium AG may pay a maximum dividend, net of withholding tax, to
Converium Holding AG without regulatory approval of approximately $141.7
million as of December 31, 2003. The maximum dividend that Converium Holding AG
is able to pay in 2004, before withholding tax, is approximately $142.9 million
as of December 31, 2003. We do not consider current legal and regulatory dividend constraints to be
a material limitation on the ability of Converium AG to pay dividends to
Converium Holding AG. Debt Outstanding 73




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As of December 31, 2003, we had total debt outstanding with a principal
amount of $400.0 million and a carrying amount of $390.6 million. We had no
scheduled debt repayments in 2003, 2002 or 2001. In December 2002, Converium Finance S.A. issued $200.0 million principal
amount of non-convertible, unsecured, guaranteed subordinated notes, which are
irrevocably and unconditionally guaranteed on a subordinated basis by each of
Converium Holding AG and Converium AG. These notes mature in full on December
23, 2032 and bear interest at the rate of 8.25%. In 2001, in connection with
the Formation Transactions, Converium assumed $200.0 million principal amount
of non-convertible, unsecured, unsubordinated senior notes originally during
October 1993. These notes mature in full on October 15, 2023 and bear interest
at the rate of 7.125%. In July 2003, Converium obtained a $900 million unsecured syndicated
letter of credit facility. The facility is guaranteed by Converium AG and will
be used primarily to collateralize third-party claims related to our
underwriting business. As of December 31, 2003, we had outstanding letters of
credit of $633.1 million under the facility. In addition to the syndicated
letter of credit facility, other irrevocable letters of credit of $390.3
million were outstanding at December 31, 2003 to secure certain assumed
reinsurance contracts. Investments of $431.1 million are pledged as collateral
related to certain of these letters of credit. Capital Requirements As of December 31, 2003, we had total shareholders equity of $2,083.3
million ($52.38 per share) compared to $1,738.0 million ($43.55 per share) as
of December 31, 2002, an increase of $345.3 million ($8.83 per share). This
increase is mainly comprised of net income of $185.1 million and an increase in
net unrealized gains on investments, net of taxes, of $198.6 million, offset by
dividends to shareholders of $29.9 million. Cash Flows Year Ended December 31,2003
    
    2002
    
    2001($ in millions)Cash flow data:Cash provided by operating activities
    
    $
    1,265.3
    
    
    $
    870.4
    
    
    $
    311.5Net cash used in investing activities
    
    
    (1,327.8
    )
    
    
    (1,093.3
    )
    
    
    (627.3
    )Net cash (used in) provided by financing activities
    
    
    (47.2
    )
    
    
    179.0
    
    
    
    627.8Effect of exchange rate changes on cash and cash equivalents
    
    
    29.0
    
    
    
    (15.1
    )
    
    
    (13.4
    )Change in cash and cash equivalents
    
    
    (80.7
    )
    
    
    (59.0
    )
    
    
    298.6Cash and cash equivalents, beginning of period
    
    
    361.5
    
    
    
    420.5
    
    
    
    121.9Cash and cash equivalents, end of period
    
    $
    280.8
    
    
    $
    361.5
    
    
    $
    420.5
 We held cash and cash equivalents of $280.8 million at December 31, 2003
compared to $361.5 million at December 31, 2002, representing a decrease of
$80.7 million. Our cash balances at the end of both periods include a
relatively high level of cash held by our investment managers for duration
matching purposes. Our cash flows from operating activities result principally from premiums,
collections on losses recoverable and investment income, net of paid losses,
acquisition costs and underwriting expenses. Our cash provided by operating
activities was $1,265.3 million for the year ended December 31, 2003 compared
to $870.4 million and $311.5 million for the years ended December 31, 2002 and
2001, respectively. This represented increases of $394.9 million, or 45.4% in
2003, and $558.9 million or 179.4% in 2002. The increase in 2003 was driven by
improved operating performance, including strong premium growth. The 2002 cash
flow reflects a $136.7 million reimbursement of reinsurance recoverables in
dispute received in the second quarter of 2002. Cash provided by financing
activities in 2002 was primarily due to the issuance of our guaranteed
subordinated notes. Cash provided by financing activities in 2001 was primarily
due to a capital contribution we received from Zurich Financial Services. As a reinsurer, our future cash flows are inherently difficult to predict.
This uncertainty is particularly pronounced with respect to some coverage we
provide, such as long-tail lines, where claims information emerges over a
relatively long period of time, and property catastrophe coverage, which
generally produces losses of low frequency but high severity. Accordingly, it
is not possible to predict our future cash flows from operating activities with
precision. As a consequence, our cash flows from operating activities may
fluctuate, perhaps significantly, from quarter to quarter and from year to
year. For example, our cash flows were adversely affected by the events of
September 11th. We expect that a significant portion of the cash outflows
relating to these events will occur over a period of several years, mainly
because of the time involved to determine with accuracy the losses of the
primary insurance companies and reporting these losses to reinsurers.
Accordingly, our cash flow and investment income will be impacted gradually
over the next few years. We believe that our capital, liquidity, and borrowing ability are
sufficient to support our business and meet our present
liquidity requirements. 74




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New Accounting Standards We have or will be required to adopt the following new standards in the
future: SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. This Statement amends SFAS No. 133 for decisions made
as part of the Derivatives Implementation Group process and in connection with
implementation issues raised in relation to the application of the definition
of a derivative. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003. This standard did not have a material impact on
the financial condition or results of operations of Converium. SFAS 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This Statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. This standard did not have
a material impact on Converium. Statement of Position (SOP) 03-1,Accounting and Reporting by Insurance
Enterprises for Certain Non-Traditional Long-Duration Contracts and for
Separate Accounts In July 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 03-1, Accounting and
Reporting by Insurance Enterprises for Certain Non-Traditional Long-Duration
Contracts and for Separate Accounts. The SOP provides guidance on accounting
and reporting by insurance enterprises for certain non-traditional
long-duration contracts and for separate accounts. The SOP is effective for
financial statements for fiscal years beginning after December 15, 2003, with
earlier adoption encouraged. The SOP may not be applied retroactively to prior
years financial statements, and initial application should be as of the
beginning of an entitys fiscal year. This statement is not expected to have a
material impact on the financial condition or results of operations of
Converium. C. RESEARCH AND DEVELOPMENT, PATENTS, LICENSES Not Applicable D. TREND INFORMATION See  A. Operating Results E. OFF-BALANCE SHEET ARRANGEMENTS Not Applicable F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS Contractual Obligations Payment due by period($ thousands)
    
    Total
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    More than 5 yearsLong-Term Debt Obligations -
Principal
    
    $
    400,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    400,000Long-Term
Debt Obligations - Interest
    
    
    763,500
    
    
    
    30,750
    
    
    
    61,500
    
    
    
    61,500
    
    
    
    609,750Operating Lease Obligations
    
    
    93,200
    
    
    
    12,600
    
    
    
    24,800
    
    
    
    24,600
    
    
    
    31,200Total
    
    $
    1,256,700
    
    
    $
    43,350
    
    
    $
    86,300
    
    
    $
    86,100
    
    
    $
    1,040,950
 The above table excludes estimated future cash flows for losses and loss
adjustment expenses, as there is typically no minimum contractual obligation
associated with insurance and reinsurance contracts, and the amount and timing
of the cash
outflows are uncertain. For further detail on our long-term debt
principal and interest payments, see Note 10 of our 75




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consolidated financial
statements. For further detail on our operating lease payments, see Note 19 of
our consolidated financial statements. 
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS AND SENIOR MANAGEMENT Board of Directors Converiums global strategy is set by its Board of Directors, the body
with ultimate responsibility for Converiums policies and management, including
investment, treasury, solvency and liquidity policies. The Board of Directors
consists of no less than four and no more than nine members. Currently it
comprises seven. With wide-ranging experience in the reinsurance sector, this
group represents an appropriate mix of skills for the effective governance of a
major international reinsurance organization. The Board of Directors oversees
Converiums affairs and offers regular directives to the Global Executive
Committee. All Board members are non-executive, independent of management, and
have never held an executive position within Converium or any of its
subsidiaries. No interlocking directorships exist between the Board members of
Converium and Board members of any other company. The composition of the Board of Directors includes a cross section by
geography and professional experience, as well as a reasonable age
distribution. The members of the Board of Directors are elected for a term of
office of not more than three years, after which they become eligible for
re-election. In case of the election of a substitute, the new Board member
finishes the term of office of the predecessor. The Board of Directors is
headed by the Chairman or, following him, the Vice-Chairman. It meets as often
as circumstances require, but at least four times per year. In 2003 the Board
of Directors met five times. Meetings generally last one day, with Committee
meetings preceding Board meetings. Board agendas are set by the Chairman. At
each of its meetings the Board of Directors must be informed, through formal
reports of the Chief Executive Officer and the members of the Global Executive
Committee, about the course of the business and the activity of the business
segments and the GEC. In case of important business incidents, the Board of
Directors must be informed without delay. Furthermore, each Board member
receives appropriate information with respect to any matter to be considered by
the Board of Directors. For financial reporting purposes, this includes an
appropriate quarterly reporting package comprising financial and investment
information including consolidated financial accounts of the company and its
business segments. The Chief Executive Officer, the Chief Financial Officer and the General
Legal Counsel attend Board meetings on a regular basis. Members of the GEC and
other executives attend meetings at the Chairmans invitation. In addition,
Board members meet at regularly scheduled sessions without management.
Furthermore, teleconferences and meetings between Board members and members of
the GEC are held to resolve formal matters or to exchange information. The
Board of Directors performs an annual self-evaluation and sets its objectives
based upon this evaluation. Annually it reviews the performance of the CEO and
approves his objectives. The Head of Internal Audit reports directly to the
Audit Committee, and the Board meets regularly with Converiums external
auditors and as may be necessary with outside consultants to review the
business, better understand all laws and policies, and support the management
in meeting requirements and expectations. The members of our Board of Directors, their dates of birth, nationality
and terms of office are as follows: Name
    
    Date of Birth
    
    Nationality
    
    Term Expires inPeter C. Colombo (Chairman)(1)(2)(4)
    
    June 15, 1934
    
    Swiss
    
    
    2004Georg Mehl (Vice-Chairman)(1)(2)(4)
    
    August 11, 1939
    
    German
    
    
    2006Terry G. Clarke (1)(2)(3)(4)
    
    October 31, 1941
    
    British
    
    
    2004Jürgen Förterer (3)
    
    January 29, 1942
    
    German
    
    
    2004Derrell J. Hendrix (3)
    
    August 9, 1953
    
    American
    
    
    2004George G. C. Parker (3)(4)
    
    March 29, 1939
    
    American
    
    
    2006Anton K. Schnyder (1)(2)
    
    November 29, 1952
    
    Swiss
    
    
    2006
  (1)
    
    Member of the Nominations Committee(2)
    
    Member of the Remuneration Committee(3)
    
    Member of the Finance Committee(4)
    
    Member of the Audit Committee Peter C. Colombostarted his professional career with Gerling Group in
Cologne in 1959 and was Principal Officer of Gerling Global Reinsurance Company
in London from 1963 to 1965. From 1965 through 1998 he worked for Union
Reinsurance Company in Zurich with various responsibilities. Mr. Colombo served
as President and CEO of Union
Reinsurance Company from 1989, with appointments as Managing Director in
1996 and as Deputy Chairman of the Board of 76




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Directors in 1997. He also serves
as Deputy Chairman of the Board of Directors of Generali (Schweiz) Holding AG,
Zurich, Switzerland, and as a member of the advisory board of the Barmenia
Group in Wuppertal, Germany. Mr. Colombo holds a Bachelor of Social Sciences
degree (Economics and Politics) from the University of Birmingham, England. Georg Mehlserved as a consultant for the Wüstenrot & Württembergische
Group, Stuttgart, Germany, since 2001 and in addition as a member of the
Executive Management Board of Hanse-Marine-Versicherung-AG, Hamburg, Germany,
until the end of 2003. Previously, he served in a series of positions with the
Württembergische Group, most recently as CEO of Wüstenrot & Württembergische
AG. Before, Georg Mehl had worked for almost 30 years for the Allianz Group,
Hamburg and Munich, Germany, and currently is a consultant of Caisse Nationale
des Prévoyances (CNP) Assurances, Paris, France. He is Chairman of the Board of
Sektkellerei Schloss Wachenheim AG, Trier, Germany. Mr. Mehl also serves as a
member of the supervisory or advisory boards of several German financial
services and commercial companies. He graduated from the German Insurance
Academy in Cologne, Germany, in 1961. Terry G. Clarkewas a consulting actuary with Tillinghast Towers Perrin
and a Principal of Towers Perrin. He joined their London office in 1986 and was
Managing Principal of Tillinghasts North America practice. He retired from
Tillinghast at the end of 2001. From 1978 until 1986 Mr. Clarke was a member of
the Norwich Winterthur Group senior management team. Prior to 1978, he held
various positions in the Norwich Union Group. Mr. Clarke qualified as a Fellow
of the Institute of Actuaries in 1967, and is co-author of several papers on
non-life insurance subjects as well as a tutor and examiner. He is a member of
a number of professional committees both in the United Kingdom and in
Continental Europe. Jürgen Förtererhas served as Chairman of the Executive Management Board
of R+V Versicherung AG, the holding company of R+V Versicherungsgruppe, since
1997. Previously, Mr. Förterer served as Deputy Chairman of the Executive
Management Board of R+V Versicherungsgruppe in Wiesbaden, Germany, beginning in
1996. He was appointed as a member of the Executive Management Board of Allianz
Lebensversicherungs-AG, Stuttgart, in 1993. He started his professional career
in 1977 with Nord/LB in Hannover and joined Allianz AG in Munich in 1980.
Additionally, Mr. Förterer serves as a member of the supervisory boards of
Hermes Kreditversicherung AG, Raiffeisen Druckerei GmbH, R+V Pensionsfonds AG,
and various other German companies. He graduated from the Ruhr-University in
Bochum, Germany, in 1972 and received a doctorate degree from the Technical
University of Hannover, Germany, in 1978. Derrell J. Hendrixis the Manager and Chief Executive Officer of The
RISConsulting Group LLC, a Boston-based risk management consulting company
which he founded in 1996 together with Hannover Rückversicherungs AG (through
its United States subsidiary, Insurance Corporation of Hannover). Mr. Hendrix
served from 1995 to 1996 as Managing Director and Head of Derivatives at the
Bank of Boston. He began his career at Citibank in 1977 and from 1980 through
1995 he held various department head positions in Citicorps banking and
investment banking operations in Toronto, Hong Kong and London. Mr. Hendrix
holds a Master of Arts from the Fletcher School of Law and Diplomacy, Medford,
Massachusetts, and a Bachelor of Arts from Amherst College, Amherst,
Massachusetts. George G. C. Parkeris the Dean Witter Distinguished Professor of Finance
and Management, Graduate School of Business, Stanford University, Stanford,
California. From 1993 to 2001, Professor Parker was Senior Associate Dean for
Academic Affairs and Director of the MBA Program at Stanford. Professor Parker
served as Director for Executive Education, Stanford Business School, between
1979 and 1988, and from 1973 to 1979 he was Director of the Stanford Sloan
Program for Executives. He is currently a Board member of California Casualty
Group of Insurance Companies, San Mateo, California; Continental Airlines Inc.,
Houston, Texas, and various other US-based companies. He graduated from
Haverford College, Pennsylvania, with a degree in economics in 1960, and
received an MBA in finance in 1962 and a doctorate in finance in 1967, both
from Stanford. Anton K. Schnyderserved as a full professor for private law at the
University of Basel, Switzerland, from 1993 to 2003. As of summer term 2003 he
has been appointed to Zurich University as a full professor for private and
international as well as comparative law. In 1994 he was appointed Vice
President of the Federal Appeal Commission supervising private insurance. From
1987 to 1993, Professor Schnyder served as a corporate legal adviser to the
Zurich Insurance Group and from 1992 as a member of the executive staff. He
graduated from Zurich University, Switzerland, in 1978 and received his
doctorate degree in 1981, being awarded the Professor-Walther-Hug-Prize for his
doctoral thesis. Additionally, he holds a Master of Laws from the University of
California, Berkeley. For many years he has been a special adviser to the
governments of Switzerland and Liechtenstein for insurance legislation.
Currently Professor Schnyder is Chairman of the working party for a revision of
the Swiss Insurance Contract Law. The business address for each member of our Board of Directors is
Converium Holding AG, Baarerstrasse 8, CH-6300 Zug, Switzerland. Global Executive Committee (GEC) 77




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The Board of Directors has delegated the management of Converium to the
CEO, subject to the powers and duties delegated to the Committees of the Board
of Directors, the Chairman and Vice-Chairman, the GEC, the business segments
and the Corporate Center as described in the Organizational By-Laws. The GEC
comprises an executive management team of eight members. It is responsible for
implementing Converiums global strategy, ensuring effective collaboration
between each subsidiary, the business segments, and reviewing progress against
financial and operating plans as approved by the Board of Directors. On September 23, 2003 the Board of Directors appointed four new members to
the GEC in connection with the changes to Converiums organizational and
financial reporting structures and its Organizational By-Laws. They are Hans
Peter Boller, Christian Felderer, Christoph Ludemann and Gary Prestia. The
Board of Directors also approved changes to the assigned responsibilities of
the GEC. At the same time Richard Smith, CEO of Converium Reinsurance (North
America) Inc. and a member of the GEC, stepped down, as planned, from his
responsibilities. Converium has not entered into management contracts with
other companies which transfer key management functions. The members of our Global Executive Committee, their dates of birth,
nationality and positions held are as follows: Name
    
    Date of Birth
    
    Nationality
    
    Position HeldDirk Lohmann
    
    November 8, 1958
    
    German
    
    Chief Executive OfficerFrank Schaar
    
    April 16, 1960
    
    German
    
    Executive Vice President for Standard Property & Casualty ReinsuranceBenjamin Gentsch
    
    April 21, 1960
    
    Swiss
    
    Executive Vice President for Specialty LinesChristoph Ludemann
    
    January 12, 1956
    
    German
    
    Executive Vice President for Life & Health ReinsuranceGary Prestia
    
    May 7, 1962
    
    American
    
    Chief Technical OfficerHans Peter Boller
    
    October 25, 1962
    
    German
    
    Chief Risk OfficerMartin Kauer
    
    January 20, 1959
    
    Swiss
    
    Chief Financial OfficerChristian Felderer
    
    January 5, 1954
    
    Swiss
    
    General Legal Counsel
 Dirk Lohmannis the Chief Executive Officer of Converium. He joined Zurich
Financial Services in September 1997 as Chief Executive Officer of its
reinsurance operations in Zurich and of its German operating subsidiary, Zürich
Rückversicherung (Köln) AG. In July 1998 Mr. Lohmann was appointed as a member
of the Group Executive Board of Zurich Financial Services, serving as the Chief
Executive Officer of its global reinsurance operations. Before joining Zurich
Financial Services, he held various management positions at Hannover Re between
1980 and 1997, most recently as a member of the Executive Board of Management.
He is a non-executive director of Global Aerospace Underwriting Managers Ltd.
(GAUM) and a director and chairman of the Medical Defence Union Services Ltd.
(MDU), both located in London, United Kingdom. Mr. Lohmann received a Bachelor
of Arts degree in economics and political science from the University of
Michigan, Ann Arbor. Frank Schaaris the Executive Vice President for Standard Property &
Casualty Reinsurance. He joined Zürich Rückversicherung (Köln) AG as Chief
Executive Officer in 2000. Previously he was employed by Hannover Re for 17
years through 1999, most recently serving as a Managing Director and a member
of the extended board in charge of Asia, Australia and Africa. From 1982 until
1997, Mr. Schaar served in various capacities, most recently as Senior Vice
President with responsibility for Germany. Mr. Schaar holds a degree in
insurance economics and worked as a lecturer in reinsurance at the Institute
for Professional Development of the Insurance Association in Hannover for ten
years. Benjamin Gentschis the Executive Vice President for Specialty Lines. In
1998, he joined Zurich Re as the Chief Underwriting Officer Overseas where he
was given the task of strengthening the companys position in the Asian,
Australian, African and Latin American markets. In addition, he took charge of
the Global Aviation reinsurance department and built up the Professional Risk
and Global Marine reinsurance departments. In September 2002, Mr. Gentsch was
appointed Chief Executive Officer of Converium AG. Previously, between 1986 and
1998, he held various positions at Union Reinsurance Company, Zurich, where
from 1990 he was responsible for treaty reinsurance business in Asia and
Australia. He is an alternate director of Global Aerospace Underwriting
Managers Ltd. (GAUM). Mr. Gentsch has a degree in business administration from
the University of St. Gallen, with a focus on risk management and insurance. Christoph Ludemannis the Executive Vice President for Life & Health
Reinsurance. He joined Converium in September 2002, bringing to the company 20
years experience in the reinsurance market. From 1990 until 2002 Mr. Ludemann
was responsible for General Cologne Res European and Latin American life and
health markets, and from 1995 until 2002 he was also a member of the Executive
Board of Management of General Cologne Re of Vienna. Previously, between 1983
and 1990, he worked as General Cologne Res Marketing Manager for the
Netherlands, Scandinavia and Austria. Mr. Ludemann has a degree in mathematics
and insurance economics from the University of Cologne. Gary Prestiais the Chief Technical Officer and an Executive Vice
President of Converium. He has overall responsibility for Underwriting
Controlling and Cycle Management, Global Risk Pooling and Retention Management,
Global Claims and
Strategic Planning. Mr. Prestia joined Zurich Reinsurance (North America)
Inc. in 1998. Previously, he held management 78




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positions in several insurance and
reinsurance companies, most recently as Senior Vice President for Transatlantic
Re. Mr. Prestia is a Chartered Property Casualty Underwriter and Associate in
Reinsurance and holds a Bachelor of Business Administration degree in
property/casualty insurance from the College of Insurance, New York. Hans Peter Bolleris the Chief Risk Officer and an Executive Vice
President of Converium. He is responsible for Risk Management, Pricing,
Reserving, Asset and Liability Management (ALM) and Natural Hazard Modeling. He
joined the company in 1999 as the Chief Actuary for Zurich Re, Zurich. Prior to
1999, he was a consultant with Tillinghast Towers Perrin. Mr. Boller is a
fellow of the German Actuarial Society (DAV) and the Swiss Actuarial Society
(SAV), and a member of the International Actuarial Association (IAA). He serves
as Chairman of the Reinsurance Subcommittee of the IAA and is a member of the
Insurance Committee of the Groupe Consultatif Actuariel Européen and of the
Risk-Based Capital Solvency Structure Working Party of IAA, advising the
European Commission and supranational bodies on actuarial matters. He also
advises the Swiss Regulatory Authority on the emerging Swiss Solvency
Regulation. Mr. Boller holds a Masters degree in economics and engineering and
a doctorate in actuarial science from the University of Karlsruhe. Martin Kaueris the Chief Financial Officer and an Executive Vice
President of Converium. He served as Chief Financial Officer of Zurich
Financial Services global reinsurance operations from July 1998. From 1996 to
1998 Mr. Kauer managed the demutualization of Rentenanstalt/Swiss Life, where
he was also responsible for Strategic Planning and Controlling. Previously, he
worked for Union Bank of Switzerland as an investment banker. Mr. Kauer holds a
degree in economics from the University of Zurich. Christian Feldereris the General Legal Counsel and an Executive Vice
President of Converium. He joined Zurich Re in 1997 and has 20 years experience
in the insurance and reinsurance industry, most recently as Senior Legal
Counsel for Zurich Re and General Counsel for Converium. Between 1990 and 1997
Mr. Felderer had various management responsibilities within the Zurich Groups
International Division, including the establishment and management of the
Captives and Financial Risk Management department and management of the Claims
organization of the International Division. From 1986 to 1990 he was Corporate
Legal Counsel in the General Counsels Office of the Zurich Insurance Group,
and from 1983 to 1986 he was an underwriter in the Casualty department of the
International Division. Mr. Felderer has a law degree from the University of
Zurich and is admitted to the Bar of the Canton of Zurich. The standard notice period for termination of members of the Global
Executive Committee is six months, with the exception of the Chief Executive
Officer who has a notice period of twelve months, reflecting the traditional
practice of Swiss-based companies. However, there are certain exceptions to
this standard, reflecting prevailing local practices in the jurisdictions where
the executives are currently employed. The business address for each member of our Global Executive Committee is
Baarerstrasse 8, CH-6300 Zug, Switzerland. B. COMPENSATION Compensation of Directors Directors fees have been determined to ensure that we can attract and
retain high caliber individuals appropriate to serve a global reinsurance
organization. We also grant equity-based compensation to our directors. During 2003 the Board of Directors reviewed its overall compensation
structure in consideration of its increased workload and emphasis on enlarged
Committee work and more complex corporate governance rules. For the term
beginning with the Ordinary General Meeting 2003 on May 27, 2003 the Board of
Directors resolved to increase its cash compensation, to include the grant of
restricted shares as part of its equity compensation and to introduce
compensation for the work performed in Board Committees. For the office term
2003/2004, basic cash compensation for an ordinary Board member, set at
$74,000, includes compensation for one Committee membership. Board members are
entitled to receive an equity compensation granted at the end of the respective
period for which it is due, which shall comprise Converium shares equal to a
value of $18,500 with a restriction period of three years, and share options
equal to a value of $18,500 calculated on the Black Scholes formula on the
basis of Converiums share price at the beginning of the period. The Chairman
is entitled to an increase of 50% and the Vice-Chairman to one of 25% of the
individual elements of the compensation package. The following compensation was
agreed for membership in a second and third Committee:  
    
    $2,960 for membership of a second Committee  
    
    $2,200 for membership of a third and any subsequent Committee and additionally,  
    
    $3,700 if the member holds one or more chairmanships in the Committees The table below illustrates the compensation paid to each Board member in
2003. Cash compensation paid at the date of 79




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each Ordinary General Meeting
comprises 50% of the cash compensation due for the ending annual period and 50%
for the commencing annual period. Shares
    
    Shares held atallocated in
    
    December 31,
    
    Options allocated
    
    Options held atBoard Member
    
    Cash Compensation
    
    2003
    
    2003 (1)
    
    in 2003 (2)
    
    December 31, 2003Peter C. Colombo
    
    $
    92,274
    
    
    
    
    
    
    
    310
    
    
    
    2,797
    
    
    
    4,203Georg Mehl
    
    
    77,635
    
    
    
    
    
    
    
    200
    
    
    
    2,237
    
    
    
    3,362Terry G. Clarke
    
    
    62,996
    
    
    
    
    
    
    
    
    
    
    
    1,864
    
    
    
    2,545Jürgen Förterer
    
    
    58,556
    
    
    
    
    
    
    
    
    
    
    
    1,864
    
    
    
    2,801Derrell J. Hendrix
    
    
    58,556
    
    
    
    
    
    
    
    
    
    
    
    1,864
    
    
    
    2,801George G.C. Parker
    
    
    61,886
    
    
    
    
    
    
    
    600
    *
    
    
    1,864
    
    
    
    2,801Anton K. Schnyder
    
    
    60,036
    
    
    
    
    
    
    
    
    
    
    
    1,864
    
    
    
    2,801
  (1) Includes shares personally bought.  (2) Options vest immediately, have a term of 10.5 years and an exercise
price equal to fair market value at the beginning of the period for which
they were granted.* American Depository Shares (ADS) In addition, Converium has retained The RISConsulting Group LLC, of which
Mr. Hendrix is Manager and Chief Executive Officer, for certain consulting
services. For 2003 Converium paid total fees of $251,817 to RISConsulting. In
2003 neither Converium nor any of its subsidiaries granted loans, advance
payments or credit lines to Board members, senior management or parties closely
related to them. As of the end of December 2003 no such loans, advance payments
or credit lines are outstanding. No shares and options are held by closely
linked parties of the members of the Board. Compensation of Senior Management GEC Remuneration The Remuneration Committee sets compensation levels for members of the
Global Executive Committee (GEC) and proposes to the Board the remuneration of
the Chief Executive Officer. The total aggregate compensation of all officers
of the GEC in 2003, including the compensation of the newly appointed members
for October, November and December, and taking into account the resignation of
Richard Smith as of September 23, 2003, was $6.1 million. This total includes
base salary and cash awards made under short- and long-term incentive plans
paid during 2003 and the estimated value of other compensation-related items.
In addition, a compensation payment of $750,000 was made to Mr. Smith. He will
be available as consultant to Converium in 2004. GEC members held shares and
options at the end of December 2003. Some were awarded under Converiums share
and stock option plans, some converted to Converium shares and options from
employee participation plans of Converiums former parent, Zurich Financial
Services, and others bought in conjunction with the Initial Public Offering or
otherwise. No options are held by closely linked parties. The GEC members
participate in local pension plans. Employee Incentive and Benefit Plans An important component of our compensation program is the provision of
additional employee benefits designed to encourage our employees to pursue our
annual and longer-term objectives. These incentive plans are designed to
attract, retain and motivate executives and staff to achieve
performance-related targets and align the interests of our employees with those
of our shareholders. Accordingly, we have established incentive programs where benefits are
linked to both corporate, financial and business as well as individual
performance targets. Additionally, our long-term incentive plans include equity
participation and stock option plans or their equivalent. These plans took
effect at the time of the Formation Transactions. Their terms are summarized
below. Share Plan Converium has adopted a standard stock option plan for our non-U.S.
employees, a standard stock purchase plan for our non-U.S. employees, and an
omnibus share plan for our U.S. employees. These arrangements, which we refer
to collectively as the Share Plan, establish the framework by which we grant
awards to selected executives, employees and consultants of Converium and its
subsidiaries. In addition, our subsidiaries are able to establish so-called
sub-plans under the Share Plan in order to address local law and competitive
practice concerns. However, we intend that the terms of these sub-plans will be
substantially the same as the Share Plan. Pursuant to Article 3a of our Articles of Incorporation, our share capital
can be increased by the issuance of up to 80




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4,000,000 of our shares, 3,200,000 of
which is reserved under the Share Plan for the grant of options, restricted
shares, restricted share units, and other share-based awards. A total of 6,217
shares have been issued from the contingent capital, while the remainder of the
shares required under the plans thus far have been purchased in the open
market. Awards are granted at the discretion of our Remuneration Committee.
Generally, the size of a participants award is based on the level of
responsibility and position, market conditions and the extent of the executive
or employees prior participation in the Converium plans described above. New options granted have an exercise price equal to the market value of
the shares or ADSs on date of grant, vest 25% immediately on the grant date and
25% each year thereafter and will have a 10.5 year term. For 2001 and 2002,
most restricted shares granted vest in their entirety after six years, subject
to acceleration after year three based on the achievement of certain
performance objectives. Beginning in 2003, most restricted shares granted vest
ratably over three years. Shares also vest upon retirement. In connection with these plans, we incurred approximately $10.0 million of
incentive compensation expense in 2003. Grants to Global Executive Committee Global Executive Committee members held shares and options at the end of
December 2003. Some were awarded under Converiums new Share Plan, some
converted to Converium shares and options from Converiums former parent,
Zurich Financial Services, and others bought in conjunction with the IPO or
otherwise. Shares held at
    
    Shares vested of
    
    
    
    
    
    
    
    
    
    Options vested ofShares granted
    
    December 31,
    
    shares held at
    
    Options granted in
    
    Options held at
    
    options held atGEC member
    
    in 2003 (1)
    
    2003 (2)
    
    December 31, 2003
    
    2003 (3)
    
    December 31, 2003
    
    December 31, 2003Dirk Lohmann
    
    
    17,079
    
    
    
    41,837
    
    
    
    22,648
    
    
    
    56,148
    
    
    
    256,067
    
    
    
    156,816Frank Schaar
    
    
    4,066
    
    
    
    7,933
    
    
    
    814
    
    
    
    15,105
    
    
    
    76,381
    
    
    
    47,670Benjamin Gentsch
    
    
    5,328
    
    
    
    12,359
    
    
    
    7,332
    
    
    
    16,182
    
    
    
    46,433
    
    
    
    25,318Martin Kauer
    
    
    5,705
    
    
    
    14,098
    
    
    
    8,192
    
    
    
    17,770
    
    
    
    81,659
    
    
    
    50,072Gary Prestia
    
    
    4,157
    
    
    
    14,539
    
    
    
    8,230
    
    
    
    15,135
    
    
    
    54,370
    
    
    
    30,751Hans Peter Boller
    
    
    3,564
    
    
    
    5,270
    
    
    
    1,992
    
    
    
    9,755
    
    
    
    36,759
    
    
    
    21,533Christian Felderer
    
    
    2,381
    
    
    
    3,821
    
    
    
    1,360
    
    
    
    7,808
    
    
    
    12,348
    
    
    
    4,459Christoph Ludemann
    
    
    1,150
    
    
    
    1,150
    
    
    
    
    
    
    
    5,049
    
    
    
    5,049
    
    
    
    1,262Richard E. Smith (4)
    
    
    7,021
    
    
    
    32,413
    
    
    
    32,413
    
    
    
    47,651
    
    
    
    160,486
    
    
    
    160,486
 (1) Shares granted in 2003 include shares awarded under the Share Plan,
which are subjected to various vesting schedules, and shares purchased
through the employee stock purchase and annual incentive plans. (2) Includes shares held by closely linked parties (3) Options have an exercise price equal to the market value of the shares
or ADSs on date of grant, vest 25% immediately on the grant date and 25%
each year thereafter, and have a 10.5-year term. (4) Resigned on September 23, 2003 As of the date of this 20-F filing, none of the members of Global
Executive Committee beneficially owns more than 1% of our shares. Annual Incentive Plan We have also established annual incentive plans, whose primary purpose is
to provide direct annual financial incentive to employees who achieve corporate
performance goals established under our annual operating plan. Our subsidiaries
are able to establish separate plans to address local law and competitive
practice concerns, but we intend that the terms will be substantially the same
and refer to these plans collectively as the Annual Incentive Plan. Employees
are eligible for target awards under the Annual Incentive Plan ranging from 5%
to 100% of base salary. The size of the target award is determined by the
employees position and competitive data for similar positions at peer
companies. We set performance goals for participating employees and, in keeping
with our performance-based philosophy, the resulting awards decrease or
increase substantially if our actual corporate performance fails to meet or
exceeds target levels. The awards may range from below or above the target
amounts. The performance goals include both financial and non-financial
measures. Participants in our Annual Incentive Plan are permitted to defer a portion
of their bonus into restricted shares or units
under our Annual Incentive Deferral Plan. Unless otherwise determined by
Converium, employees who determine to do so 81




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will receive a 25% premium, paid in
restricted shares or bookkeeping units representing shares, on the amount
deferred that will vest in their entirety in three years. We have reserved
400,000 shares for issuance of restricted shares under this plan. Employee Stock Purchase Plan We adopted, effective January 1, 2002, employee stock purchase plans for
the purpose of providing employees with an opportunity to participate in equity
ownership of Converium by purchasing our shares at a discount. As with the
Share Plan and the Annual Incentive Plan, our subsidiaries adopt disparate
plans on substantially the same terms, which we refer to collectively as the
Employee Stock Purchase Plan. One plan adopted for employees of U.S.
subsidiaries is designed to meet the requirements of Section 423 of the U.S.
Internal Revenue Code which affords favorable tax treatment to U.S. employees.
We reserved 400,000 shares for issuance under the U.S. plan and 200,000 shares
for issuance under other employee share purchase plans. The price of our shares
under this plan, for each plan offering period, will be the lower of 85% of the
fair market value of the shares on the offering commencement date or 85% of the
fair market value of the shares on the offering termination date. One or more
other stock purchase plans have been adopted to cover selected Converium
employees outside the United States subject to and in accordance with
applicable local law. Our Board of Directors will authorize from time to time
the number of shares that are available under these other employee stock
purchase plans. Retention Awards and IPO Share Grant In conjunction with the Formation Transactions, we granted retention
awards to certain employees of Converium in the form of Converium restricted
shares. Employees other than those who were granted retention awards received
Converium restricted shares. All shares vested pro rata on the first and second
anniversary of the completion of the global offering. The number of our shares
granted was calculated based upon the offering price of the global offering. Long Term Incentive Plan Under the Long-Term Incentive Plan (the LTIP), certain employees were
awarded restricted shares and/or options to purchase shares in Converium
Holding AG. Restricted Shares granted vest ratably over a three-year period.
Options were granted with an exercise price equal to the market value of the
shares or ADSs on the grant date, 25% vest immediately on the grant date and
25% each year thereafter, and have a 10.5 year term. Restricted
Shares and options also rest upon retirement. Executive IPO Option Plan In connection with the Formation Transactions, Converium granted certain
executives options to purchase shares in Converium Holding AG (the Executive
IPO Option Plan). Under the Executive IPO Option Plan, 420,000 options to
purchase shares in Converium Holding AG were awarded. The exercise prices were
equal to the market value of the shares or ADSs on the grant date. Of the
options awarded under the Executive IPO Option Plan, 25% vested immediately on
the grant date of December 11, 2001, and 25% will vest each year thereafter or
upon retirement. The options expire 10.5 years after the date of grant. For further information on our share-based incentive plans, see Footnote
13 to our consolidated financial statements. C. BOARD PRACTICES Board Committees The Board of Directors has four Committees, which meet in conjunction with
or prior to Board meetings, as necessary, and regularly report and submit
proposals to the Board of Directors. Each Committee has a Chairman who directs
the meetings according to a set agenda, and a secretary, currently being the
General Legal Counsel. The Nomination Committee Our nomination committee comprises at least three Board members and
currently comprises four. It appoints and dismisses the Head of Internal Audit
and outside directors of Converium companies, unless such appointment or
dismissal is required by regulatory law or order, in which case such
appointment or dismissal lies in the responsibility of the CEO. The Committee
proposes to the Board of Directors the appointment of Board members and the
members of its Committees and their Chairmen, the Chairman and Vice-Chairman of
the Board of Directors and the members of the GEC. It defines and implements
procedures for the annual self-evaluation of the Board of Directors and the
Committees performance; for the annual statement of independence of the Board
of Directors and disclosure of any conflict of interests and any agreements
concluded with the company or any of its subsidiaries; and for the orientation
program for new Board members. Standing
invitees are the CEO and the Chief Human Resources Officer. In 2003 the
Nomination Committee held six meetings. 82




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The Remuneration Committee Our remuneration committee comprises at least three Board members and
currently comprises four. It sets the compensation levels for the GEC and the
Head of Internal Audit and proposes to the Board of Directors the remuneration
for the CEO, as well as the principles of compensation, of the incentive
schemes, and bonus payments to employees. Standing invitees are the CEO and the
Chief Human Resources Officer. In 2003 the Remuneration Committee held five
meetings. The Finance Committee Our finance committee comprises at least three Board members and currently
comprises four. It approves Converiums quarterly and half-year results (*)
(except fourth-quarter results, which is the responsibility of the Board of
Directors) and capital increases in subsidiaries between $5 million and $20
million. It submits to the Board of Directors for its approval the accounting
standards framework for Converium, the annual budget and forecast, investment
and treasury policy, solvency and liquidity planning, strategic asset
allocation, tax planning, the allocation of Corporate Office expenses to
business segments, capital increases and the use of contingent or other
alternative capital structures, year-end results and dividend policy, as well
as exchange listings and de-listings. Standing invitees are the CEO and the
CFO. In 2003 the Finance Committee held six meetings. (*) This responsibility was transferred to the Audit Committee as of
February 2004. The Audit Committee Our audit committee comprises the Chairman of the Board of Directors and
the Chairmen of the Finance, Nomination and Remuneration Committees. Only
independent and financial literate Directors are eligible to serve on the Audit
Committee. In order to qualify as independent, a member may not accept any
consulting, advisory or compensatory fee from the company. In addition, an
Audit Committee member may not be a person affiliated with the company or any
of its subsidiaries. In 2003 all Audit Committee members took part in a U.S.
GAAP training session arranged with the assistance of our external auditor. The
Audit Committee approves and supervises the implementation of Converiums Audit
Charter, including the review of internal control systems and Converiums risk
management and auditing processes; reviews and assesses significant accounting
and reporting issues; oversees external and internal auditors and the external
and internal audit process; assesses the accuracy of the annual financial
statements and determines that appropriate accounting principles have been
applied; and liaises with Converiums Risk Management functions to identify
Converiums areas of greatest risk and to assess managements role in
mitigating the risks. Standing invitees are the CEO, the Head of Internal Audit
and the external auditor. In 2003 the Audit Committee held seven meetings. The Audit Committee is supported in its supervisory task by Internal
Audit, which reports directly to the Audit Committee. Internal Audit is
committed to the Standards for Professional Practice of Internal Auditing set
out by the Institute of Internal Auditors. The strategic goals of the Internal
Audit department, which were formally approved by the Audit Committee, are as
follows:  
    
    To evaluate the reliability and controls of the financial and risk reporting systems and to provide reasonable assurance
that material errors and irregularities will be detected on a timely basis.  
    
    To evaluate the integrity of financial information.  
    
    To evaluate compliance with policies, plans, procedures, regulations, laws and contracts.  
    
    To safeguard company assets.  
    
    To evaluate and promote efficient use of resources.  
    
    To coordinate and manage, on behalf of the Audit Committee, the relationships with the public accounting firms working for
Converium. The Internal Audit department currently consists of eight persons and
covers all operations of Converium worldwide. Internal Audit has unrestricted
access to all relevant information and documents. As of February 13, 2004, the Audit Committee assumed the responsibility of
reviewing and approving the quarterly financial statements, which was
transferred from the Finance Committee. The approval of our year-end financials
is the responsibility of the full Board of Directors. 83




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The Board of Directors has determined that a member of our Audit
Committee, George G.C. Parker, is an audit committee financial expert and is
independent under the rules of the New York Stock Exchange. Indemnification of Officers and Directors We maintain customary directors and officers insurance for our directors
and officers. Otherwise, neither our Articles of Incorporation nor any contract
or other arrangement contains any provision under which any of our directors is
indemnified in any manner against any liability that he or she may incur in his
or her capacity as such. D. EMPLOYEES As of December 31, 2003, Converium employed 847 people globally, including
359 at our offices in Switzerland, 226 at our offices in the United States, 168
at our offices in Germany, 22 in other European countries, 33 in the
Asia-Pacific region and 39 in other regions. A relatively small number of our employees are represented by unions. We
have not experienced any material work stoppages in recent years and we believe
that our relations with our employees are excellent. The following is the distribution of the persons employed. As of December 31,2003
    
    2002
    
    2001Number of employees
    
    
    847
    
    
    
    813
    
    
    
    740Breakdown by geographic locationSwitzerland
    
    
    359
    
    
    
    332
    
    
    
    274United States
    
    
    226
    
    
    
    231
    
    
    
    237Germany
    
    
    168
    
    
    
    160
    
    
    
    148Asia-Pacific region
    
    
    33
    
    
    
    31
    
    
    
    29Other regions
    
    
    61
    
    
    
    59
    
    
    
    52Breakdown by main category of activityUnderwriting
    
    
    289
    
    
    
    290
    
    
    
    274Finance
    
    
    222
    
    
    
    200
    
    
    
    176Actuarial
    
    
    84
    
    
    
    77
    
    
    
    69Other
    
    
    252
    
    
    
    246
    
    
    
    221
 E. SHARE OWNERSHIP As of the date of this annual report, none of the members of our Board of
Directors or Global Executive Committee beneficially owns more than 1% of our
shares. In addition, none of the members of our Board of Directors or Global
Executive Committee have an ownership interest in a company that is a major
client or broker of Converium. For an explanation of shares and options, see
Item 6. Directors, Senior Management and Employees  B. Compensation. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS As of March 31, 2004, 28,023,914 shares were registered in our share
register. These shares were owned by 3,586 shareholders, of which 2,915 were
private individuals holding 3.72% of total outstanding shares, 283 were
foundations and pension funds holding 6.58% of total outstanding shares and 388
were other legal entities holding 59.75% of total outstanding shares. As of March 31, 2004, 26 holders with registered addresses in the United
States, including nominees with registered addresses in the United States, held
5,263,484 of our registered shares and 1,300 holders with registered addresses
in the United States, including nominees with registered addresses in the
United States, held 6,107,994 ADSs. These holdings represented 20.79% of the
total number of shares outstanding as of March 31, 2004. Brokers and other
nominees hold certain of our registered shares and ADSs. In addition, some
holders of our registered shares have not or may not register their
holdings. Consequently, the above figures may not state the actual number
of U.S. beneficial holders or the number of registered shares or ADSs
beneficially held by persons in the United States. 84




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As of the date of this annual report, and in accordance with the
notification requirements as set by the SWX Swiss Stock Exchange, the following
are direct or indirect owners of 5% or more of our outstanding shares:  
    
    Fidelity International Limited (Fidelity), Hamilton, Bermuda: 9.87% (date of notification April 28, 2003).  
    
    Wellington Management Company LLP (Wellington), Boston, Massachusetts, United States: 7.68% (date of notification January
11, 2002). Only one shareholder, European Growth SICAV Luxembourg: 6.01% (a fund
managed by Fidelity), is registered in Converiums share register with an
individual shareholding exceeding the 5% threshold specified in article 663c of
the Swiss Code of Obligations. Fidelity is an investment advisor, which provides investment advisory and
management services to non-US investment companies, trusts and institutions.
Wellington is an investment advisor and portfolio manager with voting authority
for 47 clients, none of which has an individual shareholding in excess of 5%.
Converium does not hold any interlocking shareholdings with any other
joint-stock companies. As of April 1, 2004, members of our Global Executive Committee held an
aggregate of 136,188 of our shares and options to purchase 663,457 shares
representing approximately 2% of our shares. As of the date of this annual
report, the members of our Board of Directors were granted options to purchase
21,314 shares. See Item 6.  Directors, Senior Management and Employees  B.
Compensation. B. RELATED PARTY TRANSACTIONS There were no unpaid loans, including guarantee commitments, granted to
the Converium directors and members of the Converium Global Executive Committee
as of December 31, 2003. In March 2003, upon receipt of all regulatory approvals, Converium
finalized an agreement to acquire a 25% stake in Global Aerospace Underwriting
Managers Limited (GAUM), a leading international aviation-underwriting agency,
as a part of its strategy to strengthen its long-term position in the aviation
and satellite business. In March 2003, Converium as a shareholder provided a
loan to GAUM in the amount of £12.6 million ($19.8 million). In addition,
Converium entered into a pool members agreement for the 2003 underwriting year
under which it became a member of the aviation and aerospace pools run by GAUM
and its subsidiary, Associated Aviation Underwriters Inc. For the 2003
underwriting year, Converium has committed 25% of the overall pools capacity.
Previously, Converium had indirectly reinsured 9% of the pools managed by GAUM. In
February 2004, Converium AG finalized a Sale and Purchase Agreement with
Royal and Sun Alliance (RSA), to acquire a further 5.1%
stake in GUAM, which
increased its overall stake in GUAM to 30.1%. Included within the Sale and
Purchase agreement is a requirement for Converium AG to replace an existing
loan from RSA in the amount of £ 2.5 million ($4.5 million). For the 2004
underwriting year, Converium has committed 27.25% of the overall pools
capacity. Converium has entered into a strategic alliance with the Medical Defence
Union (MDU) that resulted in a 49.9% participation in MDU Services Ltd. MDU
Services Ltd distributes medical malpractice insurance policies to the members
of the Medical Defence Union. As a result of the initial FSA approval in
respect of general liability business, insurance policies underwritten by
Converium Insurance (UK) Ltd were issued to members of the Medical Defence
Union beginning July 1, 2003. These insurance polices replaced policies
formerly issued in the United Kingdom by Zurich Financial Services entities,
the majority of which were reinsured by Converium. Gross premiums from MDU were
$137.3 million, $140.0 million and $57.0 million for 2003, 2002 and 2001,
respectively. Converium has a 48% participation in SATEC, a leading global space
underwriting agency based in Venice, Italy. Gross premiums assumed through the
pool managed by SATEC were $5.9 million, $5.0 million and $3.2 million for
2003, 2002 and 2001, respectively. C. INTERESTS OF EXPERTS AND COUNSEL Not applicable. 
 ITEM 8. FINANCIAL
INFORMATION A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION 85




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Financial Statements See the consolidated financial statements beginning on page F-1. Legal Proceedings Converium Holding AG and its subsidiaries are continuously involved in
various legal proceedings, claims and litigation arising, for the most part, in
the ordinary course of its business operations as a reinsurer. The outcome of
such current legal proceedings, claims and litigation could have a material
effect on operating results or cash flows when resolved in a future period.
However, in the opinion of management these matters are not material to
Converiums financial position, with the exception of the matters described
below: Amerisafe Matters In September 2003, the parties settled the March 2001 litigation initiated
by American Interstate Insurance Company (Amerisafe) against Converium
Reinsurance (North America) Inc., (CRNA), Guy Carpenter & Company Inc. (Guy
Carpenter) and ZFS in the United States District Court for the Western
District of Louisiana. ZFS and Guy Carpenter had previously been dismissed from
the suit. Based on the terms of the settlement agreement and on the basis of
the aggregate excess of loss protection from ZIC (see Note 15 to our
consolidated financial statements), CRNA believes that it is fully protected
through reinsurance agreements for all potential liability in respect of this
action. Since late fall of 2000, CRNA had received a series of inquires from the
Louisiana Department of Insurance (LDI) investigating CRNAs disputes with
Amerisafe in response to a complaint filed by Amerisafe. As part of the
September 2003 settlement with Amerisafe, Amerisafe has withdrawn the complaint
and the LDI has officially closed the file with respect to the complaint. Superior National Matters On January 16, 2002, the California Insurance Commissioner (the
Commissioner), filed a complaint against a subsidiary of ZFS, Centre
Insurance Company (CIC) and affiliates, as well as CRNA and Converium
Insurance (North America) Inc. (CINA), on behalf of the Superior National
Insurance Companies in Liquidation (SNICIL), in a proceeding in the Superior
Court of the State of California, County of Los Angeles. The complaint alleges
several counts, including voidable preferences and fraudulent transfers,
seeking the recovery of transfers totalling $202.9 million, damages for breach
of contract in the amount of $59.8 million, additional damages in an amount to
be proved at trial, and punitive damages. The overwhelming bulk of the damages
sought appear to arise out of CIC transactions, not CRNA or CINA transactions.
As part of the Formation Transactions, ZFS has agreed to indemnify Converium
for liabilities arising out of or related to the assets not assumed by or
transferred to Converium in the separation from ZFS. The principal claim
brought against CRNA appears to arise from CRNAs commutation of certain
reinsurance obligations. In that connection, however, while the Complaint does
in fact reference the commutation, the payment involved was a commutation
payment made by CRNA, not to CRNA. The liquidator, however, is apparently
claiming that the amount paid by CRNA was inadequate consideration for the
reinsurance obligations commuted and thus, this commutation constituted a
fraudulent transfer. The Commissioners pending complaint in the SNICIL action
does not assign a value to the reinsurance obligations that were commuted,
repeatedly stating that their value is undetermined, however, he has
indicated that he may seek to recover some portion of the difference between
the amount paid by CRNA ($17.8 million) and the amount purportedly owed under
the commuted reinsurance contracts (informally asserted by certain counsel for
the liquidator to be approximately $41.0 million with no further clarification
as to the basis for this amount). CRNA and CINA intend to defend this
litigation vigorously and to assert various setoffs. Based on the limited
information available to date, we are unable to predict CRNAs and CINAs
chances of prevailing in this action. While Converium believes that it has a
strong case, at this stage of the proceedings it is not possible to make any
determination regarding the potential outcome of the litigation. No discovery relating to any transaction in which CRNA or CINA was
involved is ongoing and any such discovery is not likely to commence until at
least late 2004. US Life Insurance Co. Arbitration On November 29, 1999, US Life Insurance Company (US Life) initiated an
arbitration proceeding against SNICIL, CINA and CIC. US Life seeks to rescind a
multi-year quota share reinsurance contract effective May 1, 1998 on the basis
that
material misrepresentations and omissions were allegedly made in procuring
that contract. Inception-to-date amounts ceded by Converium to the contract
through December 31, 2003 are $54.0 million premiums earned, $18.1 million
commissions earned and $110.7 million losses incurred. All discovery in this
matter closed in November 2002, and arbitration hearings 86




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commenced in late 2002
and continued in 2003. The arbitration has not concluded at this time and the
arbitrators have currently advised that additional dates necessary to conclude
the arbitration will not be available until the second half of 2004. Based on
the limited information available to date, we are unable to predict CINAs
chances of prevailing in this action. While Converium believes that it has a
strong case against US Life for full reinsurance coverage in accordance with
the contract, at this stage of the proceedings it is not possible to make any
determination regarding the potential outcome of the arbitration. All American Life Insurance Company Arbitration On December 23, 2002, CRNA and CINA initiated an arbitration against All
American Life Insurance Company (All American). The dispute arises from a
quota share reinsurance contract provided by All American. Because All American
has failed and refused to make payments under the quota share contract, CRNA
and CINA demanded arbitration to collect all outstanding balances due under the
contract. In the arbitration, All American is now seeking to rescind the
contract on the basis of certain alleged misrepresentations and omissions made
by SNICIL, who is also now a party to the arbitration as a reinsured under the
contract. As of this date, the arbitration panel has been constituted and
hearings are scheduled for June 2004. Inception-to-date amounts ceded by
Converium to the contract through December 31, 2003 are $41.1 million premiums
earned, $14.2 million commissions earned and $62.3 million losses incurred.
Based on the limited information available to date, we are unable to predict
CRNAs and CINAs chances of prevailing in this action. While Converium
believes that it has a strong case against All American for full reinsurance
coverage in accordance with the contract, at this stage of the proceedings it
is not possible to make any determination regarding the potential outcome of
the arbitration. Continental Casualty Company Arbitration On December 16, 2002, Continental Casualty Company (Continental) and
CRNA served cross demands for arbitration on each other. The dispute arises
from a retrocessional contract pursuant to which Continental reinsured CRNA for
50% of the accident and health exposures CRNA assumed from a third-party
insurer pursuant to a reinsurance agreement. In October 2002, Continental
advised CRNA that it had identified issues concerning the third-party insurer
business that Continental believes might give rise to defenses under the
reinsurance agreement. CRNA offered to permit Continental to assert those
defenses directly against the third-party insurer and, in addition, advised
Continental that, if Continental did not agree to do so, CRNA would conduct its
own investigation with respect to the putative defenses identified by
Continental. However, Continental instead asserted that CRNA has somehow
breached a duty of utmost good faith to Continental, which justifies rescission
of the retrocessional contract. At arbitration, CRNA would be seeking
enforcement of the retrocessional contract and Continental would be seeking
rescission of the same contract. Inception-to-date amounts ceded to the
contract through December 31, 2003 are $20.8 million premiums earned, no
commissions earned and $56.4 million losses incurred. The parties have each
selected their party-appointed arbitrators, but at this stage an umpire has not
yet been selected. Based on the limited information available to date, we are
unable to predict CRNAs chances of prevailing in this action. While Converium
believes that it has a strong case against Continental for full reinsurance
coverage in accordance with the contract, at this stage of the proceedings it
is not possible to make any determination regarding the potential outcome of
the arbitration. Canada Life On December 21, 2001, The Canada Life Assurance Company, Toronto (Canada
Life), brought action against Converium Rückversicherung (Deutschland) AG in
the U.S. District Court of the Southern District of New York. Canada Life
alleged that Converium breached certain quota share retrocession agreements
with Canada Life by failing to indemnify its full percentage of Canada Lifes
September 11th losses and by failing to post an $82.4 million letter of credit
for its liability pursuant to the ISA facilities underlying agreements.
Converium is disputing this claim on the grounds that its liability under the
pertinent contracts is limited and is also raising other contracts defenses. In
its decision of April 11, 2002, the U.S. District Court of the Southern
District of New York dismissed Canada Lifes action, ruling that The Air
Transportation Safety and System Stabilization Act, which Canada Life claimed
to give the court jurisdiction over the subject matter, is not applicable. The
court ruled that the Act applies broadly to the actions filed by individual
victims of the September 11th attacks but does not apply to disputes among
reinsurers. The Second Circuit Court of Appeal affirmed the dismissal. As a
result of the decision of the U.S. District Court of the Southern District of
New York, Converium sent Canada Life a request to arbitrate. The organizational
meeting of the arbitrators took place on October 8, 2003. The hearing is
expected to take place in the first quarter of 2005. Converium has fully reserved this matter. However, arrangements entered
into with Zurich Financial Services provide for this matter to be covered by
the agreed-to cap for September 11th related losses provided to Converium by
Zurich Financial Services in conjunction with Converiums global offering. Dividends and Dividend Policy 87




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The Board of Directors will propose at the Annual General Meeting an
appropriation of the available earnings for the 2003 fiscal year. If this
proposal meets the approval of the General Meeting of shareholders in Zug,
Switzerland on April 27, 2004, a cash dividend of CHF 1.50 per share, or CHF
60,009,326, will be paid on Thursday, April 29, 2004. We intend to distribute dividends to our shareholders on an annual basis,
but cannot assure you that we will do so. Our dividend policy in future periods
will depend on a number of factors including our results of operations, our
financial condition, our capital and cash requirements, general business
conditions, legal, contractual and regulatory restrictions regarding the
payment of dividends by us and other factors. Holders of shares and ADSs with
respect to the underlying shares, are entitled to receive payment in full of
any dividends declared in respect of the 2003 fiscal year and following years. As a holding company, we are dependent on dividends, interests and royalty
fees from our subsidiaries to pay cash dividends. The payment of dividends by
our subsidiaries to their parent companies is restricted by applicable laws and
regulations. To the extent our subsidiaries are restricted from paying
dividends to Converium Holding AG, we may be unable to pay dividends to our
shareholders. For further information on the restrictions on our ability to pay
dividends, see Note 14 to our consolidated financial statements. Under Swiss law, we may only pay dividends if we have either sufficient
profits available for distribution or if we have sufficient free reserves
pursuant to our statutory (non-consolidated) balance sheet and the provisions
of Swiss law to allow for distributions from that reserve. As long as the general reserves amount to less than 20% of our nominal
share capital, Swiss law requires at least 5% of our annual net profits to be
retained as general reserves. Any net profits remaining after this retention
are eligible to be distributed as dividends, subject to approval by our
shareholders at a shareholders meeting, and our auditors must confirm that a
dividend proposal by our Board of Directors complies with our Articles of
Incorporation and Swiss law. Our dividends will be due and payable after the shareholders resolution
authorizing the payment of such dividends has been passed or at a later date as
determined by the shareholders dividend resolution. Under Swiss law, the
statute of limitations in respect of dividend payments is five years. All of
our shares rank pari passu in relation to the right to dividends. Dividends paid in respect of our ADSs and shares are subject to a
deduction of Swiss withholding tax, which currently is at a rate of 35%. In the
event of any dividend being paid, the withholding tax will be deducted from any
dividend payments. A Swiss resident may be entitled to a full refund of such
withholding if such resident is the beneficial owner of the payment and duly
reports the dividend received on his personal tax return. Non-Swiss-resident
holders of our ADSs and shares may be entitled to a full or partial refund of
such withholding tax under the terms and conditions of an applicable double
taxation treaty. See Item 10. Additional Information  E. Taxation  Swiss
Taxation  Obtaining a Refund of Swiss Withholding Tax for U.S. Residents. We will pay our dividends in Swiss francs. Owners of our ADSs will be
entitled to receive dividends, if any, payable in respect of the underlying
shares. Our ADS depositary agreement provides that the ADS depositary will
promptly convert the dividends that it receives into U.S. dollars on behalf of
the ADS holders according to the prevailing market rate on the date that the
ADS depositary actually receives the dividends. Fluctuations in the exchange
rate between the Swiss franc and the U.S. dollar will affect the U.S. dollar
amounts received by the holders of ADSs from the date a dividend is paid to the
date U.S. dollars are received by ADS holders. B. SIGNIFICANT CHANGES Except as otherwise disclosed in this annual report, there has been no
significant change in our financial position since December 31, 2003. 
 ITEM 9. THE OFFER AND LISTING A. OFFER AND LISTING DETAILS Market Price Information Trading on the SWX Swiss Exchange The table below presents the highest and lowest reported sale price for
our registered shares on the SWX Swiss Exchange
for the periods indicated, expressed in Swiss francs. On April 6, 2004,
the latest practicable day before the printing of this annual report, the last
reported sale price of our registered shares on the SWX Swiss Exchange was CHF
63.80 per registered share. 88




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High
    
    LowCHF
    
    CHFCalendar Year 2001 (from December 11, 2001)
    
    
    82.10
    
    
    
    79.00Calendar Year 2002
    
    
    89.75
    
    
    
    54.85First Quarter
    
    
    88.45
    
    
    
    75.00Second Quarter
    
    
    89.75
    
    
    
    72.40Third Quarter
    
    
    79.00
    
    
    
    56.15Fourth Quarter
    
    
    69.60
    
    
    
    54.85Calendar Year 2003
    
    
    74.50
    
    
    
    49.60First Quarter
    
    
    69.85
    
    
    
    49.60Second Quarter
    
    
    74.50
    
    
    
    55.45Third Quarter
    
    
    67.00
    
    
    
    59.10Fourth Quarter
    
    
    69.10
    
    
    
    60.05Calendar Year 2004 (until March 31, 2004)
    
    
    73.75
    
    
    
    60.25First Quarter
    
    
    73.75
    
    
    
    60.25Last 6 MonthsOctober 2003
    
    
    67.10
    
    
    
    60.05November 2003
    
    
    69.10
    
    
    
    60.65December 2003
    
    
    66.00
    
    
    
    62.00January 2004
    
    
    68.10
    
    
    
    63.00February 2004
    
    
    73.75
    
    
    
    65.00March 2004
    
    
    68.10
    
    
    
    60.25
 Trading on the New York Stock Exchange The table below presents the highest and lowest reported sale price for
our ADSs on the New York Stock Exchange. On April 6, 2004, the latest
practicable day before the printing of this annual report, the last reported
sale price of our ADSs on the New York Stock Exchange was $24.43 per ADS. High
    
    Low$
    
    $Calendar Year 2001 (from December 11, 2001)
    
    
    27.40
    
    
    
    23.02Calendar Year 2002
    
    
    28.52
    
    
    
    18.30First Quarter
    
    
    26.50
    
    
    
    21.77Second Quarter
    
    
    28.52
    
    
    
    24.25Third Quarter
    
    
    26.05
    
    
    
    18.96Fourth Quarter
    
    
    24.10
    
    
    
    18.30Calendar Year 2003
    
    
    26.63
    
    
    
    19.15First Quarter
    
    
    25.15
    
    
    
    19.15Second Quarter
    
    
    26.42
    
    
    
    20.52Third Quarter
    
    
    24.20
    
    
    
    21.55Fourth Quarter
    
    
    26.63
    
    
    
    22.77Calendar Year 2004 (until March 31, 2004)
    
    
    29.57
    
    
    
    23.55First Quarter
    
    
    29.57
    
    
    
    23.55Last 6 MonthsOctober 2003
    
    
    25.10
    
    
    
    22.77November 2003
    
    
    25.45
    
    
    
    23.50December 2003
    
    
    26.63
    
    
    
    24.30January 2004
    
    
    27.30
    
    
    
    25.80February 2004
    
    
    29.57
    
    
    
    25.56March 2004
    
    
    27.01
    
    
    
    23.55
 B. PLAN OF DISTRIBUTION Not applicable. C. MARKETS Converium registered shares have a listing on the SWX Swiss Exchange under
the symbol CHRN. Converium ADSs are listed in the United States on the New
York Stock Exchange, or NYSE, under the symbol CHR. The NYSE is the only
trading market for our ADSs in the United States. Each of our ADSs represents
one-half of one of our registered shares. We expect that the SWX Swiss Exchange
will remain the principal trading market for our registered shares. The 8.25% Guaranteed Subordinated Notes due 2032 are securities of
Converium Finance S.A., a société anonyme incorporated under the laws of
Luxembourg, and a wholly-owned subsidiary of Converium AG, and have a listing
under the
symbol CHF on the New York Stock Exchange. D. SELLING SHAREHOLDERS 89




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Not applicable. E. DILUTION Not applicable. F. EXPENSES OF THE ISSUE Not applicable. 
 ITEM 10. ADDITIONAL INFORMATION A. SHARE CAPITAL Not applicable. B. MEMORANDUM AND ARTICLES OF INCORPORATION See Description of Shares and Share Capital in the Registration
Statement on Form F-1, file number 333-14106, filed with the SEC under the
Securities Act of 1933 on December 10, 2001. There was no modification in the
Articles of Incorporation with the exception of the amount of issued share
capital which has been adjusted in order to reflect the shares actually issued
in 2002 in conjunction with Converiums employee compensation plans from
contingent share capital. Following this increase, the actual issued share
capital amounts to CHF 400,062,170 and is divided into 40,006,217 shares with a
par value of CHF 10 each. The respective contingent share capital for the
participation of employees (article 3a of our Articles of Incorporation) has
consequently been reduced by an equal amount. Information Policy In conjunction with the invitation for the Annual General Meeting, all
registered shareholders are provided with an invitation and a summary report on
Converiums financial results for the current financial year. Upon request, a
full annual report with the financial statements can be ordered. Additionally,
all ADS holders, upon request, receive a copy of the current annual report
including financial statements, through their brokers. Furthermore, all
financial and other information released by Converium is accessible on
Converiums web page as well as through the SEC. Statutory Quorums According to Article 13 of Converiums Articles of Incorporation,
resolutions at the General Meetings of Shareholders are taken with the majority
of votes cast. In accordance with the provisions of Swiss law (Article 704 Swiss Code of
Obligations) Converiums Articles of Incorporation require two thirds of votes
to be represented and the absolute majority of the nominal values of the shares
represented is required for resolution on the following:  
    
    an alteration of the purpose of Converium  
    
    the creation of super-voting shares  
    
    restrictions on the transfer of registered shares and the removal of such restrictions as well as restrictions to vote and
the removal of such restrictions  
    
    an authorized or contingent increase of share capital  
    
    an increase of share capital by conversion of capital surplus, by contribution in kind or for the purpose of an acquisition
of assets and the grant of special rights  
    
    a restriction or exclusion of the subscription right or advance subscription right
    
    a change of Converiums registered office 90




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
    
    the dissolution of Converium without liquidation Convocation of the General Meeting of the Shareholders According to Article 9 of Converiums Articles of Incorporation, the
General Meetings are convened at least twenty days prior to the meetings. This
is in accordance with the provision of Swiss company law (Article 700 Code of
Obligations). Article 10 of the Articles of Incorporation provides for shareholders
whose combined share holdings represent an aggregate nominal amount of at least
CHF one million to be able to demand an item to be included on the agenda of a
General Meeting. Such demand must be made at least 45 days prior to the
meeting. This is in accordance with the provision of Swiss company law (Article
699 paragraph 2 Code of Obligations). Registration in the Share Register The date by which holders of registered shares can be registered in
Converiums share register in connection with attending the General Meeting of
shareholders is set by the Board of Directors in its preparatory Board Meeting
prior to the General Meeting. For 2004, the date by which a shareholder has to be registered in the
share register is April 23, 2004, in order to be invited to the Annual General
Meeting of April 27, 2004, at the Casino in Zug. Shareholder Votes on Equity-Based Compensation plans The NYSE rules require that shareholders must vote on all equity based
compensation plans and any material revisions to the terms of such plans.
Converium does not comply with this requirement, as under Swiss Company Law,
the approval of compensation plans is not an authority of the General Meeting,
but of the Board of Directors. The reason for not providing for approval of
equity based compensation plans is the fact that the capital of a Swiss company
is determined in the Articles of Incorporation and, therefore, each increase of
capital has to be submitted for shareholders approval. If equity based
compensation plans result in a need for a capital increase, the shareholders
approval is mandatory. If, however, shares for such plans are purchased in the
open market, shareholders do not have the authority to vote. C. MATERIAL CONTRACTS The Master Agreement The Master Agreement sets out the overall principles and the rights and
obligations of the parties in connection with the Formation Transactions. It
also addresses the relationship between Zurich Financial Services and Converium
following the Formation Transactions. In particular, the Master Agreement
provides for:  
    
    the separation of substantially all of the third-party reinsurance
business from the businesses of Zurich Financial Services, and  
    
    the consolidation of this business under Converium Holding AG. The third-party reinsurance business that has been retained by Zurich
Financial Services includes the Zurich Centre Group business as described below
and the reinsurance business written by ZIC with inception or renewal dates
prior to January 1, 1987. In the Master Agreement, Zurich Financial Services and Converium made
certain representations and warranties with respect to matters including the
assets of and titles to the assumed business. In addition, each of Zurich
Financial Services and Converium made certain covenants, principally intended
to effect our separation from the other businesses of Zurich Financial
Services. Further, each of Zurich Financial Services and Converium has agreed,
following the completion of the Formation Transactions:  
    
    to execute the agreements, and to cooperate and act in accordance with the arrangements described below
    
    not to, and to cause its subsidiaries not to, until March 31, 2004, interfere with any contractual relationship existing on
or at any time during the period of two years prior to the first trading day on the SWX Swiss Exchange between the other 91




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party and its customers or other commercial counterparties  
    
    not to, and to cause its subsidiaries not to, within a period of two years after the first trading day on the SWX Swiss
Exchange, actively solicit for employment or hire any person employed by the other party or its subsidiaries, and  
    
    not to, except for certain specified exceptions, disclose confidential information of the other party or an entity of such
partys group which is not known to third parties but which is known by the parties due to the fact that the parties were
previously part of the same group of companies or as a result of the Formation Transactions contemplated by the Master
Agreement. In addition, the Master Agreement provided that we bear up to a maximum of
$50 million of the costs and expenses related to the consummation of the
Formation Transactions, including advisors fees, retention costs and stamp
duty taxes. Zurich Financial Services reimbursed us for costs and expenses in
excess of this amount. For a discussion of the impact of the Formation
Transactions-related costs and expenses on our results of operations, cash
flows and financial position see Item 5.  A. Operating Results 
Restructuring Charge. The Master Agreement is governed by, and will be construed in accordance
with, the laws of Switzerland. September 11th Coverage Zurich Financial Services, through its subsidiaries, has agreed to
arrangements that cap our net exposure for losses and loss adjustment expenses
arising out of the September 11th terrorist attacks at $289.2 million, the
amount of net loss and loss adjustment expenses we recorded as of September 30,
2001. As part of these arrangements, these subsidiaries of Zurich Financial
Services have agreed to take responsibility for non-payment by the
retrocessionaires of Converium AG and Converium Rückversicherung (Deutschland)
AG with regard to losses arising out of the September 11th attacks in excess of
the $289.2 million cap. While the cap does not cover non-payment by the
retrocessionaires of Converium Reinsurance (North America) Inc., our only
retrocessionaire for this business is a unit of Zurich Financial Services.
Therefore, we are not exposed to potential non-payments by retrocessionaires
for these events in excess of the $289.2 million cap, although we will be
exposed to the risk of non-payment of Zurich Financial Services units and we
will be exposed to credit risk from these subsidiaries of Zurich Financial
Services. See  Note 8 to our financial statements, and Item 4.  Information
on the Company  B. Business Overview  Retrocessional Reinsurance. Acquisition of the Converium AG Business Certain Converium AG reinsurance business was acquired from ZIC and ZIB
via the Quota Share Retrocession Agreement, described in more detail below and
the Asset Purchase and Assumption of Liability Agreement between ZIC and
Converium AG, dated September 28, 2001. Under this Agreement, ZIC transferred
to Converium AG tangible assets, marketable securities and liabilities relating
to the business written by the Zurich operations. Quota Share Retrocession Agreement In connection with the Formation Transactions, the transfer of certain
business to Converium AG by ZIC and ZIB was effected by means of the Quota
Share Retrocession Agreement effective July 1, 2001. The covered business
consists of the business historically managed by Converium AG which has an
inception or renewal date on or after January 1, 1987, and consists of
substantially all of the third-party reinsurance assumed business written by
ZIC and ZIB, under the Zurich Re brand name. The liabilities Converium
assumed include all net unearned premiums, net losses and loss adjustment
expenses and experience account balances relating to this business. The Quota Share Retrocession Agreement provides for the payment of
premiums to Converium by ZIC as consideration for assuming the covered
liabilities. The Quota Share Retrocession Agreement provides that these
premiums are on a funds withheld basis, whereby the premium is not
immediately paid, but is rather retained by ZIC and credited to a funds
withheld account, which is referred to as the Funds Withheld Asset. Because the business subject to the Quota Share Retrocession Agreement
consists of business that was historically managed by Converium, this business
is already reflected in our financial statements. Any reinsurance business
written by ZIC or ZIB that is not part of the historically managed and operated
third-party reinsurance business of Converium AG is not covered by the Quota
Share Retrocession Agreement, and all related legal rights and obligations of
this business have been
retained by ZIC and ZIB. Accordingly, this business is excluded from our
financial statements. Therefore, execution of this Quota Share Retrocession
Agreement has no impact on results of operations as reported for 2003, 2002, or
2001. Converium will receive the surplus remaining with respect to the Funds
Withheld Asset, if any, after all liabilities have 92




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been discharged.
Additionally, Zurich Financial Services has the right to prepay to Converium
the full amount or a portion thereof of the Funds Withheld Asset prior to
termination of the agreement. Any surplus will be recorded in the financial
statements in the period when it occurs. Converium will continue to administer the transferred business on behalf
of ZIC and ZIB, which remain liable to the original cedents of the business.
Additionally, Converium will manage third-party retrocessions related to the
business transferred. Converium will bear the credit risk for uncollectible
reinsurance balances excluding those related to the September 11th terrorist
attacks. Converium will have a broad right of offset under the Quota Share
Retrocession Agreement so that reinsurance balances owed to ZIC and ZIB may be
offset against the Funds Withheld Asset account directly. The Quota Share Retrocession Agreement provides for commutation and
termination for special reasons, such as insolvency of a party or loss of its
authorization to do business or a change of control of Converium. Each of the
parties agrees to indemnify the other against liability or expense incurred by
reason of its conduct or failure to act in appropriate circumstances. The Quota
Share Retrocession Agreement contains other provisions that are customary for
an agreement of this nature. Acquisition of the Converium Reinsurance (North America) Inc. Business The Converium Reinsurance (North America) Inc. reinsurance business was
acquired through the transfer by a subsidiary of Zurich Financial Services of
all of the voting securities of Converium Reinsurance (North America) Inc. to
Converium Holdings (North America) Inc., pursuant to a Stock Purchase Agreement
between Zurich Reinsurance Centre Holdings, Inc. and Converium, dated November
20, 2001. Assumption of $200 Million Public Notes On October 20, 1993, Zurich Reinsurance Centre Holdings, Inc., or ZRCH,
issued $200 million principal amount of 7.125% Senior Notes due October 15,
2023, referred to as the Notes. In connection with the issuance of the Notes,
ZRCH executed an Indenture. As partial consideration for the transfer to
Converium Holdings (North America) Inc. of Converium Reinsurance (North
America) Inc., Converium Holdings (North America) Inc. has executed a First
Supplemental Indenture, dated November 20, 2001, assuming all of the rights and
obligations of ZRCH under the Indenture. The Bank of New York acts as Trustee
under the Supplemental Indenture. Accordingly, this indebtedness is reflected
in our financial statements for all periods presented. The Notes are general
unsecured obligations of Converium Holdings (North America) Inc. and rank on a
parity with all other unsecured and unsubordinated indebtedness of Converium
Holdings (North America) Inc. CENY Arrangements Prior to the Formation Transactions, the Converium Reinsurance (North
America) Inc. balance sheet reflected business originally written by Centre
Reinsurance Company of New York, or CENY. Prior to the establishment of
separate Zurich Centre Group legal entities, CENY wrote new or renewal business
on the Converium Reinsurance (North America) Inc. balance sheet. CENY was
originally part of the Zurich Centre Group of companies, a business unit of
Zurich Financial Services. Zurich Financial Services has historically operated
and managed CENY separately from Converium. In 1997, the CENY legal entity was
merged into Zurich Reinsurance Centre, Inc., or ZRC, a predecessor of Converium
Reinsurance (North America) Inc. in connection with a going private transaction
involving ZRCs parent. As a result of this merger, certain liabilities of
CENY, referred to below as CENY Business, became direct obligations of
Converium Reinsurance (North America) Inc., but continued to be managed by
Zurich Centre management and were not part of the independently managed and
operated third-party reinsurance business of Converium. Nevertheless, prior to
our separation from Zurich Financial Services, we had primary legal
responsibility for the CENY Business. In connection with the Formation Transactions, we have extinguished our
legal responsibility for substantially all of the CENY Business pursuant to the
Master Novation and Indemnity Reinsurance Agreement with certain insurance
subsidiaries of Zurich Financial Services, including Converium Reinsurance
(North America) Inc., Centre Insurance Company, or CIC, Centre Solutions (U.S.)
Limited, or CSUS, a Bermuda domiciled insurance company, and Zurich Insurance
Company, Bermuda branch, a Bermuda branch of a company organized under the laws
of Switzerland, dated as of October 21, 2001. Under this agreement, Converium
Reinsurance (North America) Inc. has assigned and transferred to insurance
subsidiaries of Zurich Financial Services, and these insurance subsidiaries
have assumed, pursuant to a novation, substantially all of the insurance
contracts related to the CENY Business. Accordingly, the novated contracts are
excluded from our financial statements. However, a portion of the CENY Business
was not novated because necessary consents could not be obtained
from the reinsureds by the effective date of the agreement. This portion
of the CENY Business has been 100% retroceded to CIC and CSUS on an indemnity
reinsurance basis and is reflected in our financial statements as 100%
retroceded business for all periods presented. 93




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Converium Reinsurance (North America) Inc. historically obtained stop-loss
reinsurance coverage on the CENY Business from members of the Zurich Centre
Group. In connection with the Formation Transactions, Converium Reinsurance
(North America) Inc. has commuted these policies pursuant to the Commutation
Agreement (covering the Aggregate Excess of Loss Reinsurance Agreement
effective January 1, 1991 through December 31, 1993) between Converium
Reinsurance (North America) Inc. and Centre Reinsurance Limited, dated as of
October 1, 2001, the Commutation Agreement (covering the Aggregate Excess of
Loss Reinsurance Agreement effective January 1, 1994 through December 31, 1994)
between Converium Reinsurance (North America) Inc. and Centre Reinsurance
International Company, dated as of October 1, 2001, the Commutation Agreement
(covering the Aggregate Excess of Loss Reinsurance Agreement effective January
1, 1995) between Converium Reinsurance (North America) Inc. and Centre
Reinsurance Limited, dated as of October 1, 2001, the Commutation Agreement
(covering the Obligatory Surplus Share Reinsurance Agreement effective October
1, 1995) between Converium Reinsurance (North America) Inc. and Centre
Reinsurance Limited, dated as of October 1, 2001 and the Commutation Agreement
(covering the Obligatory Surplus Share Reinsurance Agreement effective November
6, 1992) between Converium Reinsurance (North America) Inc. and Centre
Reinsurance International Company, dated as of October 1, 2001. Because we no
longer have any legal rights of coverage under these policies, they have been
excluded from our financial statements for all periods presented. Supplementary Agreements and Arrangements Converium Reinsurance (North America) Inc. and its wholly owned
subsidiary, Converium Insurance (North America) Inc., terminated certain
existing affiliate arrangements and settled balances due under certain existing
arrangements in preparation for the transfer of Converium Reinsurance (North
America) Inc. to Converium pursuant to the Agreement Amending and Terminating
Centre Reinsurance Dublin Affiliated Group Tax Allocation Agreement, between
Orange Stone Delaware Holdings Limited, Orange Stone Reinsurance, Centre
Reinsurance Holdings (Delaware) Limited, Centre Reinsurance (US) Limited, ZRCH,
Converium Reinsurance (North America) Inc., ZCIC, ZC Specialty Insurance
Company, Centre Risk Advisors, Inc., Constellation Reinsurance Company, Centre
Re Services, Inc., Zurich Global Assets LLC, formerly known as BDA/US Services
Limited, ZC Management Corporation, ZC Resource LLC, ZC Property Management,
Inc. and Claims Solutions Group, dated October 1, 2001. Converium Reinsurance (North America) Inc. entered into a sublease with ZC
Resource LLC (ZC Resource), a subsidiary of Zurich Financial Services in July
2001. The sublease has a term of approximately eleven years, ending in 2012. As
part of the Formation Transactions, Converium Reinsurance (North America) Inc.
entered into an agreement to indemnify Global Asset Holdings Limited (GAHL)
(an indirect parent of ZC Resource and a co-guarantor of the prime lease) for
losses under the prime lease or the guaranty caused by Converium Reinsurance
(North America) Inc.s default under the sublease that results in a default
under the prime lease; GAHL, in turn, will indemnify Converium Reinsurance
(North America) Inc. for any losses under the guaranty caused by a default by
ZC Resource under the prime lease. Centre Insurance Company, a subsidiary of
Zurich Financial Services, will guaranty the punctual payment of all amounts
due by GAHL under the guaranty and all expenses incurred by Converium
Reinsurance (North America) Inc. enforcing the guaranty. All of the above supplementary transactions were recorded in our financial
statements on the date they occurred. Acquisition of the Converium Rückversicherung (Deutschland) AG Business The Converium Rückversicherung (Deutschland) AG reinsurance businesses
were acquired through the transfer by Zurich Financial Services to Converium AG
of its 98.63% interest in ZRK pursuant to the Agreement for the Sale and
Transfer of Shares in Zürich Rückversicherung (Köln) Aktiengesellschaft, dated
September 28, 2001. GRI Retained Business GRI is an internal operating unit of Zurich Financial Services whose
principal role is to accumulate risks underwritten by primary and direct
providers of insurance in a manner which allows GRI to access the third-party
reinsurance market. GRIs internal operations were wholly autonomous from the
third-party reinsurance business conducted by Converium. Moreover, Converium
never used GRI to access external reinsurance markets. Prior to the Formation Transactions, the GRI operation was partially
conducted through policies issued by Converium Reinsurance (North America) Inc.
and ZRK. However, the GRI operation was managed exclusively by GRIs management
team. Additionally, Zurich Financial Services did not alter the capital
ascribed to support Converiums business as a result of the GRI business
formerly written on our balance sheets. As a consequence of the Formation
Transactions, all GRI business
previously written on our balance sheets has been assigned and assumed
pursuant to a Group Reinsurance Business Master Novation and Indemnity
Reinsurance Agreement, among Converium Reinsurance (North America) Inc., ZIC
and ZIB, dated as of October 1, 2001. Any related rights and obligations of
ours have been extinguished. Accordingly, all of this business is excluded from
our financial statements. 94




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Other Indemnity Matters Pursuant to the Master Agreement, we and Zurich Financial Services will
indemnify each other for certain matters, such as liabilities arising out of
our respective businesses, and for breaches of our respective representations
and warranties and other customary matters. In particular, we have agreed to indemnify Zurich Financial Services and
its affiliates for:  
    
    liabilities assumed by or transferred to us in the separation;  
    
    liabilities incurred by Zurich Financial Services or its affiliates (other than Converium) while carrying
on business on our behalf pursuant to the terms of agreements entered into in connection with the
Formation Transactions before and after the dates of the separation of U.S. and non-U.S. business from
Zurich Financial Services;  
    
    liabilities incurred by us on our own behalf at any time, which are deemed to be or become a liability of
Zurich Financial Services or any of its affiliates (other than Converium); and  
    
    losses suffered by Zurich Financial Services or any of its affiliates (other than Converium) that relate
to any reasonable action to avoid, resist or defend against liabilities assumed by or indemnified against
by us; and Zurich Financial Services has correspondingly agreed to indemnify us for:  
    
    liabilities retained by Zurich Financial Services and its affiliates and not assumed by or transferred to
us in the separation;  
    
    liabilities arising out of or relating to the assets not assumed by or transferred to us in the separation;  
    
    liabilities arising out of specified contracts we have not assumed pursuant to the terms of the Quota
Share Retrocession Agreement; and  
    
    losses suffered by Converium or any of our affiliates that relate to any reasonable action to avoid,
resist or defend against liabilities not relating to our business. Moreover, we have agreed with Zurich Financial Services to allocate
amongst ourselves liabilities that may arise under relevant securities laws as
a result of any misstatements or omissions contained in the various annual
report documentation to be distributed to Converium shareholders or as a result
of the Formation Transactions themselves. In addition, pursuant to the tax sharing and indemnity agreements
described below, we and Zurich Financial Services will indemnify each other for
certain tax liabilities arising out of the Formation Transactions and certain
other potential liabilities that arose while we were affiliated with Zurich
Financial Services. We have further agreed with Zurich Financial Services to indemnify Zurich
Financial Services or ZIC against liabilities to counterparties or third
parties arising in connection with ZICs participation in establishing the
TRINOM transaction, including, but not limited to, the offering circular and
any ancillary documentation related thereto, ZICs exercise or performance of
any of its rights and obligations under the TRINOM agreements and ZICs acting
based on our information and/or instructions. Also, we have agreed to indemnify Zurich Financial Services and its
subsidiaries for losses arising from Zurich Financial Services involvement in
the MDU joint venture to the extent such indemnifiable losses had been caused
by the misconduct or negligence of our employees or arising out of our
business. As described above, subsidiaries of Converium and Zurich Financial
Services will indemnify each other with respect to losses arising out of our
lease arrangements at Converium Reinsurance (North America) Incs New York City
office. See  Acquisition of the Converium Reinsurance (North America) Inc.
Business. Tax Sharing Agreements We entered into Tax Sharing and Indemnification Agreements with:  
    
    ZRCH, in respect of the U.S. Converium entities, which we refer to as the U.S. Tax Sharing Agreement, and 95




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
    
    Zurich Financial Services in respect of the non-U.S. Converium entities, which we refer to as the Non-U.S. Tax Sharing
Agreement. The tax allocation agreement in effect involving Converium Reinsurance
(North America) Inc. and Converium Insurance (North America) Inc. was
terminated as to those parties. Converium Reinsurance (North America) Inc. and
Converium Insurance (North America) Inc. paid $54.9 million due under the tax
allocation agreement through the date of sale of Converium Reinsurance (North
America) Inc., to Converium Holdings (North America) Inc. Under the U.S. Tax
Sharing Agreement, these settlements will be adjusted to the extent necessary
based on tax returns filed for years 2000 and 2001. The U.S. Tax Sharing
Agreement provides we will generally be liable for taxes imposed on our U.S.
entities in respect of periods prior to and after the transfer. However, ZRCH
will be liable to us for specified taxes, which will include any taxes arising
out of the transfer of the U.S. entities to us, any taxes imposed in respect of
the stop loss reinsurance policy from ZIC from 1997 to 2001 and certain other
matters. The Non-U.S. Tax Sharing Agreement provides, in general, that we will be
liable for all taxes arising from the business previously conducted by ZIC and
Converium Rückversicherung (Deutschland) AG, whether arising prior to or
subsequent to the transfer to Converium. We are also liable for branch taxes
arising from the Converium branches located in Malaysia, Singapore and
Australia and representative offices in Buenos Aires, London, Mexico City, Sao
Paolo and Tokyo. As described above, under the Master Agreement we will be
liable for all taxes related to the consummation of the Formation Transactions
together with all other costs and expenses of the global offering, up to an
aggregate of $50 million. In addition, all taxes relating to the Formation
Transactions but incurred after the Formation Transactions will be borne by
Converium. See  The Master Agreement. The tax sharing agreements also set forth the responsibilities for filing
tax returns affecting the Converium entities, and the conduct of audits and
similar proceedings. The obligations of ZRCH under the U.S. Tax Sharing
Agreement are guaranteed by ZIC. Swiss Tax Consequences to Converium of the Formation Transactions Under the terms of the Swiss tax rulings obtained by Zurich Financial
Services and granted by the Swiss Federal and Zurich Cantonal Tax
Administrations, the Swiss tax treatment of the Formation Transactions relating
to the formation of Converium will be as described below, provided the
Formation Transactions were effected in the manner described to the Swiss Tax
Administrations and the conditions described further below are satisfied:  
    
    The offering of Converium shares to the public in the global offering
will retroactively trigger Swiss stamp duty at the rate of 1% of the fair
market value of Converium at the level of Converium Holding AG. As part of the Master Agreement, Zurich Financial Services has agreed to
reimburse us for certain costs and expenses related to the Formation
Transactions, including the stamp duty taxes described above. See  The Master
Agreement. The Swiss tax treatment of the Formation Transactions set forth above is
subject to the following condition:  
    
    If a shareholder or a group of shareholders acting in concert were to
acquire directly or indirectly more than one-third of the voting rights of
Converium AG within five years from the completion of the Formation
Transactions, then Converium AG would have to pay Swiss stamp duty in the
amount of 1% of the fair market value of all of the issued Converium AG shares
as of the date of the completion of the Formation Transactions. If,
however, more than one-third of the voting rights of such company were
transferred in the course of another tax-privileged transaction, such as a
merger, taking place within the described five-year period, such
retroactive taxation would not be triggered upon the fulfillment of
certain conditions. This stamp duty will be borne by us. Continuing Relationships with Zurich Financial Services In addition to the agreements described above, we have certain continuing
relationships with Zurich Financial Services, including those described below. Continuing Aggregate Excess of Loss Agreements 1993 Aggregate Excess of Loss Agreement In 1993, ZIC and ZRC entered into an Excess of Loss Reinsurance Agreement
under which ZIC agreed to reinsure adverse 96




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loss development on ZRCs revenues
as of December 31, 1992. As we described above under CENY Arrangements, ZRC
was a predecessor of Converium Reinsurance (North America) Inc., and we remain
liable for its continuing obligations. Also, ZIC and ZRC entered into a Stop
Loss Reinsurance Agreement as of March 5, 1993 for losses occurring between
January 1, 1993 and May 31, 1993. In addition, under this second agreement, we
are reimbursed for incurred losses and allocated loss adjustment expenses in
excess of 75% of earned premiums for losses occurring after May 31, 1993 on
business written by ZRC prior to June 1993. Recoveries under each of these
agreements, which we refer to collectively as the 1993 Aggregate Excess of Loss
Agreement, are on an incurred basis (rather than as any such losses are paid).
As of December 31, 2003, there were no recoverables under the 1993 Aggregate
Excess of Loss Agreement. 1997 Aggregate Excess of Loss Agreement Converium Reinsurance (North America) Inc. had an intra-Converium aggregate
excess of loss reinsurance agreement in place since July 1,1997 (1997
Aggregate Excess of Loss Agreement). This agreement provided protection to
Converium Reinsurance (North America) Inc. for losses that exceeded a net
retention after amounts recoverable from its outside retrocessionaires. Because
the 1997 Aggregate Excess of Loss Agreement pre-dated the Formation
Transactions, ZIC was the formal counterparty to Converium Reinsurance (North
America) Inc. In October 2001, the 1997 Aggregate Excess of Loss Agreement was
amended as follows:  
    
    Converium Reinsurance (North America) Inc.s coverage for net losses
of $320.4 million with respect to all Amerisafe business retroceded to
the Unicover Pool remains in effect, with ZIC as counterparty,  
    
    Converium Reinsurance (North America) Inc.s coverage for net losses
of $307.5 million from the September 11th terrorist attacks that
exceed $58.2 million remains in effect, with ZIC as counterparty; and  
    
    the remainder of the coverage under the agreement is commuted. As part of the Formation Transactions, ZIC has also provided Converium
Reinsurance (North America) Inc. with coverage for all its net losses with
respect to the Amerisafe business ceded to the Unicover Occupational Accident
Reinsurance Pool and the September 11th terrorist attacks that exceed the
coverage limits described above under each of two Indemnity Agreements, each
dated as of October 1, 2001. In addition, under the Master Agreement, Converium
has agreed to indemnify ZIC for up to $58.6 million of losses in connection
with the Amerisafe business ceded to the Unicover Pool for non-performance of
the retrocessionaire. Other Agreements and Arrangements As described in more detail above, the separation of our business from
that of Zurich Financial Services, in part pursuant to reinsurance agreements,
including the Quota Share Retrocession Agreement and the Master Novation and
Indemnity Agreement, will entail us and Zurich Financial Services and its
affiliates having continuing obligations to reinsure each other and to provide
services in connection with the administration of the run-off of the business
we transferred to each other. In June 2001, ZIC entered into the TRINOM transaction that provides ZIC
with specific high limit catastrophe protection. As part of the Formation
Transactions, ZIC and Converium AG have entered into a CAT Retrocession
Reinsurance Agreement, dated December 1, 2001, which we refer to as the
Catastrophe Agreement. This agreement provides for Converium to receive
payments from ZIC for certain catastrophic events on terms similar to ZICs
protection under the TRINOM transaction. We will pay ZIC amounts at least equal
to the payments made by ZIC to TRINOM. The catastrophe agreement was effective
as of June 18, 2001, and will remain in effect for the same period as ZICs
agreement with TRINOM, together with any extension thereto. See
Item 4.  Information on the Company  B. Business Overview  Catastrophe Protection. In September 2002, Converium AG granted to MDU Investments Ltd. a put
option enabling MDU Investments Ltd. to require Converium (or a person
nominated by Converium AG) to subscribe up to an aggregate of 20.0 million
preferred shares on the terms of the pertinent agreement, with such option to
be exercised in tranches of one million shares with a value of £1 each. On the
same date Converium AG granted to the Medical Defence Union Ltd. a call option
enabling the Medical Defence Union Ltd. to purchase some or all of the
preferred shares which Converium AG or a subsidiary thereof may from time to
time hold in MDU Investments Ltd. In December 2002, in conjunction with the issue by Converium Finance S.A.
of the Guaranteed Subordinated Notes, Converium Holding AG and Converium AG, as
guarantors, have issued an unconditional irrevocable subordinated guarantee
which will constitute the direct, unsecured and subordinated joint and several
obligations of each of the guarantors subordinate to all Senior Creditors (as
defined in the Indenture), and will rank equally without preference among
themselves and at least 97




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equally with any existing or future unsecured,
subordinated obligations of either guarantor that are expressed to rank equally
with the subordinated guarantee and prior to all holders of the guarantors
share capital and to all holders of the guarantors existing or future
securities or obligations that are expressed to rank junior to the subordinated
guarantee. See Item 3.  Key Information  B. Capitalization and
Indebtedness. On December 27, 2002, Converium Finance S.A. purchased from Converium AG
the $150.0 million loan previously granted by Converium AG to Converium Holding
AG on December 19, 2001, for a total purchase price of $150.8 million. In March 2003, upon receipt of all regulatory approvals, Converium
finalized an agreement to acquire a 25% stake in Global Aerospace Underwriting
Managers Limited (GAUM), a leading international aviation-underwriting agency,
as a part of its strategy to strengthen its long-term position in the aviation
and satellite business. In March 2003, Converium as a shareholder provided a
loan to GAUM in the amount of £ 12.6 million ($19.8 million). In addition,
Converium entered into a pool members agreement for the 2003 underwriting year
under which it became a member of the aviation and aerospace pools run by GAUM
and its subsidiary, Associated Aviation Underwriters Inc. For the 2003
underwriting year, Converium has committed 25% of the overall pools capacity.
Previously, Converium had indirectly reinsured 9% of the pools managed by GAUM. In July 2003, Converium entered into arrangements by which various banks,
led by ABN AMRO Bank N.V., Barclays Capital and Commerzbank Aktiengesellschaft
are providing Converium AG and its approved subsidiaries an $ 900 million
unsecured letter of credit facility allowing Converium AG or its approved
subsidiaries to draw upon this facility in conjunction with Converiums need
for letters of credit where, for regulatory purposes or otherwise, collateral
is required. In
February 2004, Converium AG finalized a Sale and Purchase Agreement with
Royal and Sun Alliance (RSA), to acquire a further 5.1%
stake in GUAM, which
increased its overall stake in GUAM to 30.1%. Included within the Sale and
Purchase agreement is a requirement for Converium AG to replace an existing
loan from RSA in the amount of £ 2.5 million ($4.5 million). For the 2004
underwriting year, Converium has committed 27.25% of the overall pools
capacity. See Item 7.  Major Shareholders and Related Party Transactions  B.
Related Party Transactions. Lease Arrangements Converium AG leases office space from Zurich Financial Services. The lease
term is fixed until 2011, with two renewal options for three-year terms each.
The lease payments are fixed with annual rent escalations based on a cost of
living index. Converium
Rückversicherung (Deutschland) AG leases office space from
Zurich Financial Services. The lease term is for a period of ten years, with an
option to renew for up to two additional ten-year terms. Lease payments have
bi-annual rent escalations based on changes in local real estate price indices. Converium Reinsurance (North America) Inc. entered into a sublease with ZC
Resource LLC (ZC Resource), a subsidiary of Zurich Financial Services in July
2001. The sublease has a term of approximately eleven years, ending in 2012. As
part of the Formation Transactions, Converium Reinsurance (North America) Inc.
entered into an agreement to indemnify Global Asset Holdings Limited (GAHL)
(an indirect parent of ZC Resource and a co-guarantor of the prime lease) for
losses under the prime lease or the guaranty caused by Converium Reinsurance
(North America) Inc.s default under the sublease that results in a default
under the prime lease; GAHL, in turn, will indemnify Converium Reinsurance
(North America) Inc. for any losses under the guaranty caused by a default by
ZC Resource under the prime lease. Centre Insurance Company, a subsidiary of
Zurich Financial Services, will guaranty the punctual payment of all amounts
due by GAHL under the guaranty and all expenses incurred by Converium
Reinsurance (North America) Inc. enforcing the guaranty. D. EXCHANGE CONTROLS AND OTHER LIMITATIONS Other than in connection with government sanctions imposed on Iraq,
Yugoslavia, UNITA (Angola), Myanmar, parts of Afghanistan and Libya (currently
suspended), there are currently no governmental laws, decrees, or regulations
in Switzerland that restrict the export or import of capital, including, but
not limited to, Swiss foreign exchange controls on the payment of principal,
interest or liquidation proceeds, if any, to non-resident holders of shares or
notes. There are currently no laws, decrees or regulations in Luxembourg that
restrict the export or import of capital, including, but not limited to,
Luxembourg foreign exchange controls on the payment of principal, interest or
liquidation proceeds, if any, to non-resident holders of notes. E. TAXATION The following is a summary of the principal U.S. Federal income tax and
Swiss tax consequences to a holder of shares or 98




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ADSs. This discussion does not
purport to address all tax consequences of the acquisition, ownership and
disposition of shares or ADSs and does not take into account the specific
circumstances of any particular holders (such as tax-exempt entities, certain
insurance companies, broker-dealers, traders in securities that elect to mark
to market, holders liable for alternative minimum tax, holders that actually or
constructively own 10% or more of the voting shares of Converium, holders that
hold shares or ADSs as part of a straddle or a hedging or conversion
transaction or holders whose functional currency is not the U.S. dollar, etc.),
some of which may be subject to special rules. This summary is based on the tax
laws of Switzerland and the United States (including the Internal Revenue Code
of 1986, as amended (the Code), its legislative history, existing and
proposed regulations thereunder, published rulings and court decisions as in
effect on the date hereof), as well as the Convention Between the United States
of America and the Swiss Confederation, which we call the U.S./Switzerland
Treaty, all of which are subject to change (or change in interpretation),
possibly with retroactive effect. We have not, and will not, request a ruling
from the U.S. Internal Revenue Service concerning the tax consequences of any
aspect of the transactions described herein. This discussion does neither
generally address any aspects of Swiss taxation other than income and capital
taxation and Swiss stamp duties nor of U.S. taxation other than federal income
taxation. Holders are urged to consult their tax advisors regarding the Swiss
and other tax consequences of owning and disposing of shares or ADSs as well as
the U.S. federal, state and local and other tax consequences of owning and
disposing of shares or ADSs. Swiss Taxation Generally, holders of ADSs will be treated as owners of the registered
shares underlying the ADSs for Swiss tax purposes. Accordingly, except as
noted, the Swiss tax consequences discussed below apply equally to holders of
the registered shares and ADSs. This discussion does not, as already mentioned above, generally address
any aspects of Swiss taxation other than income and capital taxation and Swiss
stamp duties. Holders are urged to consult their tax advisors regarding the
Swiss and other tax consequences of owning and disposing of shares or ADSs. Withholding Tax on Dividends and Distributions Dividends paid and similar in-kind distributions (including dividends of
liquidation proceeds and share dividends) made by Converium to a holder of
shares or ADSs are subject to a federal withholding tax at a rate of 35%. The
withholding tax must be withheld by Converium from the gross distribution, and
paid over to the Swiss Federal Tax Administration. The withholding tax is
refundable in full to a Swiss resident who receives a distribution if such
resident is the beneficial owner of the payment and duly reports the gross
distribution received on his personal tax return. Obtaining a Refund of Swiss Withholding Tax for U.S. Residents Article 10 of the U.S./Switzerland Treaty provides for a reduced 15%
withholding tax rate for U.S. individual and corporate shareholders who are
entitled to claim treaty benefits, which may be further reduced to 5% in the
case of a corporate shareholder owning at least 10% of the voting rights.
Relief under the U.S./Switzerland Treaty is granted by way of a refund. Under
the ADS program in effect through The Bank of New York, a U.S. holder of ADSs
that qualifies for U.S./Switzerland Treaty benefits will not be required to
undertake any action with respect to the partial or full refund of the Swiss
withholding tax. On the payment date of the dividend, Converium will pay 65% of
the gross dividend to The Bank of New York on behalf of the ADS holders. The
Bank of New York will file a Form 82 accompanied by a shareholder list and a
DTC participant list for each program. Based on this refund application, the
refundable withholding tax will be refunded by the Swiss Federal Tax
Administration to The Bank of New York on behalf of the eligible U.S. holders
of ADSs. The Bank of New York will pay 85% or 95% of the dividend to the
eligible U.S. holders of ADSs, depending on the applicable U.S./Switzerland
Treaty rate. Such holders should receive the ADS dividend within approximately
one month of the payment of the dividend by Converium. Relief under the
U.S./Switzerland Treaty is granted for holders of shares by way of a refund of
the withholding tax. A U.S. holder of shares may obtain the applicable refund
of Swiss withholding tax by filing a Swiss Federal Tax Administration Form 82
with the Swiss Federal Tax Administration. Income Tax on Dividends A Swiss resident or a foreign resident subject to Swiss taxation who
receives a dividend or similar distribution (including liquidation proceeds in
excess of the nominal value of the shares) from us is required to include such
amounts in his personal income tax return. A Swiss shareholder which itself is
a company or a cooperative may, under certain circumstances, benefit from an
exemption of the dividend from income taxation (participation
exemption/Beteiligungsabzug). For purposes of the above paragraph and the discussion under Capital
Gains Tax upon Disposal of Shares, a foreign resident subject to Swiss
taxation refers to a non-Swiss resident person that maintains in Switzerland a
permanent establishment or fixed place of business to which the shares are
attributable. 99




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Capital Gains Tax upon Disposal of Shares A Swiss resident who holds shares as part of such residents private,
non-business assets will not be subject to any Swiss federal, cantonal or
municipal income taxation on gains realized upon the sale or other disposal of
shares. However, under certain conditions, shares can be deemed to be part of
the business assets of an individual, i.e. an individual may be treated as a
professional trader in securities, with the consequence of taxation of any
capital gains as business income. Furthermore, private gains realized upon a
repurchase of shares by us may be re-characterized as taxable dividend income
if some conditions are met. In the case of such re-characterization of capital
gains into dividend income, income tax will be levied on the difference between
the repurchase price and the underlying nominal value of the shares. Capital
gains realized on shares held as part of the business assets of a Swiss
resident or a foreign resident subject to Swiss taxation are included in the
taxable income of such persons. Persons who are not resident in Switzerland for tax purposes are not
subject to any Swiss taxes with respect to gains realized upon a sale of shares
or ADSs, unless the shares or ADSs are attributable to a permanent
establishment or fixed place of business maintained by such non-resident person
in Switzerland. However, under some conditions, dividend withholding tax will
become due if shares are repurchased by Converium. A Swiss resident or a foreign resident subject to Swiss taxation which is
a shareholder and which itself is a company or a cooperative may, under certain
circumstances, be eligible for relief from taxation with respect to capital
gains (participation exemption/Beteiligungsabzug). However, the participation
exemption on capital gains applies only in the case of a shareholding quota
sold of at least 20% held over an uninterrupted period of at least one year. Stamp Duties upon Transfer of Shares The sale or purchase of shares or ADSs, whether by Swiss resident or
non-resident holders, may be subject to a Swiss securities transfer stamp duty,
calculated on the sale proceeds, if it occurs through or with a Swiss bank or
other Swiss securities dealer as defined in the Swiss Federal Stamp Tax Act. United States Federal Income Taxation For purposes of this discussion, a U.S. holder is either (1) a citizen
or resident of the United States, (2) a corporation organized under the laws of
the United States or any political subdivision thereof, (3) an estate the
income of which is subject to U.S. federal income tax without regard to its
source, or (4) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust. This discussion does not, as already mentioned above, generally address
any aspects of U.S. taxation other than federal income taxation. Holders are
urged to consult their tax advisors regarding the U.S. federal, state and local
and other tax consequences of owning and disposing of shares or ADSs. U.S. holders of ADSs will be treated as owners of the shares underlying
the ADSs for U.S. federal income tax purposes. Accordingly, except as noted,
the U.S. federal income tax consequences discussed below apply equally to U.S.
holders of ADSs and shares. This discussion is based in part upon
representations of The Bank of New York and assumes that each obligation
provided for in, or otherwise contemplated by, the deposit agreement and any
related agreement will be performed in accordance with its respective terms.
This discussion assumes that U.S. holders will hold their shares or ADSs as
capital assets. Taxation of Dividends Under the U.S. federal income tax laws, and subject to the passive foreign
investment company, or PFIC, rules discussed below, U.S. holders will include
in gross income the gross amount of any distribution, other than certain pro
rata distributions of common shares, paid (before reduction for Swiss
withholding taxes) by Converium out of its current or accumulated earnings and
profits (as determined for U.S. federal income tax purposes) as foreign source
ordinary income when the dividend is actually or constructively received by the
U.S. holder. The dividend will not be eligible for the dividends-received
deduction. Dividends paid to a non-corporate US holder after 31 December 2002
and before 1 January 2009 that constitute qualified dividend income will be
taxable to the holder at a maximum tax rate of 15% provided that the shares or
ADSs are
held for more than 60 days during the 120 day period beginning 60 days
before the ex-dividend date and the holder meets other holding period
requirements. Dividends paid by us with respect to our shares or ADSs will be
qualified dividend income. The amount of the dividend paid in Swiss francs will
be the U.S. dollar value of the Swiss francs received, including the amount of
any Swiss tax withheld, determined at the spot Swiss franc/U.S. dollar rate on
the date such dividend is 100




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received, which for holders of ADSs would be the date
such dividend is received by The Bank of New York, regardless of whether the
payment is in fact converted into U.S. dollars. Generally, any gain or loss
resulting from currency exchange fluctuations will be treated as ordinary
income or loss. Such gain or loss will generally be income from sources within
the United States for foreign tax credit limitation purposes. Distributions in
excess of current and accumulated earnings and profits, as determined for U.S.
federal income tax purposes, will be treated as a return of capital to the
extent of the U.S. holders basis in the shares or ADSs and thereafter as
capital gain. Subject to certain limitations, the Swiss tax withheld in accordance with
the U.S./Switzerland Treaty and paid over to Switzerland will be creditable
against the U.S. holders U.S. federal income tax liability. One such
limitation is that a foreign tax credit is only allowed for withholding tax on
a dividend if the shareholder has held the shares with respect to which the
dividend is paid for more than fifteen days during the thirty-day period
beginning on the date which is fifteen days before the date on which the shares
become ex-dividend with respect to the dividend. To the extent a refund of the
tax withheld is available to a U.S. holder under the U.S./Switzerland Treaty,
the amount of tax withheld that is refundable will not be eligible for credit
against the U.S. holders U.S. federal income tax liability. See  Swiss
Taxation  Obtaining a Refund of Swiss Withholding Tax for U.S. Residents
above for the procedures for obtaining a refund of tax. The ability of a U.S. holder to utilize foreign taxes as a credit to
offset U.S. taxes is affected by complex limitations and conditions. The
limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, dividends paid by
Converium will generally constitute passive income or, in the case of certain
U.S. holders, financial services income. The U.S. Treasury Department has expressed concern that parties to whom
ADSs are pre-released may be taking actions that are inconsistent with the
claiming by U.S. holders of ADSs of foreign tax credits for U.S. federal income
tax purposes. Accordingly, the discussion of the creditability of foreign taxes
could be affected by future actions that may be taken by the U.S. Treasury
Department. A U.S. holder may elect to claim all foreign taxes paid as an itemized
deduction in lieu of claiming a foreign tax credit. A deduction does not reduce
U.S. tax on a dollar-for-dollar basis like a tax credit, but the availability
of the deduction is not affected by the conditions and limitations applicable
to foreign tax credits. U.S. holders should consult their tax advisors to
determine whether and to what extent a foreign tax credit would be available to
them. Sale or Exchange Gain or loss recognized by a U.S. holder on the sale, exchange or other
disposition of shares or ADSs will, subject to the discussion of the PFIC rules
below, be subject to U.S. federal income taxation as capital gain or loss in an
amount equal to the difference between the U.S. holders adjusted tax basis in
the shares or ADSs and the amount realized on the disposition. Capital gain of
a non-corporate US holder that is recognized on or after 6 May 2003 and before
1 January 2009 is taxed at a maximum rate of 15% where the property is held
more than one year. Any gain or loss recognized will generally be treated as
U.S. source gain or loss. U.S. holders are urged to consult their own tax
advisors about the treatment of capital gains, which may be taxed at lower
rates than ordinary income for non-corporate taxpayers, and capital losses, the
deductibility of which may be limited. The surrender of ADSs in exchange for shares, or vice versa, will not
result in the realization of gain or loss for U.S. federal income tax purposes. PFIC Rules Converium does not expect to be a PFIC for its current or future taxable
years; however, since this is a factual determination made annually, there can
be no assurance that Converium will not be considered a PFIC for any taxable
year. In general, Converium will be a PFIC with respect to a U.S. holder, if,
for any taxable year in which the U.S. holder held Converium shares or ADSs,
either (1) at least 75% of the gross income of Converium for the taxable year
is passive income or (2) at least 50% of the value (determined on the basis
of a quarterly average) of Converiums assets is attributable to assets that
produce or are held for the production of passive income. In general, passive
income for this purpose does not include income derived in the active conduct
of an insurance business by a corporation predominantly engaged in an insurance
business. If Converium were to be treated as a PFIC, in general, unless a U.S.
holder makes a mark-to-market election, gain realized on the sale or other
disposition of shares or ADSs and certain excess distributions would be
allocated on a straight-line basis over the holders holding period for the
shares or ADSs. The gain so allocated would be taxed as ordinary income at
the highest rate in effect for each year in the holders holding period,
other than the year of sale or disposition and years prior to the year in which
Converium first met the definitional criteria of a PFIC, and an interest charge
would be imposed in respect of the tax attributable to each such year subject
to the same exceptions; gain allocable to the year of sale or disposition and
years prior to the year in which Converium first met the definitional criteria
of a PFIC would be treated as ordinary 101




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income. Backup Withholding A U.S. holder may, under certain circumstances, be subject to backup
withholding with respect to dividends paid on the shares or ADSs or the
proceeds of sale, exchange, or other disposition of shares or ADSs unless such
holder (1) is a corporation or comes within certain other exempt categories,
and, when required, demonstrates this fact or (2) provides a correct taxpayer
identification number, certifies that it is not subject to backup withholding
and otherwise complies with applicable requirements of the backup withholding
rules. Any amount withheld under these rules will be creditable against the
U.S. holders federal income tax liability, provided appropriate information is
furnished to the IRS. A U.S. holder who does not provide a correct taxpayer
identification number may be subject to penalties imposed by the IRS. F. DIVIDENDS AND PAYING AGENTS Not applicable. G. STATEMENT BY EXPERTS Not applicable. H. DOCUMENTS ON DISPLAY It is possible to read and copy documents referred to in this annual
report that have been filed with the SEC at the SECs public reference room
located at: 451 Fifth Street, NW
Washington DC 20549, USA Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room and their copy charges. In addition, documents referred to above are available from Converium at
its headquarters, located at: Baarerstrasse 8 CH-6300 Zug Switzerland I. SUBSIDIARY INFORMATION Not applicable. 
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a provider of reinsurance solutions, effective risk management is
fundamental to our ability to protect both the interests of our clients and
shareholders. We have consequently established risk and investment management
processes and procedures to actively manage our exposure to qualitative and
quantitative market risks. Our risk and investment management procedures focus
on ensuring that all of our operating units consistently follow suitable,
structured and controlled processes and procedures, with specific guidelines
and limits tailored to the characteristics of each business. See
Item 15. 
Controls and Procedures We consider our market risk to consist primarily of our exposure to
adverse market value changes in our assets, across both short and long-term
periods. Our market risk includes multiple sources of market price
fluctuations, including credit risks, prepayment risks, liquidity risks, sector
risks and other risks. Short-term market risks relate primarily to our exposure
to adverse market value changes in our assets and the potential inability to
realize asset values on a timely basis. We principally manage our long-term market risks through a procedure we
refer to as asset/liability management, or ALM, through which we seek to
understand and manage the dynamic interactions between our assets and
liabilities. We utilize and continually develop firm-wide ALM processes and
models to manage our aggregate financial risks. The primary goal of our ALM
procedures is to match, in terms of timing and currency, anticipated claims
payments to our cedents with investment income generated by our investment
assets. Because fixed income securities generally provide more stable
investment income than equity securities, the preponderance of our investments are in fixed
income instruments. Although our ALM techniques are based on theoretical and
empirical models and can lead to incorrect assumptions, we believe that the
careful use of these ALM techniques leads to a better understanding of the
risks inherent in our assets and liabilities and is therefore an important
element of our risk and investment management process. Our principal ALM
techniques include cash flow analysis, scenario 102




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##### Table of Contents



testing and stochastic modelling. To help manage our aggregate exposure to concentration and credit risks,
we analyze the concentration of our risk by entity, risk category (asset,
underwriting, retrocession), industry and credit rating. These concentrations
and credit risks are reviewed on a quarterly basis by our Finance Committee as
a part of the review and approval of our quarterly financial statements. Sensitivity Analyses for Invested Assets Approximately 90.9% of our investment securities are classified for
accounting purposes as available-for-sale. These securities are carried at
their fair market value as of the balance sheet date with movements in fair
value recorded in shareholders equity. In contrast to these assets, certain
liability reserves, particularly non-life reinsurance reserves, are not shown
at fair market values as of the balance sheet date. Therefore, U.S. GAAP
accounting practices typically result in more volatile assets than liabilities.
This, in turn, may lead us to report more volatile shareholders equity on our
balance sheet than we believe may economically be the case. The following risk analyses do not take into account that there are
strategies in place to minimize the exposures to market fluctuations. These
strategies include, among others, changes in asset allocation and the sale of
investments. These analyses assume that the change in value of assets is
temporary and that the liability reserves would not change. We have based our computations of prospective effects of hypothetical
interest rate changes on numerous assumptions. Because these computations are
based on assumptions, they should not be relied on as indicative of future
results. Certain shortcomings are inherent in the method of analysis presented in
the computation of the fair value of fixed rate instruments. Actual values may
differ from those projections presented should market conditions vary from
assumptions used in the calculation of the fair value of individual securities,
including non-parallel shifts in the term structure of interest rates and
changing individual issuer credit spreads. Equity Market Risk We hold approximately 11.2% of our invested assets in equity securities,
which are subject to equity market risk. Our equity market risk is concentrated
in the United States and Europe and is highly sensitive to general economic and
stock market conditions. The estimated potential exposure of our consolidated
net assets to a 10% decline in all stock markets as of December 31, 2003, would
be an after-tax reduction in net assets of $68.4 million, which represents
approximately 3.3% of our total shareholders equity as of December 31, 2003. Our strategic asset allocation combines a large percentage of investments
in high-quality bonds with investments in equity securities. This allocation
seeks to generate strong positive returns with acceptable risks over the long
term, while protecting against excessive risks in periods of severe market
distress. During a severe stock market correction associated with a weak
economy, recession or depression, losses in the fair market value of equity
securities tend to be partially offset by gains on high-quality bonds arising
from falling interest rates. We seek to match our investments with our
underlying liabilities in the countries and territories in which we operate.
Consequently, we strive to keep our equity portfolio diversified so as to
provide a broad exposure across major sectors of individual stock markets. We
restrict our maximum investment in any one equity security or equity sector by
reference to local benchmarks and insurance regulations. Interest Rate Risk Our investments are subject to interest rate risks. Our interest rate risk
is concentrated in the United States and Europe and is highly sensitive to many
factors, including governmental monetary policies, and domestic and
international economic and political conditions. The estimated potential
exposure of our consolidated net assets to a one percentage point increase of
the yield curve would be an after-tax reduction in net assets of $126.4
million, which represents approximately 6.1% of our total shareholders equity
as of December 31, 2003. This reduction would be offset by higher investment
income earned on newly invested funds. To protect our balance sheet from a possible rise of the yield curves, we
stabilized the modified duration of our bond portfolio, excluding
held-to-maturity securities, at 3.6. Additionally, we created a portfolio of
held-to-maturity government bonds totalling $500.4 million (10.2% of our fixed
maturities portfolio, excluding the Funds Withheld Asset). As of December 31, 2003, all of our debt outstanding was at fixed interest
rates. Thus, an increase in interest rates would currently have no effect on
our annual interest expense or reported shareholders equity, as we account for
debt at amortized cost, not fair value. 103




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Foreign Exchange Risk Our general practice is to invest in assets that match the currency in
which we expect related liabilities to be paid. We tend thus to invest our
assets with the same currency allocation as our technical liabilities. This
results in the same currency split for the assets backing our shareholders
equity. This practice enables sound currency asset/liability management, but
implies a translation risk of currency rate changes against the U.S. dollar
that may result in adverse effects on our reported shareholders equity when
expressed in U.S. dollars. Shareholders equity held in local insurance units is primarily kept in
local currencies to the extent that shareholders equity is required to satisfy
regulatory and self-imposed capital requirements. This facilitates our efforts
to ensure that capital held in local insurance units will be able to support
the local insurance business irrespective of currency movements. In line with
our functional currency concept, the differences resulting from the currency
rate changes are recorded in shareholders equity as cumulative currency
translation adjustments. The table below shows the approximate effect on shareholders equity of
instantaneous adverse movements in currency exchange rates of 10% on our major
currency exposures at December 31, 2003 against the U.S. dollar. Adverse exchange ratemovement against the U.S.
    
    Approximate decline indollar
    
    shareholders equityEuro
    
    
    10
    %
    
    $42 millionSwiss franc
    
    
    10
    %
    
    $35 millionUK pound
    
    
    10
    %
    
    $  3 million
 As of December 31, 2003 and 2002, we had unrealized cumulative translation
gains of $116.1 million and $113.9 million, respectively. Our reported premiums, losses and expenses are also affected by exchange
rate fluctuations. Business written in currencies other than the U.S. dollar is
translated at average exchange rates for the period, and therefore exchange
rate movements from period to period can have a significant effect on our U.S.
dollar reported premiums, losses and expenses. The table below shows the percentage of key income statement and balance
sheet items, denominated by our main currencies as of and for the year ended
December 31, 2003: U.S.
    
    
    
    
    
    U.K
    
    Swiss
    
    JapaneseDollar
    
    Euro
    
    pound
    
    franc
    
    yen
    
    Other
    
    TotalIncome statementNet premiums written
    
    
    52
    %
    
    
    22
    %
    
    
    13
    %
    
    
    1
    %
    
    
    2
    %
    
    
    10
    %
    
    
    100
    %Net investment income
    
    
    71
    %
    
    
    14
    %
    
    
    12
    %
    
    
    1
    %
    
    
    
    
    
    
    2
    %
    
    
    100
    %Losses, loss adjustment expenses and life
benefits
    
    
    58
    %
    
    
    20
    %
    
    
    13
    %
    
    
    
    
    
    
    1
    %
    
    
    8
    %
    
    
    100
    %Underwriting acquisition costs
    
    
    50
    %
    
    
    23
    %
    
    
    14
    %
    
    
    
    
    
    
    3
    %
    
    
    10
    %
    
    
    100
    %Other operating and administration
expenses
    
    
    39
    %
    
    
    11
    %
    
    
    4
    %
    
    
    45
    %
    
    
    
    
    
    
    1
    %
    
    
    100
    %Interest expense
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    %Balance sheetTotal invested assets
    
    
    66
    %
    
    
    15
    %
    
    
    13
    %
    
    
    3
    %
    
    
    
    
    
    
    3
    %
    
    
    100
    %Reinsurance assets
    
    
    84
    %
    
    
    6
    %
    
    
    8
    %
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    100
    %Losses and loss adjustment expenses, gross
    
    
    61
    %
    
    
    17
    %
    
    
    16
    %
    
    
    1
    %
    
    
    1
    %
    
    
    4
    %
    
    
    100
    %Unearned premiums, gross
    
    
    60
    %
    
    
    12
    %
    
    
    19
    %
    
    
    1
    %
    
    
    1
    %
    
    
    7
    %
    
    
    100
    %Future life benefits, gross
    
    
    49
    %
    
    
    47
    %
    
    
    
    
    
    
    2
    %
    
    
    
    
    
    
    2
    %
    
    
    100
    %Debt
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    %
 
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 
 PART II 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. 104




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##### Table of Contents



ITEM 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable. 
 ITEM 15. CONTROLS AND PROCEDURES Converium Holding AGs Chief Executive Officer and Chief Financial
Officer, after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the
period covered by this Form 20-F, have concluded that, as of such date our
disclosure controls and procedures were effective to ensure that material
information relating to Converium Holding AG was made known to them by others
within the company, particularly during the period in which this Form 20-F was
being prepared. There were no changes to our internal controls over financial reporting
that occurred during the period covered by this Form 20-F that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting. Whistleblower Procedure An anonymous whistleblower procedure has been established, allowing
confidential reporting and evaluation of complaints regarding questionable
accounting methods or fraudulent practices, as well as other risk-related
operational hazards such as inadequate controls or organizational shortcomings.
Through Group Internal Audit, such anonymous reporting goes directly to the
Audit Committee of the Board of Directors. 
 ITEM 16. [RESERVED] 
 Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our Board of Directors has determined that a member of our Audit
Committee, George G.C. Parker, is an audit committee financial expert and is
independent under the rules of the New York Stock Exchange. 
 Item 16B. CODE OF ETHICS The Board of Directors of Converium Holding AG approved the Code of
Business Conduct and Ethics (the Code) for Converium on May 27, 2003. The details of the Code is accessible on our Internet website at: http://www.converium.com/3152.asp 
 Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Duration of the Mandate and Terms of Office of the Independent Auditors PricewaterhouseCoopers Ltd, our principal independent auditor, began
serving as our auditor upon the formation of Converium in 2001. The head
auditors responsible for our audit, Andrew Hill and Martin Frei, began serving
in their roles in 2002 and 2003, respectively. Policy on Pre-Approval and Non-Audit Services of Independent Auditors Our Audit Committee comprises the Chairman of the Board of Directors and
the Chairmen of the Finance, Nomination and Remuneration Committees. Only
independent and financial literate Directors are eligible to serve on the Audit
Committee. In order to qualify as independent, a member may not accept any
consulting, advisory or compensatory fee from us. In addition, an Audit
Committee member may not be a person affiliated with the company or any of its
subsidiaries. The Audit Committee approves and supervises the implementation of
Converiums Audit Charter, including the review of internal control systems and
Converiums risk management and auditing processes; reviews and assesses
significant accounting and reporting issues; oversees external and internal auditors and the external and internal
audit process; assesses the accuracy of the annual financial statements and
determines that appropriate accounting principles have been applied; and
liaises with Converiums Risk Management functions to identify Converiums
areas of greatest risk and to assess managements role in mitigating the 105




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##### Table of Contents



risks. Standing invitees are the CEO, the Head of Internal Audit and the external
auditor. In 2003 the Audit Committee held seven meetings. The Audit Committee has the responsibility to pre-approve all audit fees,
fees for audit related services, tax advisory fees provided by Converiums
external auditors and all non-audit related fees. Converium implemented
protocols and guidelines to ensure that only pre-approved services are provided
by Converiums external auditors. Independent Auditor Fees We
paid the following fees for professional services to
PricewaterhouseCoopers Ltd, for the
twelve-month periods ended December 31: 2003%Approved($ thousands)
    
    2003
    
    (1)
    
    2002Audit fees
    
    $
    2,296
    
    
    
    100.0
    %
    
    $
    1,892Audit related fees
    
    
    374
    
    
    
    61.5
    
    
    
    555Tax advisory fees
    
    
    161
    
    
    
    82.3
    
    
    
    143Other non-audit fees
    
    
    7
    
    
    
    100.0
    
    
    
    136Total fees
    
    $
    2,838
    
    
    
    91.5
    %
    
    $
    2,726
  (1)
    
    Represents percentage of 2003 fees approved by the Audit Committee. Audit feesare defined as the standard audit work that needs to be
performed each year in order to issue an opinion on the consolidated financial
statements of the Company and to issue reports on the local statutory financial
statements. It also includes services that can only be provided by the Group
auditor such as auditing of non-recurring transactions and application of new
accounting policies, audits of significant and newly implemented system
controls, pre-issuance reviews of quarterly financial results, consents and
comfort letters and any other audit services required for US Securities and
Exchange Commission or other regulatory filings. Audit related feesinclude those other assurance services provided by
auditors but not restricted to those that can only be provided by the auditor
signing the audit report. They comprise amounts for services such as
consultation on the Sarbanes-Oxley project, systems reviews, U.S. GAAP
training, pension and benefit plan audits and other accounting consultation. Tax advisory feesrepresent tax compliance and fees related to transfer
pricing analysis. Other non-audit feesconsist of fees related to a PricewaterhouseCoopers
Ltd accounting and reporting database that Converium subscribes to. 
 Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 
 Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable 
 ITEM 17. FINANCIAL STATEMENTS Not applicable. 
 ITEM 18. FINANCIAL STATEMENTS See the consolidated financial statements beginning on page F-1. 
 ITEM 19. EXHIBITS 106




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##### Table of Contents



Exhibit Number
    
    Description1.1
    
    Articles of Incorporation of Converium Holding AG, adopted November 8, 2001.*1.2
    
    Bylaws of Converium Holding AG, adopted November 16, 2001.*1.3
    
    Articles of Incorporation of Converium Holding AG, revised February 5, 2003. ^2.1
    
    Form of Deposit Agreement among Converium Holding AG, The Bank of New
York, as Depositary, and all owners and beneficial owners from time to
time of ADSs issued thereunder (including the form of ADS), incorporated
by reference from the Registration Statement on Form F-6 of Converium
Holding AG (File No. 333-14108), initially 2filed with the Commission on
November 19, 2001.*2.2
    
    Indenture, dated as of October 20, 1993 between Zurich Reinsurance Centre
Holdings, Inc. and The Bank of New York, as Trustee, relating to
$200,000,000 principal amount of 7 1/8% Senior Notes due 2023 (and assumed
by Converium Holdings (North America) Inc. pursuant to the Supplement
Indenture included as Exhibit 2.3 hereto).* (Previously filed as Exhibit
3.1)2.3
    
    First Supplemental Indenture among Zurich Reinsurance Centre Holdings,
Inc., as Issuer, Converium Holdings (North America) Inc., as Guarantor,
and The Bank of New York, as Trustee, dated as of November 20, 2001.*
(Previously filed as Exhibit 3.2)2.4
    
    Form of Indenture between Converium Finance, S.A., as Issuer, Converium
AG and Converium Holding AG as Guarantors and JPMorgan Chase Bank as
Trustee, Calculation Agent and Paying Agent.+2.5
    
    Form of the $200,000,000 principal amount of 8.25% Guaranteed
Subordinated Notes Due 2032 (included in Exhibit 2.4 hereto).+2.6
    
    Subordinated Guarantee by Converium Holding AG and Converium AG relating
to $200,000,000 principal amount of 8.25% Guaranteed Subordinated Notes
Due 2032. ^2.7
    
    Indenture, dated December 23, 2002 between Converium Finance S.A.,
Converium Holding AG, Converium AG and JP Morgan Chase Bank, as trustee,
relating to $200,000,000 principal amount of 8.25% Guaranteed Subordinated
Notes Due 2032. ^4.1
    
    Master Agreement by and among Zurich Financial Services and Converium
Holding AG, dated December 1, 2001.*4.2
    
    Stock Purchase Agreement between Zurich Reinsurance Centre Stock Purchase
Agreement between Zurich Reinsurance Centre Holdings, Inc. and Converium
Holdings (North America) Inc., dated as of October 1, 2001.*4.3
    
    Agreement for the Sale and Transfer of Shares in Zürich Rückversicherung
(Köln) Aktiengesellschaft, dated September 28, 2001.*4.4
    
    Quota Share Retrocession Agreement between Zurich Insurance Company
(including its Singapore, Labuan and Bermuda branches) and Converium AG,
dated October 1, 2001.*4.5
    
    Quota Share Retrocession Agreement between Zurich International (Bermuda)
Ltd. and Converium AG, dated October 1, (and effective as of July 1,
2001).*4.6
    
    Asset purchase and Assumption of Liability Agreement between Zurich
Insurance Company and Converium AG, dated September 28, 2001.*4.7
    
    Indemnity Agreement (Unicover) between Zurich Reinsurance (North
America), Inc. and Zurich Insurance Company, dated as of October 1, 2001.*4.8
    
    Indemnity Agreement (September 11th Cessions) between Zurich Reinsurance
(North America), Inc. and Zurich Insurance Company, dated as of October 1,
2001.*4.9
    
    Indemnity Agreement (September 11th Losses) between Zürich
Rückversicherung (Köln)




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##### Table of Contents



Exhibit Number
    
    DescriptionAktiengesellschaft and Zurich Insurance Company, dated as of October 1, 2001.*4.10
    
    Partial Commutation Agreement between Zurich Reinsurance (North America),
Inc. and Zurich Insurance Company, dated as of October 1, 2001.*4.11
    
    Master Novation and Indemnity Reinsurance Agreement among Zurich
Reinsurance (North America), Inc., Centre Insurance Company, Centre
Solutions (U.S.) Limited and Zurich Insurance Company, Bermuda Branch,
dated as of October 1, 2001.*4.12
    
    Group Reinsurance Business Master Novation and Indemnity Reinsurance
Agreement by and among Zurich Reinsurance (North America), Inc., Zurich
Insurance Company and Zurich International (Bermuda) Ltd., dated as of
October 1, 2001.*4.13
    
    Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1991 through December 31, 1993) between
Zurich Reinsurance (North America), Inc. and Centre Reinsurance Limited,
dated as of October 1, 2001.*4.14
    
    Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1994 through December 31, 1994) between
Zurich Reinsurance (North America), Inc. and Centre Reinsurance
International Company, dated as of October 1, 2001.*4.15
    
    Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1995) between Zurich Reinsurance (North
America), Inc. and Centre Reinsurance Limited, dated as of October 1,
2001.*4.16
    
    Commutation Agreement (covering the Obligatory Surplus Share Reinsurance
Agreement effective October 1, 1995) between Zurich Reinsurance (North
America), Inc. and Centre Reinsurance Limited, dated as of October 1,
2001.*4.17
    
    Commutation Agreement (covering the Obligatory Surplus Share Reinsurance
Agreement effective November 6, 1992) between Zurich Reinsurance (North
America), Inc. and Centre Reinsurance International Company, dated as of
October 1, 2001.*4.18
    
    Agreement Amending and Terminating Centre Reinsurance Dublin Affiliated
Group Tax Allocation Agreement among Orange Stone Delaware Holdings
Limited, Orange Stone Reinsurance, Centre Reinsurance Holdings (Delaware)
Limited, Centre Reinsurance (U.S.) Limited, Zurich Reinsurance Centre
Holdings, Inc., Zurich Reinsurance (North America), Inc., ZC Insurance
Company, ZC Specialty Insurance Company, Centre Risk Advisors, Inc.,
Constellation Reinsurance Company, Centre Re Services, Inc., Zurich Global
Assets LLC, formerly known as BDA/US Services Limited, ZC Management
Corporation, ZC Resource LLC, ZC Property Management, Inc. and Claims
Solutions Group, dated October 1, 2001.*4.19
    
    Catastrophe Cover Retrocession Agreement by and between Converium AG and
Zurich Insurance Company, dated December 1, 2001.*4.20
    
    Stock Purchase Agreement between Zurich Reinsurance (North America), Inc.
and Centre Strategic Investments Holdings Limited, dated August 23, 2001.*4.21
    
    Run-off Services and Management Agreement between Zurich Insurance
Company and Converium AG, dated December 3, 2001.*4.22
    
    Tax Sharing and Indemnification Agreement among Zurich Reinsurance Centre
Holdings, Inc., Orange Stone Delaware Holdings Limited, Converium Holdings
(North America) Inc., Zurich Reinsurance (North America), Inc. and Zurich
Insurance Company, dated as of October 1, 2001. *4.23
    
    Tax Sharing and Indemnification Agreement between Zurich Financial
Services, Zurich Insurance Company, Converium Holding AG and Converium AG
dated December 3, 2001. *4.24
    
    Form of Converium Standard Stock Option Plan for Non-U.S. Employees. *4.25
    
    Form of Converium Standard Stock Purchase Plan for Non-U.S. Employees. *




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##### Table of Contents



Exhibit Number
    
    Description4.26
    
    Omnibus Share Plan for U.S. Employees. *4.27
    
    Converium Employee Stock Purchase Plan for U.S. Subsidiaries.*4.28
    
    Form of Converium Annual Incentive Deferral Plan.*4.29
    
    Lease, between Zurich Insurance Company and Converium AG, dated August 29, 2001.*4.30
    
    Sublease Support Agreement among Zurich Reinsurance (North America),
Inc., Global Asset Holdings Limited and Centre Insurance Company, dated as
of October 1, 2001.*4.31
    
    Sublease between ZC Resource LLC and Zurich Reinsurance (North America),
Inc., dated as of June 20, 2001.*4.32
    
    Form of Letter Agreement between Converium Holding AG and The Bank of New
York, relating to the pre-release of the ADRs, incorporated by reference
from the Registration Statement on Form F-6 of Converium Holding AG (File
No. 333-14108), initially filed with the Commission on November 19, 2001.*4.33
    
    Agreement dated September 2, 2002, between Converium AG and MDU
Investments Ltd, regarding subscription of up to 20 million shares at £1
each. ^4.34
    
    Share Purchase Agreement dated November 27, 2002, between Converium AG
and Northern States Agency Inc., Munich Re, Aviva and Royal and Sun
Alliance regarding Global Aerospace Underwriting Managers Limited (GAUM).
^4.35
    
    Shareholders Agreement dated March 12, 2003, between Converium AG and
Northern States Agency Inc., Munich Re, Aviva and Royal and Sun Alliance
regarding Global Aerospace Underwriting Managers Limited (GAUM). ^4.36
    
    Sale and Purchase Agreement and Assignment between Converium AG and
Converium Finance S.A. regarding the transfer of a $150 million loan
granted to Converium Holding AG. ^4.37
    
    Amendment to Share Purchase Agreement dated November 27, 2002 between
Converium AG and Northern States Agency Inc., Munich Re, Aviva and Royal
Sun Alliance regarding Global Aerospace Underwriting Managers Limited
(GAUM). ^4.38
    
    Agreement dated December 30, 2003, for the sale and purchase of 5.1% of
Royal and Sun Alliance Insurance PLCs shareholding in Global Aerospace
Underwriting Managers Limited (GAUM).4.39
    
    Agreement dated July 24, 2003 $900,000,000 Credit Facility for Converium
AG, Zurich arranged by ABN Amro Bank N.V., Barclays Capital and
Commerzbank Aktiengesellschaft.7.1
    
    Computation of ratio of earnings to fixed charges.8.1
    
    Subsidiaries of the Registrant.12.1
    
    Consent of PricewaterhouseCoopers Ltd, independent accountants.31.1
    
    302 Certification of Chief Executive Officer.31.2
    
    302 Certification of Chief Financial Officer.32.1
    
    906 Certification of Chief Executive Officer.32.2
    
    906 Certification of Chief Financial Officer.
  *
    
    Incorporated by reference to the Companys Registration Statement filed
on Form F-1, on December 10, 2001.+
    
    Incorporated by reference to the Companys Registration Statement filed on
Form F-1, on December 18, 2002.^
    
    Incorporated by reference to the Companys Annual Report on Form 20-F for the
year ended December 31, 2002, filed on April 18, 2003.




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##### Table of Contents



CONVERIUM
INDEX TO CONSOLIDATED AND HISTORICAL COMBINED
FINANCIAL STATEMENTS AND SCHEDULES PageReport of the independent Group Auditors on the Financial Statements
    
    F-2Consolidated and Historical Combined Statements of Income for the years ended
December 31, 2003, 2002 and 2001
    
    F-3Consolidated and Historical Combined Balance Sheets as of December 31, 2003 and 2002
    
    F-4Consolidated and Historical Combined Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001
    
    F-5Consolidated and Historical Combined Statements of Changes in Equity for the years
ended December 31, 2003, 2002 and 2001
    
    F-6Notes to the Consolidated and Historical Combined Financial Statements
    
    F-7SchedulesReport of the Group Auditors on the Financial Statement Schedules
    
    S-1I
    
    Summary of Investments Other than Investments in Related Parties as
of December 31, 2003 and 2002
    
    S-2II
    
    Condensed Financial Information of the RegistrantStatements of Income for the years ended December 31, 2003
and 2002 and for the period June 19, 2001 to December 31, 2001
    
    S-3Balance Sheets as of December 31, 2003 and 2002
    
    S-4Statements of Cash Flows for the years ended December 31, 2003 and
2002 and for the period June 19, 2001 to December 31, 2001
    
    S-5IV
    
    Reinsurance for the years ended December 31, 2003, 2002 and 2001
    
    S-6
 Schedules other than those listed above are omitted for the reason that they
are not applicable or the information is otherwise contained in the financial
statements. F-1




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##### Table of Contents



Converium Holding AG and Subsidiaries
Report of the independent Group auditors

To the General Meeting of Shareholders of Converium Holding AG, Zug

We have audited the accompanying consolidated balance sheets of Converium
Holding AG as of December 31, 2003 and 2002 and the related consolidated and
historical combined statements of income, cash flows and changes in equity for
each of the three years in the period ended December 31, 2003, included on pages
28 through 69, all expressed in United States dollars.

The consolidated and historical combined financial statements are the
responsibility of the Board of Directors. Our responsibility is to express an
opinion on these consolidated and historical combined financial statements based
on our audits. We confirm that we meet the Swiss legal requirements concerning
professional qualifications and independence.

Our audits were conducted in accordance with auditing standards promulgated by
the Swiss profession and with auditing standards generally accepted in the
United States of America. Those standards require that an audit be planned and
performed to obtain reasonable assurance about whether the consolidated and
historical combined financial statements are free from material misstatement. We
have examined on a test basis, evidence supporting the amounts and disclosures
in the financial statements. We have also assessed the accounting principles
used, significant estimates made and the overall consolidated and historical
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated and historical combined financial statements
referred to above present fairly, in all material respects, the financial
position of Converium Holding AG at December 31, 2003 and 2002, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America and comply with Swiss law.

We recommend that the consolidated and historical combined financial statements
submitted to you be approved.

PricewaterhouseCoopers Ltd

A. Hill
    
    M. Frei


Zurich, February 13, 2004

F-2



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##### Table of Contents



Converium Holding AG and Subsidiaries
Consolidated and historical combined statements of income

(US$ million, except per share information)

Year ended December 31
    
    Notes
    
    2003
    
    2002
    
    2001RevenuesGross premiums written
    
    
    
    
    
    
    4,223.9
    
    
    
    3,535.8
    
    
    
    2,881.2Less ceded premiums written
    
    
    
    
    
    
    -396.9
    
    
    
    -213.6
    
    
    
    -398.6Net premiums written
    
    
    9
    
    
    
    3,827.0
    
    
    
    3,322.2
    
    
    
    2,482.6Net change in unearned premiums
    
    
    
    
    
    
    -150.5
    
    
    
    -156.7
    
    
    
    -187.4Net premiums earned
    
    
    9
    
    
    
    3,676.5
    
    
    
    3,165.5
    
    
    
    2,295.2Net investment income
    
    
    6
    
    
    
    233.0
    
    
    
    251.8
    
    
    
    228.7Net realized capital gains (losses)
    
    
    6
    
    
    
    18.4
    
    
    
    -10.3
    
    
    
    -18.4Other income (loss)
    
    
    
    
    
    
    2.7
    
    
    
    -1.2
    
    
    
    -5.8Total revenues
    
    
    
    
    
    
    3,930.6
    
    
    
    3,405.8
    
    
    
    2,499.7Benefits, losses and expensesLosses, loss adjustment expenses and life benefits
    
    
    8,9
    
    
    
    -2,674.2
    
    
    
    -2,492.0
    
    
    
    -2,300.5Underwriting acquisition costs
    
    
    9
    
    
    
    -803.2
    
    
    
    -666.7
    
    
    
    -508.1Other operating and administration expenses
    
    
    
    
    
    
    -197.8
    
    
    
    -173.3
    
    
    
    -146.4Interest expense
    
    
    10
    
    
    
    -31.0
    
    
    
    -16.4
    
    
    
    -24.2Amortization of goodwill
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    -7.8Restructuring costs
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    -50.0Total benefits, losses and expenses
    
    
    
    
    
    
    -3,706.2
    
    
    
    -3,348.4
    
    
    
    -3,037.0Income (loss) before taxes
    
    
    
    
    
    
    224.4
    
    
    
    57.4
    
    
    
    -537.3Income tax (expense) benefit
    
    
    11
    
    
    
    -39.3
    
    
    
    49.4
    
    
    
    169.9Net income (loss)
    
    
    
    
    
    
    185.1
    
    
    
    106.8
    
    
    
    -367.4Basic earnings (loss) per share
    
    
    21
    
    
    
    4.65
    
    
    
    2.68
    
    
    
    -9.18Diluted earnings (loss) per share
    
    
    21
    
    
    
    4.59
    
    
    
    2.64
    
    
    
    -9.18


The notes to the consolidated and historical combined financial statements are
an integral part of these financial statements.

F-3



---



##### Table of Contents



Converium Holding AG and Subsidiaries
Consolidated balance sheets

(US$ million, except share information)

Year ended December 31
    
    Notes
    
    2003
    
    2002AssetsInvested assetsHeld-to-maturity securities:Fixed maturities
    
    
    6
    
    
    
    500.4
    
    
    
    Available-for-sale securities:Fixed maturities
    
    
    6
    
    
    
    4,428.2
    
    
    
    3,443.1Equity securities
    
    
    6
    
    
    
    840.2
    
    
    
    530.8Other investments
    
    
    6
    
    
    
    173.5
    
    
    
    177.3Short-term investments
    
    
    
    
    
    
    55.8
    
    
    
    318.0Total investments
    
    
    
    
    
    
    5,998.1
    
    
    
    4,469.2Funds Withheld Asset
    
    
    6
    
    
    
    1,530.6
    
    
    
    1,648.1Total invested assets
    
    
    
    
    
    
    7,528.7
    
    
    
    6,117.3Other assetsCash and cash equivalents
    
    
    
    
    
    
    280.8
    
    
    
    361.5Premiums receivable:Current
    
    
    
    
    
    
    182.8
    
    
    
    131.9Accrued
    
    
    
    
    
    
    1,825.5
    
    
    
    1,589.4Reinsurance assets:Underwriting reserves
    
    
    9
    
    
    
    1,718.6
    
    
    
    1,627.7Insurance balances receivable, net
    
    
    
    
    
    
    224.0
    
    
    
    239.9Funds held by reinsureds
    
    
    
    
    
    
    1,374.0
    
    
    
    935.9Deferred policy acquisition costs
    
    
    
    
    
    
    380.1
    
    
    
    264.9Deferred income taxes
    
    
    11
    
    
    
    345.1
    
    
    
    391.8Other assets
    
    
    7
    
    
    
    495.0
    
    
    
    390.7Total assets
    
    
    
    
    
    
    14,354.6
    
    
    
    12,051.0Liabilities and equityLiabilitiesLosses and loss adjustment expenses, gross
    
    
    8
    
    
    
    7,842.8
    
    
    
    6,821.3Unearned premiums, gross
    
    
    9
    
    
    
    1,467.4
    
    
    
    1,170.7Future life benefits, gross
    
    
    9
    
    
    
    483.5
    
    
    
    371.7Other reinsurance liabilities
    
    
    
    
    
    
    1,087.3
    
    
    
    661.6Funds held under reinsurance contracts
    
    
    
    
    
    
    529.8
    
    
    
    429.5Deferred income taxes
    
    
    11
    
    
    
    158.3
    
    
    
    133.9Accrued expenses and other liabilities
    
    
    
    
    
    
    311.6
    
    
    
    333.9Debt
    
    
    10
    
    
    
    390.6
    
    
    
    390.4Total liabilities
    
    
    
    
    
    
    12,271.3
    
    
    
    10,313.0EquityCommon stock CHF 10 nominal value, 40,006,217 and 40,006,217 shares issued,
respectively (39,775,620 and 39,904,647 shares outstanding, respectively)
    
    
    14
    
    
    
    253.0
    
    
    
    253.0Additional paid-in capital
    
    
    
    
    
    
    1,326.7
    
    
    
    1,330.9Treasury stock (230,597 and 101,570 shares, respectively)
    
    
    
    
    
    
    -10.0
    
    
    
    -3.3Unearned stock compensation
    
    
    13
    
    
    
    -6.1
    
    
    
    -10.0Accumulated other comprehensive income (loss):Net unrealized gains (losses) on investments, net of taxes
    
    
    6
    
    
    
    145.3
    
    
    
    -53.3Cumulative translation adjustments
    
    
    
    
    
    
    116.1
    
    
    
    113.9Total accumulated other comprehensive income
    
    
    
    
    
    
    261.4
    
    
    
    60.6Retained earnings
    
    
    
    
    
    
    258.3
    
    
    
    106.8Total equity
    
    
    
    
    
    
    2,083.3
    
    
    
    1,738.0Total liabilities and equity
    
    
    
    
    
    
    14,354.6
    
    
    
    12,051.0


The notes to the consolidated and historical combined financial statements are
an integral part of these financial statements.

F-4



---



##### Table of Contents



Converium Holding AG and Subsidiaries
Consolidated and historical combined statements of cash flows

(US$ million)

Year ended December 31
    
    2003
    
    2002
    
    2001Cash flows from operating activitiesNet income (loss)
    
    
    185.1
    
    
    
    106.8
    
    
    
    -367.4Adjustments forNet realized capital (gains) losses on investments
    
    
    -18.4
    
    
    
    10.3
    
    
    
    18.4Amortization of premium/discount
    
    
    43.9
    
    
    
    20.6
    
    
    
    6.2Depreciation and amortization
    
    
    30.5
    
    
    
    38.2
    
    
    
    37.0Premium for September 11 coverage
    
    
    
    
    
    
    
    
    
    
    28.5Total adjustments
    
    
    56.0
    
    
    
    69.1
    
    
    
    90.1Changes in operational assets and liabilitiesDeferred policy acquisition costs
    
    
    -90.5
    
    
    
    -47.0
    
    
    
    -33.3Reinsurance assets
    
    
    13.6
    
    
    
    331.1
    
    
    
    -433.8Funds held by reinsureds
    
    
    -307.8
    
    
    
    -311.2
    
    
    
    158.4Funds Withheld Asset
    
    
    230.6
    
    
    
    100.0
    
    
    
    Premiums receivable
    
    
    -162.2
    
    
    
    -565.1
    
    
    
    -77.8Unearned premiums, gross
    
    
    204.2
    
    
    
    139.0
    
    
    
    194.3Losses and loss adjustment expenses, gross
    
    
    603.7
    
    
    
    744.5
    
    
    
    1,251.6Future life benefits, gross
    
    
    85.0
    
    
    
    119.7
    
    
    
    90.0Funds held under reinsurance contracts
    
    
    72.7
    
    
    
    -38.2
    
    
    
    -81.6Other reinsurance liabilities
    
    
    329.0
    
    
    
    280.2
    
    
    
    -175.9Income taxes, net
    
    
    40.3
    
    
    
    -32.8
    
    
    
    -203.9Net changes in all other operational assets and liabilities
    
    
    5.6
    
    
    
    -25.7
    
    
    
    -99.2Total changes in operational assets and liabilities
    
    
    1,024.2
    
    
    
    694.5
    
    
    
    588.8Cash provided by operating activities
    
    
    1,265.3
    
    
    
    870.4
    
    
    
    311.5Cash flows from investing activitiesPurchases of fixed maturities held-to-maturity
    
    
    -192.4
    
    
    
    
    
    
    
    Proceeds from sales and maturities of fixed maturities available-for-sale
    
    
    3,813.4
    
    
    
    4,573.3
    
    
    
    1,892.2Purchases of fixed maturities available-for-sale
    
    
    -5,054.0
    
    
    
    -5,375.3
    
    
    
    -1,969.7Cash flows from investing activities (fixed maturities)
    
    
    -1,433.0
    
    
    
    -802.0
    
    
    
    -77.5Proceeds from sales of equity securities
    
    
    94.3
    
    
    
    599.2
    
    
    
    288.6Purchases of equity securities
    
    
    -244.2
    
    
    
    -651.1
    
    
    
    -425.7Cash flows from investing activities (equity securities)
    
    
    -149.9
    
    
    
    -51.9
    
    
    
    -137.1Net decrease (increase) in short-term investments
    
    
    277.1
    
    
    
    -228.5
    
    
    
    25.6Proceeds from sales of other assets
    
    
    47.4
    
    
    
    33.0
    
    
    
    34.5Purchases of other assets
    
    
    -69.4
    
    
    
    -43.9
    
    
    
    -42.8Purchase of real estate held for investment
    
    
    
    
    
    
    
    
    
    
    -139.4Net change in Funds Withheld Asset/Zurich Financing Agreement
    
    
    
    
    
    
    
    
    
    
    -290.6Cash flows from investing activities (other)
    
    
    255.1
    
    
    
    -239.4
    
    
    
    -412.7Net cash used in investing activities
    
    
    -1,327.8
    
    
    
    -1,093.3
    
    
    
    -627.3Cash flows from financing activitiesNet transfers from Zurich Financial Services
    
    
    
    
    
    
    
    
    
    
    861.2Payable to Zurich Financial Services
    
    
    
    
    
    
    
    
    
    
    -233.4Cash flows from financing activities with Zurich Financial Services
    
    
    
    
    
    
    
    
    
    
    627.8Issuance of guaranteed subordinated notes
    
    
    
    
    
    
    193.7
    
    
    
    Net purchases of common shares
    
    
    -17.3
    
    
    
    -14.7
    
    
    
    Dividends to shareholders
    
    
    -29.9
    
    
    
    
    
    
    
    Cash flows from financing activities (debt and shares)
    
    
    -47.2
    
    
    
    179.0
    
    
    
    Net cash (used in) provided by financing activities
    
    
    -47.2
    
    
    
    179.0
    
    
    
    627.8Effect of exchange rate changes on cash and cash equivalents
    
    
    29.0
    
    
    
    -15.1
    
    
    
    -13.4Change in cash and cash equivalents
    
    
    -80.7
    
    
    
    -59.0
    
    
    
    298.6Cash and cash equivalents as of January 1
    
    
    361.5
    
    
    
    420.5
    
    
    
    121.9Cash and cash equivalents as of December 31
    
    
    280.8
    
    
    
    361.5
    
    
    
    420.5


The notes to the consolidated and historical combined financial statements are
an integral part of these financial statements.

F-5



---



##### Table of Contents



Converium Holding AG and Subsidiaries
Consolidated and historical combined statements of changes in equity

(US$ million)

NetUnearned
    
    Accumulated
    
    investmentAdditional
    
    
    
    
    
    stock
    
    other
    
    by ZurichCommon
    
    paid-in
    
    Treasury
    
    compen-
    
    comprehensive
    
    Financial
    
    Retained
    
    Totalstock
    
    capital
    
    stock
    
    sation
    
    income (loss)
    
    Services
    
    earnings
    
    equityBalance, December 31, 2000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59.3
    
    
    
    1,029.1
    
    
    
    
    
    
    
    1,088.4Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -367.4
    
    
    
    
    
    
    
    -367.4Change in net unrealized gains (losses)
on investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    11.5Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -62.4
    
    
    
    
    
    
    
    
    
    
    
    -62.4Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -418.3Net transfers from Zurich Financial Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    889.7
    
    
    
    
    
    
    
    889.7Net issuance of stock compensation
    
    
    
    
    
    
    38.1
    
    
    
    
    
    
    
    -27.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.0Transfer of net investment by
Zurich Financial Services
    
    
    253.0
    
    
    
    1,298.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -1,551.4
    
    
    
    
    
    
    
    Balance, December 31, 2001
    
    
    253.0
    
    
    
    1,336.5
    
    
    
    
    
    
    
    -27.1
    
    
    
    8.4
    
    
    
    
    
    
    
    
    
    
    
    1,570.8Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106.8
    
    
    
    106.8Change in net unrealized gains (losses)
on investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -83.6
    
    
    
    
    
    
    
    
    
    
    
    -83.6Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135.8
    
    
    
    
    
    
    
    
    
    
    
    135.8Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159.0Purchases of common shares
    
    
    
    
    
    
    
    
    
    
    -14.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -14.7Releases of common shares from treasury
    
    
    
    
    
    
    -12.9
    
    
    
    11.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -1.5Net amortization of stock compensation
    
    
    
    
    
    
    7.3
    
    
    
    
    
    
    
    17.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24.4Balance, December 31, 2002
    
    
    253.0
    
    
    
    1,330.9
    
    
    
    -3.3
    
    
    
    -10.0
    
    
    
    60.6
    
    
    
    
    
    
    
    106.8
    
    
    
    1,738.0Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185.1
    
    
    
    185.1Change in net unrealized gains (losses)
on investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198.6
    
    
    
    
    
    
    
    
    
    
    
    198.6Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    385.9Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -29.9
    
    
    
    -29.9Transfer to general legal reserve
    
    
    
    
    
    
    3.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -3.7
    
    
    
    Purchases of common shares
    
    
    
    
    
    
    
    
    
    
    -17.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -17.3Releases of common shares from treasury
    
    
    
    
    
    
    -14.0
    
    
    
    10.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -3.4Net amortization of stock compensation
    
    
    
    
    
    
    6.1
    
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.0Balance, December 31, 2003
    
    
    253.0
    
    
    
    1,326.7
    
    
    
    -10.0
    
    
    
    -6.1
    
    
    
    261.4
    
    
    
    
    
    
    
    258.3
    
    
    
    2,083.3


The notes to the consolidated
and historical combined financial statements are an
integral part of these financial statements.

F-6



---



##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements

Schedule of segment data
(US$ million)

StandardProperty & CasualtyReinsurance
    
    Specialty LinesYear ended December 31
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Gross premiums written
    
    
    1,795.4
    
    
    
    1,542.3
    
    
    
    1,495.6
    
    
    
    2,022.0
    
    
    
    1,650.3
    
    
    
    1,129.1Less ceded premiums written
    
    
    -149.8
    
    
    
    -90.1
    
    
    
    -215.6
    
    
    
    -210.1
    
    
    
    -95.0
    
    
    
    -160.7Net premiums written
    
    
    1,645.6
    
    
    
    1,452.2
    
    
    
    1,280.0
    
    
    
    1,811.9
    
    
    
    1,555.3
    
    
    
    968.4Net change in unearned premiums
    
    
    -15.7
    
    
    
    -55.5
    
    
    
    -59.5
    
    
    
    -148.3
    
    
    
    -97.3
    
    
    
    -110.8Net premiums earned
    
    
    1,629.9
    
    
    
    1,396.7
    
    
    
    1,220.5
    
    
    
    1,663.6
    
    
    
    1,458.0
    
    
    
    857.6Total investment results
    
    
    101.5
    
    
    
    98.1
    
    
    
    86.2
    
    
    
    132.4
    
    
    
    125.3
    
    
    
    108.3Revenues
    
    
    1,731.4
    
    
    
    1,494.8
    
    
    
    1,306.7
    
    
    
    1,796.0
    
    
    
    1,583.3
    
    
    
    965.9Losses, loss adjustment expenses and life benefits
    
    
    -1,113.6
    
    
    
    -1,065.0
    
    
    
    -1,137.9
    
    
    
    -1,241.0
    
    
    
    -1,166.9
    
    
    
    -938.7Underwriting acquisition costs
    
    
    -363.1
    
    
    
    -310.4
    
    
    
    -239.6
    
    
    
    -360.1
    
    
    
    -292.3
    
    
    
    -246.7Other operating and administration expenses
    
    
    -71.0
    
    
    
    -63.6
    
    
    
    -76.5
    
    
    
    -79.7
    
    
    
    -68.1
    
    
    
    -57.7Benefits, losses and expenses
    
    
    -1,547.7
    
    
    
    -1,439.0
    
    
    
    -1,454.0
    
    
    
    -1,680.8
    
    
    
    -1,527.3
    
    
    
    -1,243.1Segment income (loss)
    
    
    183.7
    
    
    
    55.8
    
    
    
    -147.3
    
    
    
    115.2
    
    
    
    56.0
    
    
    
    -277.2Other income (loss)Interest expenseAmortization of goodwill and restructuring costsIncome (loss) before taxesIncome tax (expense) benefitNet income (loss)At December 31Reinsurance assets  underwriting reserves
    
    
    553.2
    
    
    
    622.8
    
    
    
    
    
    
    
    989.9
    
    
    
    926.5Losses and loss adjustment expenses, gross
    
    
    3,231.3
    
    
    
    2,774.7
    
    
    
    
    
    
    
    4,427.2
    
    
    
    3,898.9Future life benefits, gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RatiosLoss ratio (Losses divided by net premiums earned)
    
    
    68.3
    %
    
    
    76.3
    %
    
    
    93.2
    %
    
    
    74.6
    %
    
    
    80.0
    %
    
    
    109.5
    %Underwriting expense ratio (Underwriting acquisition
costs divided by net premiums earned)
    
    
    22.3
    %
    
    
    22.2
    %
    
    
    19.6
    %
    
    
    21.6
    %
    
    
    20.0
    %
    
    
    28.8
    %Administration expense ratio (Other operating and
administration expenses divided by net premiums written)
    
    
    4.3
    %
    
    
    4.4
    %
    
    
    6.0
    %
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    6.0
    %Combined ratio (Sum of the loss, underwriting expense
and administration expense ratios)
    
    
    94.9
    %
    
    
    102.9
    %
    
    
    118.8
    %
    
    
    100.6
    %
    
    
    104.4
    %
    
    
    144.3
    %


F-7



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements



Life & HealthTotal
Non-life consolidated
    
    Reinsurance
    
    Corporate Center
    
    Total consolidated2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Gross
premiums written
    
    
    3,817.4
    
    
    
    3,192.6
    
    
    
    2,624.7
    
    
    
    406.5
    
    
    
    343.2
    
    
    
    256.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,223.9
    
    
    
    3,535.8
    
    
    
    2,881.2Less ceded
premiums written
    
    
    -359.9
    
    
    
    -185.1
    
    
    
    -376.3
    
    
    
    -37.0
    
    
    
    -28.5
    
    
    
    -22.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -396.9
    
    
    
    -213.6
    
    
    
    -398.6Net premiums
written
    
    
    3,457.5
    
    
    
    3,007.5
    
    
    
    2,248.4
    
    
    
    369.5
    
    
    
    314.7
    
    
    
    234.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,827.0
    
    
    
    3,322.2
    
    
    
    2,482.6Net change
in unearned premiums
    
    
    -164.0
    
    
    
    -152.8
    
    
    
    -170.3
    
    
    
    13.5
    
    
    
    -3.9
    
    
    
    -17.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -150.5
    
    
    
    -156.7
    
    
    
    -187.4Net premiums
earned
    
    
    3,293.5
    
    
    
    2,854.7
    
    
    
    2,078.1
    
    
    
    383.0
    
    
    
    310.8
    
    
    
    217.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,676.5
    
    
    
    3,165.5
    
    
    
    2,295.2Total
investment results
    
    
    233.9
    
    
    
    223.4
    
    
    
    194.5
    
    
    
    17.5
    
    
    
    18.1
    
    
    
    15.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251.4
    
    
    
    241.5
    
    
    
    210.3Revenues
    
    
    3,527.4
    
    
    
    3,078.1
    
    
    
    2,272.6
    
    
    
    400.5
    
    
    
    328.9
    
    
    
    232.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,927.9
    
    
    
    3,407.0
    
    
    
    2,505.5Losses, loss
adjustment expenses and life benefits
    
    
    -2,354.6
    
    
    
    -2,231.9
    
    
    
    -2,076.6
    
    
    
    -319.6
    
    
    
    -260.1
    
    
    
    -223.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -2,674.2
    
    
    
    -2,492.0
    
    
    
    -2,300.5Underwriting
acquisition costs
    
    
    -723.2
    
    
    
    -602.7
    
    
    
    -486.3
    
    
    
    -80.0
    
    
    
    -64.0
    
    
    
    -21.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -803.2
    
    
    
    -666.7
    
    
    
    -508.1Other
operating and administration expenses
    
    
    -150.7
    
    
    
    -131.7
    
    
    
    -134.2
    
    
    
    -12.8
    
    
    
    -11.3
    
    
    
    -4.9
    
    
    
    -34.3
    
    
    
    -30.3
    
    
    
    -7.3
    
    
    
    -197.8
    
    
    
    -173.3
    
    
    
    -146.4Benefits,
losses and expenses
    
    
    -3,228.5
    
    
    
    -2,966.3
    
    
    
    -2,697.1
    
    
    
    -412.4
    
    
    
    -335.4
    
    
    
    -250.6
    
    
    
    -34.3
    
    
    
    -30.3
    
    
    
    -7.3
    
    
    
    -3,675.2
    
    
    
    -3,332.0
    
    
    
    -2,955.0Segment
income (loss)
    
    
    298.9
    
    
    
    111.8
    
    
    
    -424.5
    
    
    
    -11.9
    
    
    
    -6.5
    
    
    
    -17.7
    
    
    
    -34.3
    
    
    
    -30.3
    
    
    
    -7.3
    
    
    
    252.7
    
    
    
    75.0
    
    
    
    -449.5Other income
(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    -1.2
    
    
    
    -5.8Interest
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -31.0
    
    
    
    -16.4
    
    
    
    -24.2Amortization
of goodwill and restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -57.8Income
(loss) before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    224.4
    
    
    
    57.4
    
    
    
    -537.3Income tax
(expense) benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -39.3
    
    
    
    49.4
    
    
    
    169.9Net income
(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185.1
    
    
    
    106.8
    
    
    
    -367.4At
December 31Reinsurance
assets  underwriting reserves
    
    
    1,543.1
    
    
    
    1,549.3
    
    
    
    
    
    
    
    175.5
    
    
    
    78.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,718.6
    
    
    
    1,627.7Losses and
loss adjustment expenses, gross
    
    
    7,658.5
    
    
    
    6,673.6
    
    
    
    
    
    
    
    184.3
    
    
    
    147.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,842.8
    
    
    
    6,821.3Future life
benefits, gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    483.5
    
    
    
    371.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    483.5
    
    
    
    371.7RatiosLoss ratio
(Losses divided by net premiums earned)
    
    
    71.5
    %
    
    
    78.2
    %
    
    
    99.9
    %Underwriting
expense ratio (Underwriting acquisition costs divided by net premiums
earned)
    
    
    22.0
    %
    
    
    21.1
    %
    
    
    23.4
    %
    
    
    20.9
    %
    
    
    20.6
    %
    
    
    10.0
    %Administration
expense ratio (Other operating and administration expenses divided by
net premiums written)
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    6.0
    %
    
    
    3.5
    %
    
    
    3.6
    %
    
    
    2.1
    %Combined
ratio (Sum of the loss, underwriting expense and administration
expense ratios)
    
    
    97.9
    %
    
    
    103.7
    %
    
    
    129.3
    %


F-8



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

1. Organization and nature of operations

Converium Holding AG and subsidiaries (Converium) is a leading global
professional reinsurer, which offers a full range of traditional non-life and
life reinsurance products as well as innovative non-traditional solutions to
help clients manage capital and risk. Our principal lines of non-life
reinsurance include general third party liability, motor, personal accident,
property, agribusiness, aviation and space, credit and surety, engineering,
marine and energy, professional liability and other special liability and
workers compensation. The principal life reinsurance products are ordinary life
and disability reinsurance, including quota share, surplus coverage and
financing contracts, and accident and health.

Converium was formed through the restructuring and integration of substantially
all of the third-party assumed reinsurance business of Zurich Financial Services
through a series of transactions (Transactions). On December 1, 2001,
Converium entered into a Master Agreement with Zurich Financial Services (the
Master Agreement), which set forth the terms of the separation from Zurich
Financial Services. In December 2001, Zurich Financial Services sold 87.5% of
its interest in Converium through an initial public offering (IPO), which date
represented the legal separation (the Separation Date) from Zurich Financial
Services. Zurich Financial Services remaining 12.5% interest in Converium was
sold in January 2002.

Subsequent to the initial public offering, Converium has operated as an
independent company. However, under the Master Agreement, Converium has several
ongoing business relationships with Zurich Financial Services. These include the
Quota Share Retrocession Agreement, the Catastrophe Agreement, aggregate excess
of loss reinsurance coverage for losses from the Unicover Pool and September
11th terrorist attacks, as well as certain operating relationships (see Notes 9
and 15).

2. Summary of significant accounting policies

Converiums financial statements have been prepared on the basis of accounting
principles generally accepted in the United States (US GAAP) and comply with
Swiss law.

(a) Basis of preparation
Converiums financial statements present the financial condition as of December
31, 2003 and 2002 and the related statements of income, cash flows and changes
in equity for each of the three years in the period ended December 31, 2003. For
periods prior to the Separation Date, the financial statements were prepared on
a carve-out basis to represent the net assets and related historical results of
the third party assumed reinsurance business owned by Zurich Financial Services
and that now comprise Converium. Certain reclassifications have been made to
prior year amounts to conform to the current years presentation.

A subsidiary is an entity in which Converium owns, directly or indirectly, more
than 50% of the outstanding voting rights, or has a controlling financial
interest. The results of Converium entities are included in the financial
statements from the effective date of acquisition. All intercompany balances,
profits and transactions have been eliminated. Entities where Converium has the
ability to exercise significant influence are accounted for using the equity
method. See Note 20 for the entities included in the financial statements.

Prior to the Transactions, changes in equity represent movements in Zurich
Financial Services net investment in Converium. For periods prior to July 1,
2001, certain expenses reflected in the financial statements include allocations
of corporate expenses incurred by Zurich Financial Services related to general
and administrative services for Converium. Additionally, investment income in
2001 includes interest earned on the Zurich Financing Agreement (see Note 6).

Management believes that the foregoing adjustments and allocations were made on
a basis that is a reasonable reflection of the historical results of Converium.
However, these results do not necessarily represent what the income statement,
changes in equity or cash flows would have been if Converium had been a separate
stand-alone entity during the periods presented.

(b) Foreign currency translation and transactionsForeign currency translation:In view of the international nature of Converiums
business and the fact that more of its business is transacted in US dollars than
in any other currency, the financial statements are reported in US dollars.
Other functional currencies include the Swiss franc, the UK pound, the Euro and
the Japanese yen. Assets and liabilities of all of Converiums branches and
subsidiaries expressed in currencies other than US dollars are translated at the
end of period exchange rates, whereas statements of income and cash flows are
translated at average exchange rates for the period. Translation differences on
functional currencies are recorded directly in equity as cumulative translation
adjustments, net of any related deferred taxes, if applicable.

F-9



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Foreign currency transactions:Outstanding balances in foreign currencies
arising from foreign currency transactions other than the functional currencies
are translated at end of period exchange rates. Revenues and expenses are
translated using the exchange rate at the date of the transaction or a weighted
average rate. The resulting exchange differences are recorded in the statements
of income.

(c) Non-life reinsurancePremiums:Premiums from short-duration insurance and reinsurance contracts are
recorded as written and are earned primarily on a pro-rata basis over the term
of the related insurance or reinsurance coverage. However, for those contracts
for which the period of risk differs significantly from the contract period,
premiums are earned over the period of risk in proportion to the amount of
insurance or reinsurance protection provided. The unearned premium reserve
represents the portion of the premiums written relating to the unexpired terms
of coverage. Such reserves are computed by pro-rata methods based on statistical
data or reports received from ceding companies.

Reinsurance contracts are assessed to determine if underwriting risk, defined as
the reasonable possibility of a significant variation in the amount of
payments and the reasonable possibility that the reinsurer will realize a
significant loss, and timing risk, defined as the reasonable possibility of a
significant variation in the timing of cash flows, is transferred by the ceding
company. Those contracts that do not transfer both risks, referred to in total
as insurance risk, are accounted for using the deposit method. A deposit asset
or liability is recognized based on the consideration paid or received less any
explicitly identified premiums or fees to be retained by the ceding or assuming
company. Deposits for contracts that transfer only significant underwriting risk
are subsequently measured based on the unexpired portion of coverage until a
loss is incurred, after which the present value of expected future cash flows
under the contract is also accrued. Changes in the deposit amount are recorded
in the statement of income as a loss or loss adjustment expense. Deposits for
contracts that transfer only timing risk, or deposits for contracts that
transfer neither significant timing nor underwriting risk, are accounted for
using the interest method. Future cash flows are estimated to calculate the
effective yield, and revenue and expense are recorded as interest income or
expense. The effect of contracts with indeterminate risk is not included in the
determination of net income until sufficient information becomes available to
reasonably estimate the impact.

Converium recognizes a liability or an asset to the extent that there is an
obligation to pay or receive cash or other consideration that would not have
been required absent experience under the contract.

Deferred policy acquisition costs:Acquisition costs, principally representing
commissions and brokerage expenses, premium taxes and other underwriting
expenses, net of allowances from retrocessionaires, which vary with and are
directly related to the production of new business, are deferred and amortized
over the period in which the related written premiums are earned. Deferred
policy acquisition costs are periodically reviewed to determine that they do not
exceed recoverable amounts after considering future investment income.

Losses:Losses and loss adjustment expenses are charged to expenses as incurred.
Unpaid losses and loss adjustment expenses represent the accumulation of
estimates for ultimate losses based on reports and individual case estimates
received from ceding companies. An amount is included for losses and loss
adjustment expenses incurred but not reported (IBNR) on the basis of past
experience of Converium and its ceding companies. Converium does not discount
its loss reserves, other than for settled claims with fixed payment terms.

The methods of determining such loss and loss adjustment expense estimates and
establishing the resulting reserves are continually reviewed and updated and, as
experience develops and new information becomes known, the reserves are adjusted
as necessary. Resulting adjustments are reflected as current expense in the
period in which they become known. Since the reserves are based on estimates,
the ultimate settlement may vary from the amount provided.

(d) Life reinsuranceRecognition of reinsurance revenue and related expenses:Premiums from
short-duration life reinsurance contracts are recognized as revenue over the
remaining contract period in proportion to the amount of reinsurance protection
provided. Premiums from long-duration life reinsurance contracts are recognized
as revenue in a manner consistent with the underlying reinsured contracts.
Benefits and commissions are provided against such revenue to recognize profits
over the estimated life of the reinsurance contract.

Deferred policy acquisition costs:Acquisition and commission costs incurred in
acquiring new business are deferred. Deferred policy acquisition costs are
amortized over the expected life of the contracts as a constant percentage of
expected premiums. Expected premiums are estimated at the effective date of the
contract and are consistently applied throughout the life of the contract unless
a premium deficiency occurs. Deferred policy acquisition costs are subject to
recoverability testing at the time of contract issue and at the end of each
accounting period.

F-10



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Future life benefits reserves and contract deposits:Liabilities for future life
benefit reserves and contract deposits are estimated on bases consistent with
those used for the original policies issued and with the terms of the
reinsurance contracts.

(e) Retrocessions
Converium cedes reinsurance to retrocessionaires in the normal course of
business. The cost of short duration retrocessional contracts is amortized over
the remaining contract period in proportion to the amount of reinsurance
protection provided consistent with the underlying assumed contracts. The cost
of long-duration retrocessional contracts is amortized over the estimated
remaining life of the underlying assumed contracts. The difference, if any,
between the amounts paid for the retrocessional contract and the amount of the
liability for contract benefits relating to the underlying reinsured contracts
is part of the estimated cost to be amortized. Reinsurance is recorded gross in
the balance sheet. Reinsurance assets include the balances due from
retrocessionaires for paid and unpaid losses and loss adjustment expenses, ceded
unearned premiums, and ceded future life benefits. Amounts recoverable from
retrocessionaires are estimated in a manner consistent with the liabilities
associated with the reinsured contract.

Converium establishes an allowance for potentially uncollectible recoverables
from retrocessionaires. In addition, Converium immediately charges operations
for any recoverable balances that are deemed to be uncollectible. Collateral and
other offsets are considered in determining the allowance or expense.

(f) Invested assets
The majority of Converiums fixed maturities and equity securities are
classified as available-for-sale; these investments are carried at fair value.
Fixed maturities for which Converium has the intent and ability to hold to
maturity are classified as held-to-maturity. Held-to-maturity securities are
carried at amortized cost, if purchased, or carrying value, if transferred from
the available-for-sale category to the held-to-maturity category. The difference
between the fair value and amortized cost at the date of transfer of such
securities is amortized over the life of the respective securities. The carrying
value of transferred securities is the fair value at the date of transfer less
unamortized net unrealized gains. Fixed maturities and equity securities which
Converium buys with the intention to resell in the near term, are classified as
trading and are carried at fair value.

Unrealized gains or losses on investments carried at fair value, except those
designated as trading, are recorded in other comprehensive income, net of
deferred income taxes. Unrealized gains or losses on investments designated as
trading are recognized in current period income.

When declines in values of securities below cost or amortized cost are
considered to be other than temporary, an impairment charge is recorded as a
realized capital loss in the statement of income for the difference between cost
or amortized cost and estimated fair value. Other than temporary declines are
declines in value of the security that exceed 20% over a period of six months,
or that exceed of 50% regardless of the period of decline. To continue to adhere
to emerging asset impairment standards, beginning in the second quarter of
2003, Converium revised its impairment policy to also record as realized capital
losses any declines in value of equity securities over a period of more than
twelve months. The same policy applies to fixed maturities securities when the
decline in value is attributable to the deteriorating credit-worthiness of the
issuer. At managements judgment, Converium impairs additional securities
based on prevailing market conditions by considering various factors such as the
financial condition of the issuer, the market value and the expected future cash
flows of the security.

Realized gain or loss on disposals is based on the difference between the
proceeds received and the cost or amortized cost of the investment using the
specific identification method. The amortization of premium and accretion of
discount on investments in fixed maturities is computed using the effective
interest method and is recorded in current period income. Dividends on equity
securities are recorded as revenue on the ex-dividend date, the date that the
dividends become payable to the holders of record.

Real estate held for investment, which is included in the balance sheet under
the caption, Other investments, is recorded at depreciated cost and is
depreciated on a straight-line basis over 30 years. The gain or loss on disposal
is based on the difference between the proceeds received and the carrying value
of the investment.

Certain partnerships in which Converium has an interest are engaged exclusively
in making investments in direct private equity, private equity funds and hedge
funds. In the partnerships, these investments are carried at fair value as
determined by the fund manager, with changes in fair value being recorded as
other income or loss.

Short-term and other investments are recorded at cost, which approximates fair
value. Short-term investments are those with a maturity of greater than three
months but less than one year from date of purchase.

The Funds Withheld Asset is carried at the principal balance plus accrued
interest. See Notes 6 and 15 for further description.

F-11



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

(g) Derivative instruments
Derivative financial instruments include swaps, futures, forwards and option
contracts, which all derive their value from underlying interest or foreign
exchange rates, commodity values or equity prices. Derivatives are subject to
various risks similar to those related to the underlying financial instruments,
including market, credit and liquidity risk.

Derivative instruments are recognized on the balance sheet at fair value. The
recognition of changes in the fair value of a derivative depends on its
intended use. Derivatives and other financial instruments are used to hedge
exposures or modify exposures to interest rate and foreign currency risks.
Changes in the fair value of derivatives used in hedging activities are,
depending on the nature of the hedge, either recognized in earnings together
with the change in fair value of the hedged item attributable to the risk being
hedged, or recognized in other comprehensive income until the hedged item
affects earnings. For all hedging activities, the ineffective portion of a
derivatives change in fair value is immediately recognized in earnings.
Derivatives not used in hedging activities are adjusted to fair value through
earnings.

Embedded derivatives in insurance contracts and investment contracts are
separated from their host contracts and accounted for as derivative instruments
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities.

(h) Obligation to repurchase securities
Sales of securities under agreements to repurchase are accounted for as
collateralized transactions and are recorded at their contracted repurchase
amount plus accrued interest. Converium minimizes the credit risk that
counterparties to transactions might be unable to fulfill their contractual
obligations by monitoring customer credit exposure and collateral value and
generally requiring additional collateral to be deposited with Converium when
deemed necessary.

(i) Cash and cash equivalents
Cash amounts represent cash on hand and demand deposits. Cash equivalents are
short-term, highly liquid investments with original maturities of three months
or less.

(j) Fixed assets
Fixed assets, which are included in the balance sheet under the caption Other
assets, are carried at cost less accumulated depreciation and any necessary
write-downs for impairment. The costs of fixed assets are depreciated
principally on a straightline basis over the following estimated useful
economic lives: furniture and fixtures five to ten years; computer equipment and
software three to five years. Maintenance and repair costs are charged to income
as incurred; costs incurred for major improvements are capitalized and
depreciated. Gains and losses on disposal of fixed assets are based upon their
carrying amount.

(k) Goodwill
Converium adopted SFAS No. 142, Goodwill and Other Intangible Assets on January
1, 2002. This standard prohibits the amortization of goodwill and intangible
assets that have indefinite useful lives, and requires impairment testing of
goodwill annually or if any event occurs which would indicate an impairment of
goodwill. Except for the reduction of amortization of goodwill, adoption of SFAS
No. 142 did not impact Converiums financial condition or results of operations.

SFAS No. 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment. The
second step of the goodwill impairment test measures the amount of the
impairment loss, if any, and must be completed by the end of the fiscal year.
Intangible assets deemed to have an indefinite life are tested for impairment
using a one-step process, which compares the fair value to the carrying amount
of the asset as of the beginning of the fiscal year.

(l) Recognition and measurement of long-lived assets
Converium periodically reviews its long-lived assets to determine potential
impairment. If the recoverable amount is less than the carrying amount of the
asset, an impairment loss is recognized. The recoverable amount is measured
using the sum of the assets undiscounted estimated future cash flows expected
to arise from the use of the asset and from its disposal at the end of its
useful life. The impairment loss is measured as the difference between the
carrying amount of the asset and its fair value. Fair value is defined as the
market price less cost of disposal. If the market price is not available, fair
value is estimated based on the present value of future cash flows.

(m) Income taxes
Taxes on income are accrued in the same periods as the revenues and expenses to
which they relate. Deferred income taxes are provided for all temporary
differences, which are based on the difference between financial statement
carrying amounts and income tax bases of assets and liabilities using enacted
local income tax rates and laws, and for loss carry forwards. A valuation
allowance is recorded to reduce a deferred tax asset to that amount that is
expected to be realized.

F-12



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

(n) Employee benefits
Converium provides employee retirement benefits under principally two types of
arrangements: defined benefit plans providing specified benefits and defined
contribution plans. The assets of these plans are principally held separately
from Converiums general assets in trustee-administered funds.

Defined benefit plan obligations and contributions are determined periodically
by qualified actuaries using the projected unit credit method. Converiums
expense related to defined benefit plans is accrued over the employees service
periods based upon the actuarially determined cost for the period. Actuarial
gains and losses are normally spread over the average remaining service lives of
employees. Contributions to defined contribution pension plans are charged to
income as they become due.

Converium recognizes the expense related to incentive plans over the relevant
performance period. With regard to share-based compensation, Converium uses the
fair value based method of accounting. Expense recorded for share-based
compensation takes into account the exercise price as of the grant date in
determining the fair value of the shares or options to be awarded.

(o) New accounting pronouncements
The following new standards have been or will be required to be adopted by
Converium in the future:

SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities
In April 2003, the FASB
issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This Statement amends SFAS No. 133 for decisions made as
part of the Derivatives Implementation Group process and in connection with
implementation issues raised in relation to the application of the definition of
a derivative. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. This standard did not have a material impact on the
financial condition or results of operations of Converium.

SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. This standard did not have a material impact on Converium.

Statement of Position (SOP) 03-1,Accounting and Reporting by Insurance Enterprises for Certain Non-Traditional Long-Duration Contracts and for Separate Accounts
In July 2003, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued SOP 03-1,
Accounting and Reporting by Insurance Enterprises for Certain Non-Traditional
Long-Duration Contracts and for Separate Accounts. The SOP provides guidance on
accounting and reporting by insurance enterprises for certain non-traditional
long-duration contracts and for separate accounts. The SOP is effective for
financial statements for fiscal years beginning after December 15, 2003, with
earlier adoption encouraged. The SOP may not be applied retroactively to prior
years financial statements, and initial application should be as of the
beginning of an entitys fiscal year. This statement is not expected to have a
material impact on the financial condition or results of operations of
Converium.

(p) Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Therefore, actual
results could differ from those estimates.

F-13



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

3. Restructuring costs

In connection with the Transactions, Converium incurred US$ 50.0 million in
restructuring costs during 2001. Any restructuring costs relating to the
Transactions in excess of this amount were borne by Zurich Financial Services.
The restructuring costs, according to the Master Agreement, included the costs
and expenses of the Transactions, including advisors fees, retention plan costs
expensed in 2001 and stamp duty taxes. Converium did not incur any restructuring
costs during 2003 or 2002.

4. Foreign currency translation and transactions

Table 4.1 summarizes the principal exchange rates which have been used for
translation purposes (US dollar per foreign currency unit). Net realized gains
(losses) on foreign currency transactions included in the statements of income
were immaterial for each of the three years ended December 31, 2003.

Table 4.1

Statements of incomeBalance sheets
    
    and cash flowsExchange rates against US$
    
    2003
    
    2002
    
    2003
    
    2002
    
    2001UK pound
    
    
    1.7804
    
    
    
    1.6027
    
    
    
    1.6349
    
    
    
    1.5031
    
    
    
    1.4406Euro
    
    
    1.2531
    
    
    
    1.0476
    
    
    
    1.1317
    
    
    
    0.9453
    
    
    
    0.8955100 Japanese yen
    
    
    0.9352
    
    
    
    0.8437
    
    
    
    0.8637
    
    
    
    0.7998
    
    
    
    0.8240Swiss franc
    
    
    0.8033
    
    
    
    0.7206
    
    
    
    0.7441
    
    
    
    0.6446
    
    
    
    0.5929


5. Segment information

The primary measure of segment information, as reflected in the Schedule of
Segment Data, is segment income, defined as income before other income (loss),
interest expense, amortization of goodwill and restructuring costs and income
taxes.

In October 2003, Converium implemented changes to its organizational and
financial reporting structures. At the time of its IPO in December 2001,
Converium adopted an organizational model based on geography. This was largely
driven by the historical development of its then parent, Zurich Financial
Services. Over its first two years as an independent reinsurer, Converium has
become more globally integrated and has seen its business strategy evolve. As a
result, the issues of legal entity and geography have become less relevant
criteria when evaluating business strategy and capital and resource allocation.

The new segment structure centers on global lines of business. There are now
three new global business segments by which Converium sets strategy and measures
results: Standard Property & Casualty Reinsurance, Specialty Lines, and Life &
Health Reinsurance. The lines of business by segment are as follows:

Standard Property & Casualty Reinsurance:general third party liability, motor, personal accident (assumed from non-life
insurers) and property.

Specialty Lines:agribusiness, aviation & space, credit & surety, engineering, marine & energy, professional liability and other
special liability, and workers compensation.

Life & Health Reinsurance:life and disability, and accident and health.

In addition to the three segments financial results, the Corporate Center
carries certain administration expenses, such as costs of the Board of
Directors, the Global Executive Committee, and other global functions.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Converium accounts for inter-segment
revenues and transfers as if the transactions were with third parties at current
market prices. The changes in the segment structure do not change the previously
disclosed consolidated results.

F-14



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Table 5.1 below shows net premiums written by line of business.

Table 5.1
Net premiums written by line of business
(US$ million)

Year ended December 31
    
    2003
    
    2002
    
    2001Standard Property & Casualty Reinsurance:General third party liability
    
    
    335.0
    
    
    
    337.7
    
    
    
    271.6Motor
    
    
    488.5
    
    
    
    453.5
    
    
    
    436.9Personal accident (assumed from non-life insurers)
    
    
    35.1
    
    
    
    35.0
    
    
    
    21.1Property
    
    
    787.0
    
    
    
    626.0
    
    
    
    550.4Total standard property & casualty reinsurance
    
    
    1,645.6
    
    
    
    1,452.2
    
    
    
    1,280.0Specialty Lines:Agribusiness
    
    
    90.0
    
    
    
    22.0
    
    
    
    32.0Aviation & space
    
    
    341.8
    
    
    
    365.3
    
    
    
    182.8Credit & surety
    
    
    236.0
    
    
    
    200.1
    
    
    
    178.5Engineering
    
    
    139.9
    
    
    
    116.1
    
    
    
    81.5Marine & energy
    
    
    95.3
    
    
    
    94.3
    
    
    
    73.6Professional liability and other special liability
    
    
    598.0
    
    
    
    536.9
    
    
    
    241.2Workers compensation
    
    
    310.9
    
    
    
    220.6
    
    
    
    178.8Total specialty lines
    
    
    1,811.9
    
    
    
    1,555.3
    
    
    
    968.4Total non-life reinsurance
    
    
    3,457.5
    
    
    
    3,007.5
    
    
    
    2,248.4Life & Health Reinsurance:Life and disability
    
    
    162.1
    
    
    
    154.7
    
    
    
    136.4Accident and health
    
    
    207.4
    
    
    
    160.0
    
    
    
    97.8Total life & health reinsurance
    
    
    369.5
    
    
    
    314.7
    
    
    
    234.2Total
    
    
    3,827.0
    
    
    
    3,322.2
    
    
    
    2,482.6


Table 5.2 below shows gross premiums written by geographic area of ceding
company. Gross premiums written reflect the markets where the business is
originally produced.

Table 5.2
Gross premiums written by geographic area of ceding company
(US$ million)

Year ended December 31
    
    2003
    
    2002
    
    2001United Kingdom(*)
    
    
    1,083.0
    
    
    
    910.4
    
    
    
    560.1Germany
    
    
    286.9
    
    
    
    176.1
    
    
    
    179.4France
    
    
    160.5
    
    
    
    106.9
    
    
    
    89.8Italy
    
    
    131.2
    
    
    
    84.0
    
    
    
    62.7Rest of Europe
    
    
    338.8
    
    
    
    224.0
    
    
    
    199.5Far East
    
    
    266.4
    
    
    
    191.9
    
    
    
    113.7Near and Middle East
    
    
    134.3
    
    
    
    124.3
    
    
    
    99.8North America
    
    
    1,671.1
    
    
    
    1,553.2
    
    
    
    1,431.5Latin America
    
    
    151.7
    
    
    
    165.0
    
    
    
    144.7Total
    
    
    4,223.9
    
    
    
    3,535.8
    
    
    
    2,881.2




| |  | (*) Premiums from the United Kingdom include business assumed through GAUM and
Lloyds syndicates for such lines of business as aviation and space as well as
marine, where the exposures are worldwide in nature. Therefore, geographic
location of the ceding company may not necessarily be indicative of the
location of risk.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2003, two reinsurance intermediaries produced approximately 11% and 12% of
Converiums gross premiums written. The revenues from these reinsurance
intermediaries were produced across all of the segments. The same two
reinsurance intermediaries produced approximately 13% each in 2002, and 13%
and 12% in 2001, respectively, of Converiums gross premiums written. No
ceding company accounted for more than 10% of Converiums revenues for any of
the three years ended December 31, 2003.

F-15



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

6. Invested assets and investment income

Table 6.1
Net investment income
(US$ million)

Year ended December 31
    
    2003
    
    2002
    
    2001Fixed maturities
    
    
    121.0
    
    
    
    132.7
    
    
    
    130.0Equity securities
    
    
    11.4
    
    
    
    14.5
    
    
    
    9.7Short-term investments and cash and cash equivalents
    
    
    7.5
    
    
    
    12.9
    
    
    
    12.5Real estate
    
    
    11.5
    
    
    
    11.5
    
    
    
    3.6Other
    
    
    7.0
    
    
    
    11.0
    
    
    
    2.0Funds Withheld Asset/Zurich Financing Agreement
    
    
    85.6
    
    
    
    81.1
    
    
    
    75.7Total investment income
    
    
    244.0
    
    
    
    263.7
    
    
    
    233.5Investment expenses
    
    
    -8.0
    
    
    
    -6.1
    
    
    
    -4.7Real estate expenses
    
    
    -3.0
    
    
    
    -5.8
    
    
    
    -0.1Net investment income
    
    
    233.0
    
    
    
    251.8
    
    
    
    228.7


In 2001, the cash flows of Converium AG were managed by Zurich Financial
Services pursuant to the Zurich Financing Agreement. In conjunction with the
establishment of the Funds Withheld Asset (see Note 15), the Zurich Financing
Agreement was cancelled. The Funds Withheld Asset was US$ 1,530.6 million and
US$ 1,648.1 million as of December 31, 2003 and 2002, respectively. Net
investment income on the Funds Withheld Asset is based on a weighted average
interest rate similar to that of a bond portfolio.

Table 6.2
Net realized capital gains (losses)
(US$ million)

Year ended December 31
    
    2003
    
    2002
    
    2001Fixed maturities:Realized capital gains
    
    
    46.1
    
    
    
    145.9
    
    
    
    50.0Realized capital losses
    
    
    -11.3
    
    
    
    -57.9
    
    
    
    -4.1Equity securities:Realized capital gains
    
    
    9.1
    
    
    
    37.5
    
    
    
    48.5Realized capital losses
    
    
    -1.7
    
    
    
    -90.4
    
    
    
    -30.6Write-down of impaired investments
    
    
    -27.4
    
    
    
    -48.3
    
    
    
    -82.5Other
    
    
    3.6
    
    
    
    2.9
    
    
    
    0.3Net realized capital gains (losses)
    
    
    18.4
    
    
    
    -10.3
    
    
    
    -18.4


Included in the 2002 realized amounts were gains on the restructuring of the
fixed maturities portfolio of US$ 62.9 million, offset by losses on the
restructuring of the equity portfolio of US$ 48.2 million, and losses realized
on the sale of WorldCom fixed income investments of US$ 15.8 million.

In 2003, Converium created a portfolio of held-to-maturity government bonds
totaling US$ 500.4 million (10.2% of the fixed maturities portfolio, excluding
the Funds Withheld Asset), of which US$ 308.0 million were transferred from
available-for-sale to held-to-maturity and US$ 192.4 million were directly
invested from operational cash flow.

F-16



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Table 6.3
Unrealized investment gains and losses
(included in other comprehensive income)
(US$ million)

Net change for the year
    
    Total asended December 31
    
    of December 312003
    
    2002
    
    2001
    
    2003
    
    2002Fixed maturities held-to-maturity
    
    
    14.1
    
    
    
    
    
    
    
    
    
    
    
    14.1
    
    
    
    Fixed maturities available-for-sale
    
    
    -8.0
    
    
    
    11.2
    
    
    
    -9.1
    
    
    
    25.8
    
    
    
    33.8Equity securities available-for-sale
    
    
    148.1
    
    
    
    -75.7
    
    
    
    24.7
    
    
    
    94.5
    
    
    
    -53.6Less amounts of net unrealized
investment gains (losses) attributable to:Net deferred income taxes
    
    
    -5.9
    
    
    
    31.2
    
    
    
    -2.9
    
    
    
    10.9
    
    
    
    16.8Foreign currency effect
    
    
    50.3
    
    
    
    -50.3
    
    
    
    -1.2
    
    
    
    
    
    
    
    -50.3Total
    
    
    198.6
    
    
    
    -83.6
    
    
    
    11.5
    
    
    
    145.3
    
    
    
    -53.3


Table 6.4
Investments in fixed maturities
and equity securities
(US$ million)

Cost or
    
    Gross
    
    Gross
    
    Estimatedamortized cost
    
    unrealized gains
    
    unrealized losses
    
    fair value2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002Held-to-maturityFixed maturities:Transferred in:US government
    
    
    294.0
    
    
    
    
    
    
    
    6.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300.2
    
    
    
    Other governments
    
    
    14.0
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.1
    
    
    
    Newly invested:US government
    
    
    169.8
    
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171.6
    
    
    
    Other governments
    
    
    22.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -0.8
    
    
    
    
    
    
    
    21.8
    
    
    
    Total held-to-maturity as of December 31
    
    
    500.4
    
    
    
    
    
    
    
    8.1
    
    
    
    
    
    
    
    -0.8
    
    
    
    
    
    
    
    507.7
    
    
    
    Available-for-saleFixed maturities:US government
    
    
    1,728.0
    
    
    
    1,497.1
    
    
    
    13.6
    
    
    
    23.4
    
    
    
    -8.0
    
    
    
    -2.5
    
    
    
    1,733.6
    
    
    
    1,518.0Other governments
    
    
    1,163.4
    
    
    
    383.8
    
    
    
    3.8
    
    
    
    1.4
    
    
    
    -2.6
    
    
    
    -0.3
    
    
    
    1,164.6
    
    
    
    384.9Corporate and other debt securities
    
    
    671.6
    
    
    
    706.9
    
    
    
    12.7
    
    
    
    9.6
    
    
    
    -3.4
    
    
    
    -3.3
    
    
    
    680.9
    
    
    
    713.2Mortgage and asset-backed securities
    
    
    839.4
    
    
    
    821.5
    
    
    
    11.5
    
    
    
    5.6
    
    
    
    -1.8
    
    
    
    -0.1
    
    
    
    849.1
    
    
    
    827.0Total as of December 31
    
    
    4,402.4
    
    
    
    3,409.3
    
    
    
    41.6
    
    
    
    40.0
    
    
    
    -15.8
    
    
    
    -6.2
    
    
    
    4,428.2
    
    
    
    3,443.1Equity securities
    
    
    745.7
    
    
    
    584.4
    
    
    
    96.2
    
    
    
    2.6
    
    
    
    -1.7
    
    
    
    -56.2
    
    
    
    840.2
    
    
    
    530.8Total available-for-sale as of December 31
    
    
    5,148.1
    
    
    
    3,993.7
    
    
    
    137.8
    
    
    
    42.6
    
    
    
    -17.5
    
    
    
    -62.4
    
    
    
    5,268.4
    
    
    
    3,973.9


In order to conform to the current years presentation, a reclassification
within accumulated other comprehensive income of US$ 18.7 million was made in
2003 between net unrealized gains (losses) on investments and cumulative
translation adjustments. This reclassification had no impact on accumulated
other comprehensive income or total equity.

F-17



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

The following table summarizes gross unrealized investment losses on fixed
maturities and equity securities as of December 31, 2003:

Table 6.5
Unrealized investment losses on
fixed maturities and equity securities
(US$ million)

Gross unrealized losses
    
    Total grossEstimated fair
    
    Less than
    
    Greater than
    
    unrealizedvalue
    
    one year
    
    one year
    
    lossesHeld-to-maturityFixed maturities
    
    
    14.1
    
    
    
    -0.8
    
    
    
    
    
    
    
    -0.8Available-for-saleFixed maturities
    
    
    1,264.1
    
    
    
    -15.8
    
    
    
    
    
    
    
    -15.8Equity securities
    
    
    20.7
    
    
    
    -1.7
    
    
    
    
    
    
    
    -1.7Total available-for-sale as of December 31, 2003
    
    
    1,284.8
    
    
    
    -17.5
    
    
    
    
    
    
    
    -17.5


The estimated fair values and carrying values of fixed maturities are shown by
contractual maturity below. Actual maturities may differ from contractual
maturities because certain borrowers have the right to call or prepay certain
obligations with or without call or prepayment penalties.

Table 6.6
Fixed maturity schedule by maturity
(US$ million)

Estimated fair value
    
    % of total
    
    Carrying value
    
    % of totalAvailable-for-sale (AFS)
    
    AFS
    
    Held-to-maturity (HTM)
    
    HTMLess than one year
    
    
    48.9
    
    
    
    1.1
    
    
    
    19.0
    
    
    
    3.8One year through five years
    
    
    2,241.7
    
    
    
    50.6
    
    
    
    78.8
    
    
    
    15.7Five years through ten years
    
    
    939.0
    
    
    
    21.2
    
    
    
    364.7
    
    
    
    72.9Over ten years
    
    
    162.1
    
    
    
    3.7
    
    
    
    37.9
    
    
    
    7.6Subtotal
    
    
    3,391.7
    
    
    
    76.6
    
    
    
    500.4
    
    
    
    100.0Mortgage and asset-backed securities
    
    
    849.1
    
    
    
    19.2
    
    
    
    
    
    
    
    Unit trust bonds
    
    
    187.4
    
    
    
    4.2
    
    
    
    
    
    
    
    Total as of December 31, 2003
    
    
    4,428.2
    
    
    
    100.0
    
    
    
    500.4
    
    
    
    100.0


At December 31, 2003 and 2002, real estate held for investment of US$ 130.2
million and US$ 167.9 million, respectively, net of accumulated depreciation of
US$ 5.8 million and US$ 7.6 million, respectively, consists primarily of
investments in residential and commercial rental properties located in
Switzerland, acquired in late 2001 from subsidiaries of Zurich Financial
Services. The fire insurance value of Converiums real estate held for
investment and fixed assets totaled US$ 222.7 million and US$ 283.3 million at
December 31, 2003 and 2002, respectively.

There are no investments in any entity in excess of 10% of equity at December
31, 2003 and 2002, other than investments issued or guaranteed by the US or
sovereign governments or their agencies. Cash and investments with a carrying
value of US$ 234.6 million and US$ 147.9 million were deposited in trust or with
regulatory authorities as of December 31, 2003 and 2002, respectively.

7. Goodwill

Goodwill was US$ 140.2 million and US$ 117.6 million, and accumulated
amortization of goodwill was US$ 33.7 million and US$ 33.7 million at December
31, 2003 and 2002, respectively. Goodwill is included in the balance
sheet under the caption Other assets.

During August 1997, Zurich Financial Services acquired all the remaining equity
interests in Converium Reinsurance (North America) Inc. not then owned by Zurich
Financial Services. The acquisition of the minority interest in Converium
Reinsurance (North America) Inc. was accounted for as a purchase. Accordingly,
the excess of the consideration paid in exchange for the minority interest over
the fair value of the net assets attributable to the minority interest was
recorded as goodwill. This goodwill has been reflected in the consolidated
financial statements under the application of push down accounting. An additional US$ 20.7 million of goodwill arose from Converiums acquisition of a
49.9% interest in MDU Services Ltd during 2000.

F-18



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

In March 2003, upon receipt of all regulatory approvals, Converium finalized an
agreement to acquire a 25% stake in Global Aerospace Underwriting Managers
Limited (GAUM), a leading international aviation-underwriting agency, as a part
of its strategy to strengthen its long-term position in the aviation and
satellite business. Under the terms of the sale and purchase agreement,
Converium has paid an initial consideration of GBP 14.2 million (US$ 22.4
million) and is additionally obligated to pay deferred consideration associated
with the underlying performance of GAUMs in force business. In view of a capped
limit on deferred consideration, the maximum amount payable by Converium for the
25% stake in GAUM is GBP 20.8 million (US$
32.7 million). At December 31, 2003, the
current estimate of the final cost of the acquisition is GBP 16.8 million (US$
28.0 million), of which GBP 11.4 million (US$ 18.4 million) is goodwill on
acquisition. The remaining GBP 5.4 million (US$ 9.6 million) is comprised of
Converiums share of equity and the related intangible asset
acquired. At December 31, 2003, the carrying value of the equity investment in GAUM is GBP
5.8 million (US$ 10.3 million) and the goodwill on acquisition remains at
GBP 11.4 million (US$ 18.4 million).

Upon initial application of
SFAS No. 142, Converium ceased amortizing goodwill on
January 1, 2002. The following information presents reported and adjusted net
loss and basic and diluted loss per share for the year ended December 31, 2001
using the policy adopted from January 1, 2002.

Table 7.1
(US$ million, except share information)

Year ended December 31, 2001
    
    US$
    
    Per shareReported net loss
    
    
    -367.4
    
    
    
    -9.18Amortization of goodwill
    
    
    7.8
    
    
    
    0.19Adjusted net loss
    
    
    -359.6
    
    
    
    -8.99


SFAS No. 142 requires that goodwill be tested annually for impairment. During
2003 and 2002, there were no impairment losses resulting from the impairment
tests performed.

8. Losses and loss adjustment expenses

Significant delays occur in the notification of claims and a substantial measure
of experience and judgment is involved in assessing outstanding liabilities, the
ultimate cost of which cannot be known with certainty as of the balance sheet
date. The reserve for losses and loss adjustment expenses is determined on the
basis of information currently available; however, it is inherent to the nature
of the business written that the ultimate liabilities may vary as a result of
subsequent developments.

Table 8.1
Reserves for losses and loss adjustment expenses
(US$ million)

2003
    
    2002
    
    2001As of January 1Gross reserves for losses and loss adjustment expenses
    
    
    6,821.3
    
    
    
    5,710.5
    
    
    
    4,546.0Less reinsurance recoverable
    
    
    1,459.8
    
    
    
    1,545.0
    
    
    
    1,212.2Net reserves for losses and loss adjustment expenses
    
    
    5,361.5
    
    
    
    4,165.5
    
    
    
    3,333.8Loss and loss adjustment expenses incurredCurrent year
    
    
    2,527.9
    
    
    
    2,186.8
    
    
    
    2,039.5Prior years
    
    
    -31.3
    
    
    
    148.5
    
    
    
    123.6Total
    
    
    2,496.6
    
    
    
    2,335.3
    
    
    
    2,163.1Losses and loss adjustment expenses paidCurrent year
    
    
    324.7
    
    
    
    299.4
    
    
    
    359.1Prior years
    
    
    1,464.7
    
    
    
    1,095.5
    
    
    
    885.2Total
    
    
    1,789.4
    
    
    
    1,394.9
    
    
    
    1,244.3Foreign currency translation effects
    
    
    388.7
    
    
    
    255.6
    
    
    
    -87.1As of December 31Net reserves for losses and loss adjustment expenses
    
    
    6,457.4
    
    
    
    5,361.5
    
    
    
    4,165.5Reinsurance recoverable
    
    
    1,385.4
    
    
    
    1,459.8
    
    
    
    1,545.0Gross reserves for losses and loss adjustment expenses
    
    
    7,842.8
    
    
    
    6,821.3
    
    
    
    5,710.5


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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

In 2003, there was US$ 31.3 million net positive development on prior years
loss reserves, consisting of positive development of US$ 49.4 million in the
Standard Property & Casualty Reinsurance segment, offset by US$ 18.1 million
of adverse development in the Specialty Lines segment. In the Standard Property &
Casualty Reinsurance segment, net positive development of prior years loss
reserves on property lines was partially offset by adverse development of the
motor and general third party liability lines. In the Specialty Lines segment,
net adverse development on workers compensation and professional liability and
other special liability lines was largely offset by net positive development of
prior years loss reserves on aviation and space. Risk diversification is a
basic risk management tool in the insurance and reinsurance industry; as a
multi-line reinsurer there are always likely to be reserve adjustments at the
line of business level. Our book of business is broadly diversified by line of
business as well as balanced by region and by the expected duration of its
claims obligations.

In 2002, Converium
strengthened reserves for prior years by US$ 148.5 million. Throughout the
year, increased loss experience related to prior years continued to emerge, and
Converium performed an in-depth actuarial reserve analysis of certain lines of
business. This resulted in an additional US$ 148.5 million provision for losses,
primarily related to underwriting years 1997 through 2000. In the Standard
Property & Casualty Reinsurance segment, there were additional provisions of US$
62.2 million for the motor, general third party liability and
property lines of business. In the Specialty Lines
segment, there were additional provisions of US$ 86.3 million, primarily related
to commercial umbrella and medical errors and omissions liability
lines of business.

In 2001, Converium
strengthened reserves for prior years by US$ 123.6 million. Converium
retained an actuarial consulting firm to perform an independent review of
non-life net reserves as of December 31, 2000. This review reflected certain
information that became available after the issuance of the December 31, 2000
financial statements, including most fourth quarter 2000 and some first quarter
2001 reports from ceding companies, who typically report on a one-quarter lag.
Based on the independent review and Converiums own evaluations of these new
developments, additional provisions of US$ 123.6 million, net of reinsurance,
were recorded in 2001, principally related to accident years 2000 and prior at
Converium Reinsurance (North America) Inc. In the Standard Property & Casualty
Reinsurance segment, there were additional net provisions of US$ 46.6 million,
primarily for the motor and property lines of business. In the Specialty Lines
segment, there were additional net provisions of US$ 77.0 million, primarily
related to the excess and surplus, commercial umbrella and marine and energy lines
of business, offset by positive development in aviation and space.

The reserves for certain losses and loss adjustment expenses, such as those for
settled claims with fixed payment terms, represent the present value estimates
of the ultimate cost of all losses incurred but not paid through December 31 of
each year. Where applicable, gross reserves of US$ 594.4 million and US$ 488.9
million have been discounted using average interest rates of 3.5% and 4.3% in
2003 and 2002, respectively. This has reduced reserves by US$ 65.3 million and
US$ 57.9 million as of December 31, 2003 and 2002, respectively. In addition,
deferred charges relating to retrospective reinsurance assumed and structured
settlements totaling US$ 64.3 million and US$ 79.9 million as of December 31,
2003 and 2002, respectively, are included in other assets.

Converium believes that its exposure to environmental impairment liability and
asbestos-related claims is relatively small due to the diminutive amount of
business written prior to 1987 for Converium AG and Converium Reinsurance (North
America) Inc. Additionally, Converium Reinsurance (North America) Inc. is
protected by a stop loss agreement with Zurich Insurance Company (ZIC), a
wholly owned subsidiary of Zurich Financial Services, for business effected
prior to June 1, 1993. As of December 31, 2003 and 2002, Converium
Rückversicherung (Deutschland) AG had reserves for environmental impairment
liability and asbestos-related claims of US$ 45.8 million and US$ 44.6 million,
respectively, representing a survival ratio (calculated as the ratio of
reserves held, including IBNR, over claims paid over the average of the last
three years) of 13.6 years and 13.5 years, respectively.

Guaranteed Minimum Death Benefit (GMDB) Business



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

September 11th
terrorist attacks
As of December 31, 2003, Converium recorded gross and net incurred losses and
loss adjustment expenses related to the September 11th terrorist attacks as
follows:

Segment
(US$ million)

RetrocessionalreinsuranceGross losses
    
    recoveries
    
    Net lossesStandard Property & Casualty Reinsurance
    
    
    283.4
    
    
    
    192.0
    
    
    
    91.4Specialty Lines
    
    
    370.8
    
    
    
    185.0
    
    
    
    185.8Life & Health Reinsurance
    
    
    20.0
    
    
    
    8.0
    
    
    
    12.0Total
    
    
    674.2
    
    
    
    385.0
    
    
    
    289.2


Included in the reinsurance
recoveries above are US$ 134.2 million due from
Zurich Financial Services and subsidiaries.

Certain arrangements with Zurich Financial Services described below provide
protection against potential adverse loss development on the September 11th
terrorist attacks for Converium AG, Converium Rückversicherung (Deutschland) AG
and Converium Reinsurance (North America) Inc. above the initial loss amounts
recorded of US$ 289.2 million, net of retrocessional reinsurance recoveries. As
losses are capped at US$ 289.2 million, there was no additional development in
net reserves during 2003 or 2002. Ceded premiums in connection with these
arrangements and other coverages from Zurich Financial Services were US$ 28.5
million in 2001.

Converium AGs exposure under the Quota Share Retrocession Agreement (see Note
15) is limited for Extraordinary Events. The agreement limits Converium AGs
losses arising out of any Extraordinary Event to US$ 220.0 million and the
parties have agreed that the September 11th terrorist attacks are an
Extraordinary Event and that the US$ 220.0 million limit applies to losses
arising out of the September 11th terrorist attacks. Because ZIC and Zurich
International Bermuda Ltd (ZIB), wholly owned subsidiaries of Zurich
Financial Services, retain losses in excess of the limit, Zurich Financial
Services will be responsible for non-payment, if any, by the retrocessionaires
with regard to losses arising out of the September 11th terrorist attacks in
excess of the US$ 220.0 million limit.

ZIC will indemnify Converium Rückversicherung (Deutschland) AG for losses
arising out of the September 11th terrorist attacks in excess of US$ 11.0
million, net of retrocessional reinsurance recoveries.

Converium Reinsurance (North America) Inc. is covered under the
ZIC 1997 Aggregate Excess of Loss Agreement for losses in excess of US$ 58.2 million. In addition,
ZIC will indemnify Converium Reinsurance (North America) Inc. against loss development in excess of the
available limits under the ZIC 1997 Aggregate Excess of Loss
Agreement. See Note 15 for further information.

Enron Chapter 11
reorganization
In December 2001, Enron Corp. announced that it and certain of its subsidiaries
had filed voluntary petitions for Chapter 11 reorganization in the United
States. Converium recorded ultimate losses of US$ 67.0 million
pre-tax (US$ 48.0 million after-tax) for the year ended December 31, 2001, representing
Converiums aggregate limits under existing reinsurance contracts in connection with Enron. These exposures result principally from credit and surety
and, to a lesser extent, liability lines of business. The losses Converium may
ultimately incur, and the timing of any loss payment, will be affected by
numerous factors including the actions of third parties, possible judicial
rulings and other contingencies. In 2003 and 2002, the ultimate losses related
to Enron declined US$ 17.2 million and US$ 5.2 million, respectively.

F-21



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

9. Retrocessional reinsurance and catastrophe protection

Retrocessional
reinsurance
Retrocessional reinsurance arrangements generally do not relieve Converium from
its direct obligations to its reinsureds. Thus, a credit exposure exists with
respect to reinsurance ceded to the extent that any retrocessionaire is unable
or unwilling to meet the obligations assumed under the retrocessional
agreements. At December 31, 2003, Converium holds US$ 635.3 million in
collateral as security under related retrocessional agreements in the form of
deposits, securities and/or letters of credit. Converium is able to access
outside capacity for both traditional and non-traditional coverage and therefore
is not dependent upon any single retrocessional market.

Recoverables from subsidiaries of Zurich Financial Services total 19.5% of
equity at December 31, 2003. Recoverables from one other third-party
retrocessionaire were 10.2% of equity at December 31, 2003. Recoverables from
retrocessionaires relating to contracts in arbitration were 7.9% of equity at
December 31, 2003. There were no recoverables from any other retrocessionaire
that exceeded 10% of equity at December 31, 2003. Allowances of US$ 35.4 million
and US$ 17.4 million have been recorded for estimated uncollectible receivables
and reinsurance recoverables at December 31, 2003 and 2002, respectively.

Table 9.1
(US$ million)

Gross
    
    Reinsurance assets
    
    Net of reinsuranceYear ended December 31
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002Reserves for losses and loss
adjustment expenses
    
    
    7,842.8
    
    
    
    6,821.3
    
    
    
    1,385.4
    
    
    
    1,459.8
    
    
    
    6,457.4
    
    
    
    5,361.5Reserves for unearned premiums
    
    
    1,467.4
    
    
    
    1,170.7
    
    
    
    177.0
    
    
    
    94.7
    
    
    
    1,290.4
    
    
    
    1,076.0Future life benefits
    
    
    483.5
    
    
    
    371.7
    
    
    
    156.2
    
    
    
    73.2
    
    
    
    327.3
    
    
    
    298.5Total underwriting
reserves at December 31
    
    
    9,793.7
    
    
    
    8,363.7
    
    
    
    1,718.6
    
    
    
    1,627.7
    
    
    
    8,075.1
    
    
    
    6,736.0


Table 9.2
Premiums written and earned
(US$ million)

Premiums written
    
    Premiums earnedFor the years ended December 31
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Direct premiums
    
    
    245.6
    
    
    
    88.0
    
    
    
    124.9
    
    
    
    139.0
    
    
    
    77.1
    
    
    
    106.6Assumed premiums
    
    
    3,978.3
    
    
    
    3,447.8
    
    
    
    2,756.3
    
    
    
    3,855.3
    
    
    
    3,289.0
    
    
    
    2,581.9Ceded premiums
    
    
    -387.5
    
    
    
    -204.2
    
    
    
    -393.4
    
    
    
    -308.4
    
    
    
    -191.2
    
    
    
    -388.1Catastrophe Agreement
    
    
    -9.4
    
    
    
    -9.4
    
    
    
    -5.2
    
    
    
    -9.4
    
    
    
    -9.4
    
    
    
    -5.2Total
    
    
    3,827.0
    
    
    
    3,322.2
    
    
    
    2,482.6
    
    
    
    3,676.5
    
    
    
    3,165.5
    
    
    
    2,295.2


Table 9.3
Benefits, losses and expenses
(US$ million)

For the years ended December 31
    
    2003
    
    2002
    
    2001Losses, loss adjustment expenses and life benefitsDirect
    
    
    112.6
    
    
    
    124.5
    
    
    
    104.3Assumed
    
    
    2,759.1
    
    
    
    2,587.7
    
    
    
    2,834.4Ceded
    
    
    -197.5
    
    
    
    -220.2
    
    
    
    -638.2Total
    
    
    2,674.2
    
    
    
    2,492.0
    
    
    
    2,300.5Underwriting acquisition costsDirect
    
    
    23.3
    
    
    
    24.6
    
    
    
    32.8Assumed
    
    
    814.8
    
    
    
    681.3
    
    
    
    529.0Ceded
    
    
    -34.9
    
    
    
    -39.2
    
    
    
    -53.7Total
    
    
    803.2
    
    
    
    666.7
    
    
    
    508.1


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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Catastrophe protection
As of December 31, 2003, Converium has entered into agreements for coverage of
losses related to certain catastrophic loss events. These agreements include
both traditional reinsurance as well as a catastrophe agreement described more
fully below. The traditional reinsurance agreements cover losses from a first
event in excess of US$ 75.0 million.

In June 2001, ZIC entered into a transaction with Trinom Ltd, a Bermuda company
that ultimately provides ZIC with specific high limit catastrophe protection.
Trinom is a special purpose entity (SPE) established by ZIC in Bermuda, which
issued all of its common shares to a Bermuda trust. Trinoms business consists
solely of issuing three-year catastrophe securities to third-party qualified
investors in the form of preference shares and two classes of notes.
Simultaneous with the offering of these securities, Trinom entered into a
counterparty contract with ZIC whereby Trinom will make payments to ZIC from its
funds to cover defined catastrophic losses in the United States and Europe. ZIC
is required to make payments to Trinom based on the balance of Trinoms funds
and the magnitude of its losses. The owners of the securities are entitled to
receive their original investment, plus interest on the notes or dividends on
the preference shares, both paid quarterly, less any loss payments made to ZIC.

Additionally, as part of the Transactions, ZIC and Converium AG have entered
into a catastrophe derivative agreement (the Catastrophe Agreement) in the
form of a purchased option whereby Converium AG receives protection from ZIC
under terms similar to ZICs protection under the Trinom transaction. Converium
AG will pay ZIC amounts at least equal to the payments made by ZIC to Trinom.
Similarly, Converium AG is entitled to receive payments from ZIC that are
similar to those that ZIC is entitled to receive from Trinom. However, there is
no contractual relationship between Converium AG and Trinom as only ZIC is the
legal counterparty to the Trinom transaction. This Catastrophe Agreement is
effective as of June 18, 2001, and will remain in effect for the same period as
ZICs agreement with Trinom, including any extension thereto.

The coverage ZIC and ultimately Converium AG have obtained from the Trinom
transaction and the related Catastrophe Agreement is expected to reduce
Converium AGs net retained loss for large catastrophe events that produce
insured losses greater than what is referred to in the industry as once in 100
years magnitude. Perils covered by the Trinom transaction and the Catastrophe
Agreement include only US hurricane, California earthquake, and European
windstorm losses that occur before June 13, 2004. Discussions are currently
underway to obtain reinsurance protection for catastrophic losses upon the
expiration of the Trinom transaction and the related Catastrophe Agreement in
June 2004.

Payments from Trinom to ZIC, and similarly from ZIC to Converium AG, are based
on modeled reinsurance losses for ZIC and ultimately Converium AGs exposures at
the time of the Trinom transaction. In a modeled loss contract, the covered
partys aggregate exposure to each geographical region and type of catastrophe,
by line of business, is compared to industry-wide data in order to produce the
covered partys market share of particular loss events by line of business using
commercially available natural catastrophe loss simulation modeling software.
The software simulates a catastrophe, at various levels of severity, by generating
certain probabilistic loss distributions, in order to calculate
industry-wide losses and the corresponding losses for the covered party on a
ground-up basis, by line of business. These losses are then compared to the
modeled loss contracts to determine the amount of the covered partys recovery
in respect of such an event.

Because the Trinom transaction is in two tranches, Converium AGs coverage under
the Catastrophe Agreement is also effectively in two tranches. The first
tranche provides first event coverages of approximately US$ 65.0 million on 68%
of losses that exceed a modeled range of losses from US$ 209.0 million to US$
227.0 million; and the second tranche provides US$ 97.0 million of coverage on
100% of second and subsequent event losses that exceed a modeled range of losses
from US$ 100.0 million to US$ 133.0 million. The amount of losses that must be
incurred before coverage applies relates to the type of loss event, e.g.
earthquake, hurricane or windstorm. The expected annual cost of the Catastrophe
Agreement to Converium AG is approximately US$ 9.4 million. However, if
Converium collects amounts as a result of a loss event that is protected by the
Catastrophe Agreement, Converium will be required to pay higher amounts for the
remainder of the Catastrophe Agreements term, and to reduce the recovery by
these higher amounts.

10. Debt

Converium assumed US$ 200.0 million principal amount of non-convertible,
unsecured, unsubordinated Senior Notes (the Senior Notes) originally issued
during October 1993. The Senior Notes mature in full on October 15, 2023 and
bear interest at the rate of 7.125%, payable semiannually in arrears on April 15
and October 15.

In December 2002, Converium Finance S.A. issued US$ 200.0 million principal
amount of non-convertible, unsecured, guaranteed subordinated notes (the
Guaranteed Subordinated Notes). The Guaranteed Subordinated Notes are
irrevocably and unconditionally guaranteed on a subordinated basis by each of
Converium Holding AG and Converium AG. The Guaranteed Subordinated Notes mature
in full on December 23, 2032 and bear interest at the rate of 8.25% paid
quarterly in arrears on March 15, June 15, September 15 and December 15.

Debt issuance costs and discounts were US$ 9.4 million and US$ 9.6 million at
December 31, 2003 and 2002, respectively. Such costs are being amortized over
the term of the related debt.

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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

11. Income taxes

Table 11.1 below illustrates an overview of the current and deferred tax expense
(benefit) for each tax jurisdiction of Converium.

Table 11.1
Income tax expense (benefit)
(US$ million)

Year ended December 31
    
    2003
    
    2002
    
    2001CurrentSwitzerland
    
    
    10.0
    
    
    
    23.9
    
    
    
    United States
    
    
    -48.4
    
    
    
    
    
    
    
    31.1Germany
    
    
    -2.3
    
    
    
    0.2
    
    
    
    3.4Total current
    
    
    -40.7
    
    
    
    24.1
    
    
    
    34.5DeferredSwitzerland
    
    
    26.5
    
    
    
    -22.2
    
    
    
    -3.5United States
    
    
    63.9
    
    
    
    -34.4
    
    
    
    -178.7Germany
    
    
    -10.4
    
    
    
    -16.9
    
    
    
    -22.2Total deferred
    
    
    80.0
    
    
    
    -73.5
    
    
    
    -204.4Total income tax expense (benefit)
    
    
    39.3
    
    
    
    -49.4
    
    
    
    -169.9


An expected
income tax expense (benefit) is calculated based on the statutory
tax rates for Converium. These rates were derived by calculating the weighted
average of the expected statutory income tax in relation to the income (loss)
generated in the various territories in which Converium operates. Based on the
expected income tax expense (benefit), a reconciliation is made to the actual
income tax expense (benefit).

Table 11.2 below illustrates the factors that cause the actual income tax
expense (benefit) to differ from the expected amount computed by applying the
expected rate.

Table 11.2
Expected and actual income tax expense (benefit)
(US$ million)

Year ended December 31
    
    2003
    
    2002
    
    2001Income (loss) before taxes
    
    
    224.4
    
    
    
    57.4
    
    
    
    -537.3Statutory average tax rate
    
    
    7.0
    %
    
    
    -24.9
    %
    
    
    33.6
    %Expected income tax expense (benefit)
    
    
    15.7
    
    
    
    -14.3
    
    
    
    -180.3Increase (reduction) in taxes resulting from:Investment income
    
    
    -3.8
    
    
    
    -2.9
    
    
    
    -4.8Non-taxable reinsurance contract
    
    
    
    
    
    
    -4.9
    
    
    
    -20.4Branch tax
    
    
    2.1
    
    
    
    0.7
    
    
    
    2.6Non-deductible expenses
    
    
    3.3
    
    
    
    9.1
    
    
    
    15.7Tax losses not realizable
    
    
    37.9
    
    
    
    
    
    
    
    Tax loss carryforward
    
    
    -13.6
    
    
    
    -21.3
    
    
    
    Changes in applicable tax rates
    
    
    -2.8
    
    
    
    -5.5
    
    
    
    Deferred acquisition costs
    
    
    
    
    
    
    -4.7
    
    
    
    Currency translation adjustments
    
    
    
    
    
    
    -6.7
    
    
    
    Valuation allowance
    
    
    
    
    
    
    
    
    
    
    3.2Non-deductible ceded premiums
    
    
    
    
    
    
    
    
    
    
    8.5Other
    
    
    0.5
    
    
    
    1.1
    
    
    
    5.6Actual income tax expense (benefit)
    
    
    39.3
    
    
    
    -49.4
    
    
    
    -169.9Effective tax rate
    
    
    17.5
    %
    
    
    -86.1
    %
    
    
    31.6
    %


The 2003 consolidated tax expense reflects an increase in the tax loss
carryforward due to the retrocession of certain contracts from Germany to
Switzerland. This was offset by non-deductible expenses caused by the novation
of certain contracts from North America to Switzerland. The 2002 consolidated
tax benefit reflects a one-time benefit of US$ 21.3 million as the result of a
ruling Converium AG received from the Swiss tax authorities regarding a tax loss
carried forward.

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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Deferred income taxes are provided for all temporary differences, which are
based on the difference between financial statement carrying amounts and the
income tax bases of assets and liabilities. The income tax basis of an asset or
liability is calculated in accordance with the rules for determining taxable
income established by the local taxation authorities. For a particular asset or
liability, this may result in a deferred tax asset in one country but a deferred
tax liability in another. In addition, a deferred tax asset is established for
net operating loss carryforwards. The deferred tax asset is reduced by a
valuation allowance if it is more likely than not that some or all of the
deferred tax asset will not be realized.

Converiums deferred income tax assets and liabilities are reflected in Table
11.3 below.

Table 11.3
Deferred income taxes
(US$ million)

2003
    
    2002Deferred income tax assetsLoss reserve discount
    
    
    110.0
    
    
    
    141.4Unearned premium reserve deduction
    
    
    36.3
    
    
    
    16.6Accruals not currently deductible
    
    
    18.4
    
    
    
    11.3Partnership loss
    
    
    5.5
    
    
    
    6.3Net operating loss carryforwards
    
    
    175.4
    
    
    
    197.1Goodwill
    
    
    11.0
    
    
    
    17.3Other
    
    
    36.4
    
    
    
    23.2Total deferred income tax assets
    
    
    393.0
    
    
    
    413.2Valuation allowance
    
    
    -47.9
    
    
    
    -21.4Net deferred income tax assets
    
    
    345.1
    
    
    
    391.8Deferred income tax liabilitiesLoss and benefit reserves
    
    
    -31.9
    
    
    
    -39.3Deferred policy acquisition costs
    
    
    -71.0
    
    
    
    -63.3Unrealized appreciation of investments
    
    
    -9.3
    
    
    
    -20.6Investments
    
    
    -12.0
    
    
    
    -2.0Reinsurance contracts
    
    
    -17.6
    
    
    
    Other
    
    
    -16.5
    
    
    
    -8.7Total deferred income tax liabilities
    
    
    -158.3
    
    
    
    -133.9Net deferred income tax assets
    
    
    345.1
    
    
    
    391.8Net deferred income taxes as of December 31
    
    
    186.8
    
    
    
    257.9


The current net income tax receivable as of December 31, 2003 and 2002 was US$
44.1 million and US$ 0.9 million, respectively. During 2003, Converium was able
to reclassify a deferred tax asset of US$ 48.4 million to a current tax asset as
a result of our ability to accelerate the recognition of this tax benefit by
filing a refund claim with the United States Internal Revenue Service.

As of December 31, 2003, Converium had total net operating loss carryforwards of
US$ 561.1 million available to offset future taxable income of certain branches
and subsidiaries.

Converiums net operating loss carryforwards by expiration date are as follows:

Table 11.4
Net operating loss carryforwards
(US$ million)

Deferred
    
    
    
    
    
    Net deferredNet operating loss
    
    income
    
    Valuation
    
    incomecarryforward
    
    tax asset
    
    allowance
    
    tax assetOne year through five years
    
    
    85.7
    
    
    
    12.9
    
    
    
    
    
    
    
    12.9Over five years
    
    
    475.4
    
    
    
    162.5
    
    
    
    47.9
    
    
    
    114.6Total as of December 31, 2003
    
    
    561.1
    
    
    
    175.4
    
    
    
    47.9
    
    
    
    127.5


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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

12. Employee benefits

Converium has established a number of benefit plans for its employees. Some
employees belong to defined benefit plans and other employees participate in
defined contribution plans, providing benefits equal solely to contributions
paid plus investment returns. Prior to the Separation Date, Converiums
employees participated in various pension plans of Zurich Financial Services or
its affiliates.

Personnel costs incurred for
2003, 2002 and 2001 were US$ 123.9 million, US$ 110.7 million and US$ 104.8 million, respectively.

Employees of certain of Converiums entities are covered under various defined
benefit pension plans. Eligibility for participation in these plans is either
based on completion of a specified period of continuous service or date of hire.
Benefits are generally based on the employees years of credited service and
average compensation in the years preceding retirement. Annual funding
requirements are determined based on actuarial cost methods. The transition
obligation (asset) is being amortized over the greater of either fifteen years
or the service period of the employees on a straight-line basis.

The Pension Fund of Converium AG (the Fund) is a foundation whose objective is
to insure the personnel of Converium AG against the economic consequences of
retirement, disability and death as provided by the statutory provisions of the
plan rules. The Fund is a pension fund providing mandatory insurance as required
by Swiss Federal Law and is supervised by the Canton of Zurich. The Funds
pension plan is a defined contribution plan in accordance with Swiss Federal
Law, but it does not meet the definition of a defined contribution plan pursuant
to SFAS No. 87, Employers Accounting for Pensions, because of certain defined
benefit elements required by Swiss Federal Law.

The participants contributions to the Fund typically amount to between 7% and
11.5% of the coordinated annual salary (defined as base salary minus
coordination amount of 30%) depending on the insured participants age and 7% of
the annual incentive-based salary. By law, the employers contribution must at
least equal the contribution of the participant. Converium AGs contribution
typically amounts to between 9% and 16% of the coordinated annual salary and 9%
of the incentive-based salary. Converium AGs contributions to the Fund amounted
to CHF 5.2 million in 2003 and CHF 8.6 million in 2002, the year the Fund
started its activity, including a contribution of CHF 4.3 million in 2002 for
the cost of transition benefit provisions granted on January 1, 2002.

Participants may purchase pension benefits at their own cost at any time within
certain limits defined by the plan rules or prefinance their pension benefits
reductions in case of early retirement.

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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Table 12.1
Weighted average

2003
    
    2002
    
    2001Discount rate
    
    
    3.99
    %
    
    
    3.85
    %
    
    
    4.30
    %Expected long-term rate of return on assets
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    5.25
    %Future salary increases
    
    
    2.00
    %
    
    
    2.16
    %
    
    
    2.57
    %Future pension increases
    
    
    0.90
    %
    
    
    0.91
    %
    
    
    1.36
    %


Table 12.2
(US$ million)

2003
    
    2002
    
    2001Projected benefit obligationProjected benefit obligation as of January 1
    
    
    64.9
    
    
    
    43.6
    
    
    
    42.4Service cost
    
    
    7.6
    
    
    
    5.0
    
    
    
    2.9Interest cost
    
    
    2.6
    
    
    
    2.1
    
    
    
    1.8Plan amendments
    
    
    
    
    
    
    
    
    
    
    -1.6Actuarial (gains) losses
    
    
    -3.8
    
    
    
    4.5
    
    
    
    -0.2Foreign currency translation effects
    
    
    8.8
    
    
    
    9.8
    
    
    
    -1.4Benefits paid
    
    
    0.2
    
    
    
    -0.1
    
    
    
    -0.3Projected benefit obligation as of December 31
    
    
    80.3
    
    
    
    64.9
    
    
    
    43.6Fair value of plan assetsFair value of plan assets as of January 1
    
    
    35.6
    
    
    
    23.6
    
    
    
    32.5Actual return on plan assets
    
    
    2.9
    
    
    
    -0.9
    
    
    
    -1.7Employee contributions
    
    
    2.6
    
    
    
    1.8
    
    
    
    1.1Employer contributions
    
    
    4.4
    
    
    
    5.9
    
    
    
    2.6Net transfer adjustment from the Transactions
    
    
    
    
    
    
    
    
    
    
    -9.5Foreign currency translation effects
    
    
    4.9
    
    
    
    5.3
    
    
    
    -1.1Benefits paid
    
    
    0.2
    
    
    
    -0.1
    
    
    
    -0.3Fair value of plan assets as of December 31
    
    
    50.6
    
    
    
    35.6
    
    
    
    23.6Funded statusFunded status
    
    
    -29.7
    
    
    
    -29.3
    
    
    
    -20.0Unrecognized transition obligation
    
    
    
    
    
    
    2.8
    
    
    
    1.0Unrecognized net actuarial losses (gains)
    
    
    6.6
    
    
    
    8.2
    
    
    
    2.0Unrecognized prior service cost
    
    
    -1.7
    
    
    
    -1.7
    
    
    
    -1.6Additional plan liabilities
    
    
    
    
    
    
    -1.1
    
    
    
    Accrued benefit liability
    
    
    -24.8
    
    
    
    -21.1
    
    
    
    -18.6Amounts recognized in the balance sheetAccrued benefit liability
    
    
    -24.8
    
    
    
    -21.1
    
    
    
    -18.6


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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Table 12.3Net periodic benefit expense(US$ million)For the years ended December 31
    
    2003
    
    2002
    
    2001Service cost
    
    
    7.6
    
    
    
    5.0
    
    
    
    2.9Interest cost
    
    
    2.6
    
    
    
    2.1
    
    
    
    1.8Expected return on plan assets
    
    
    -2.4
    
    
    
    -1.7
    
    
    
    -1.7Employee contributions
    
    
    -2.6
    
    
    
    -1.8
    
    
    
    -1.1Amortization of transition obligation
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.5Amortization of actuarial (gains) losses
    
    
    0.4
    
    
    
    
    
    
    
    Amortization of past service cost
    
    
    -0.2
    
    
    
    -0.2
    
    
    
    Net periodic benefit expense
    
    
    6.0
    
    
    
    3.9
    
    
    
    2.4


Table 12.4Accrued benefit liability(US$ million)Year ended December 31
    
    2003
    
    2002
    
    2001Balance at January 1
    
    
    -21.1
    
    
    
    -18.6
    
    
    
    -9.7Current year expense
    
    
    -6.0
    
    
    
    -3.9
    
    
    
    -2.4Contributions paid
    
    
    4.4
    
    
    
    5.9
    
    
    
    2.6Net transfer adjustment from the Transactions
    
    
    
    
    
    
    
    
    
    
    -9.5Foreign currency translation effects
    
    
    -2.1
    
    
    
    -3.4
    
    
    
    0.4Additional plan liabilities
    
    
    
    
    
    
    -1.1
    
    
    
    Balance at December 31
    
    
    -24.8
    
    
    
    -21.1
    
    
    
    -18.6


As part of the finalization of the Transactions in respect of employee benefits,
there was a transfer of pension fund assets and benefit obligations from the
Zurich Financial Services pension funds to the pension fund of Converium AG.
Under US GAAP, the net impact of this transfer resulted in an increase in the
liabilities of Converium AG to its pension fund and a corresponding reduction of
equity of US$ 9.5 million in 2001.

Converium Reinsurance (North America) Inc. sponsors various qualified defined
contribution plans. Substantially all employees of Converium Reinsurance (North
America) Inc. are eligible for participation in these plans. The plans provide
for voluntary contributions by employees, which typically range from 1% to 25%
of annual salaries, up to a calendar year maximum. Contributions by the
employer are typically another 10% (matching or otherwise). In addition, various
supplemental, non-qualified deferred compensation plans allow members of
management to defer certain amounts of compensation and receive specified
contributions. Converium Reinsurance (North America) Inc.s contributions under
these plans amounted to US$ 2.5 million, US$ 2.8 million and US$ 2.4 million in
2003, 2002 and 2001, respectively.

13. Share compensation and incentive plans

Converium has various incentive and share-based compensation plans to attract,
retain and motivate management and employees, to reward them for their
contributions to Converiums performance and to encourage employee share
ownership.

(a) Cash-based incentive plans
Various Converium entities operate short-term incentive programs for executives,
management and in some cases employees. Awards are made in cash based on the
accomplishment of both organizational and individual performance objectives. The
compensation expense incurred in 2003, 2002 and 2001 in connection with these
plans was US$ 11.7 million, US$ 7.4 million and US$ 16.4 million, respectively.

(b) Share-based incentive plans
Share-based compensation plans include all plans under which shares or options
to purchase shares are awarded. The grant of shares and options to purchase
shares in Converium Holding AG is at the discretion of the Remuneration
Committee of the Board of Directors. The most significant of these plans are
described below.

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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Employee Stock Purchase Plan
Converium adopted an Employee Stock Purchase Plan (the ESPP) on January 1,
2002. The ESPP has two offering periods beginning January 1 and July 1 of each
year. Substantially all employees meeting specified service requirements are
eligible to participate in the ESPP. Participants may contribute between 1% and
15% of base salary towards the purchase of Converium Holding AG shares, up to
certain limits. Employees who enroll in the ESPP purchase Converium Holding AG
shares at 85% of the lower of the stocks fair market value on the first or last
day of the offering period.

Share plan
Converium adopted a share plan for selected employees. Generally, the size of a
participants award is based on their level of responsibility and position, and
market conditions. For 2001 and 2002, most restricted shares granted vest in
their entirety after six years, subject to acceleration after year three based
on the achievement of certain performance objectives. Beginning in 2003, most
restricted shares granted vest ratably over three years. Shares also vest upon
retirement.

Retention awards, IPO share grant, and Zurich Financial Services share-based plans
In 2001, in conjunction with the Transactions, Converium granted retention
awards to certain employees in the form of shares in Converium Holding AG.
Employees other than those who were granted retention awards received, in
conjunction with the Transactions, shares in Converium Holding AG. In
addition, prior to the Transactions, certain Converium employees participated in
various share compensation and incentive plans of Zurich Financial Services.
After the Transactions, the outstanding share awards to Converium employees
under the Zurich Financial Services long-term performance share plans were
converted into shares of Converium Holding AG.

Table 13.1 summarizes the status of Converiums share plans for 2003, 2002 and 2001.

Table 13.1

2003
    
    2002
    
    2001Unvested shares at beginning of year
    
    
    363,278
    
    
    
    706,451
    
    
    
    Shares granted
    
    
    133,930
    
    
    
    29,732
    
    
    
    706,878Shares vested
    
    
    -311,587
    
    
    
    -299,214
    
    
    
    Shares forfeited
    
    
    -24,762
    
    
    
    -73,691
    
    
    
    -427Unvested shares at end of year
    
    
    160,859
    
    
    
    363,278
    
    
    
    706,451


Stock option plan
Under the Stock Option Plan (the Stock Option Plan), in 2003 and 2002, certain
employees were awarded options to purchase shares in Converium Holding AG. The
exercise prices were equal to the market value of the shares or ADSs on the
grant date. Of the options awarded under the Stock Option Plan, 25% vest
immediately on the grant date and 25% will vest each year thereafter or upon
retirement. The options expire 10.5 years after the date of grant.

During 2001, 312,329 options to purchase shares in Converium Holding AG were
awarded. The exercise prices were equal to the market value of the shares or
ADSs on the grant date. Of these options awarded, 25% vested immediately on the
grant date of December 11, 2001, and 25% will vest each year thereafter or upon
retirement. The options expire 10.5 years after the date of grant.

Executive IPO option plan
In connection with the Transactions, Converium granted certain executives
options to purchase shares in Converium Holding AG (the Executive IPO Option
Plan). Under the Executive IPO Option Plan, 420,000 options to purchase shares
in Converium Holding AG were awarded. The exercise prices were equal to the
market value of the shares or ADSs on the grant date. Of the options awarded
under the Executive IPO Option Plan, 25% vested immediately on the grant date of
December 11, 2001, and 25% will vest each year thereafter or upon retirement.
The options expire 10.5 years after the date of grant.

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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Table 13.2 summarizes the status of Converiums outstanding stock options for 2003, 2002 and 2001.

Table 13.2

2003
    
    2002
    
    2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    average
    
    
    
    
    
    averageexercise
    
    
    
    
    
    exercise
    
    
    
    
    
    exerciseOptions
    
    price
    
    Options
    
    price
    
    Options
    
    priceOutstanding at beginning of year
    
    
    1,115,424
    
    
    CHF 79.28
    
    
    732,329
    
    
    CHF 82.00
    
    
    
    
    
    
    Granted
    
    
    699,555
    
    
    
    58.14
    
    
    
    442,514
    
    
    
    74.66
    
    
    
    732,329
    
    
    CHF 82.00Exercised
    
    
    -23,450
    
    
    
    60.10
    
    
    
    -3,574
    
    
    
    78.85
    
    
    
    
    
    
    
    Forfeited
    
    
    -62,785
    
    
    
    74.31
    
    
    
    -55,845
    
    
    
    80.40
    
    
    
    
    
    
    
    Outstanding at end of year
    
    
    1,728,744
    
    
    
    71.17
    
    
    
    1,115,424
    
    
    
    79.28
    
    
    
    732,329
    
    
    
    82.00Options exercisable at end of year
    
    
    901,933
    
    
    
    75.74
    
    
    
    423,509
    
    
    
    80.47
    
    
    
    183,082
    
    
    
    82.00


The fair value of options granted was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

Table 13.3

Weighted average
    
    2003
    
    2002
    
    2001Risk-free rate
    
    
    1.51%
    
    
    
    1.87%
    
    
    
    3.21%Expected life
    
    3 years
    
    3 years
    
    3 yearsExpected volatility
    
    
    27.24%
    
    
    
    31.27%
    
    
    
    32.67%Dividend yield
    
    
    1.78%
    
    
    
    0.80%
    
    
    
    0.80%Fair value of options granted
    
    US$
    7.43
    
    
    US$
    11.11
    
    
    US$
    12.08


Table 13.4 summarizes information about stock options outstanding at December 31, 2003:

Table 13.4

Options outstanding
    
    Options exercisableWeightedRange of
    
    Number
    
    average remaining
    
    Weighted average
    
    Number
    
    Weighted averageexercise prices
    
    outstanding
    
    contractual life
    
    exercise price
    
    Exercisable
    
    exercise priceCHF 56.05-62.50
    
    
    839,046
    
    
    
    9.8
    
    
    
    CHF 58.63
    
    
    
    270,686
    
    
    
    CHF 59.34CHF 82.00-89.10
    
    
    889,698
    
    
    
    8.5
    
    
    
    82.99
    
    
    
    631,247
    
    
    
    82.78CHF 56.05-89.10
    
    
    1,728,744
    
    
    
    9.1
    
    
    
    71.17
    
    
    
    901,933
    
    
    
    75.74


(c) Compensation expense
The compensation expense charged to income under the share-based incentive plans
was US$ 10.0 million, US$ 24.4 million and US$ 11.0 million in 2003, 2002 and
2001, respectively.

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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

14. Shareholders equity

(a) Issued share capital
Upon incorporation on June 19, 2001, Converium Holding AG had share capital of
CHF 100,000 divided into 10,000 fully paid registered shares with a nominal
value of CHF 10 each, all of which were entitled to receive dividends. On
September 24, 2001, the extraordinary general meeting of the shareholders passed
two resolutions to increase the ordinary share capital to CHF 400 million,
divided into 40 million fully paid registered shares with a nominal value of CHF
10 each, all of which are entitled to receive dividends.

(b) Contingent share capital
Pursuant to Converium Holding AGs Articles of Incorporation, share capital can
be increased by the issuance of a maximum of four million fully paid registered
shares of CHF 10 nominal value each, amounting to a maximum of CHF 40 million,
in conjunction with Converiums obligations to employees and members of the
Board of Directors under various compensation plans. At December 31, 2003, CHF
62,170 of the contingent share capital, or 6,217 ordinary shares have been
exercised.

(c) Dividend restrictions and capital and solvency requirements
Converium Holding AG is subject to legal restrictions on the amount of dividends
it may pay to its shareholders under the Swiss Code of Obligations. The Swiss
Code of Obligations provides that 5% of the annual profit must be allocated to
the general reserve until such reserve in the aggregate has reached 20% of the
paid-in share capital. Similarly, the company laws of countries in which
Converium entities operate may restrict the amount of dividends payable by such
entities to their parent companies.

Other than by operation of the restrictions mentioned above, the ability of
Converium entities to pay dividends may be restricted or, while dividend
payments per se may be legally permitted, may be indirectly influenced by
minimum capital and solvency requirements that are imposed by insurance, bank
and other regulators in the countries in which the entities operate as well as
by other limitations existing in certain of these countries (e.g., foreign
exchange control restrictions).

In Switzerland, insurance supervisory regulations require entities to fund their
statutory reserves at a minimum level of 20% of net profits until the statutory
reserve fund reaches an amount equal to 50% of the statutory share capital,
including freely disposable reserves, if any. In the United States,
restrictions on payment of dividends are imposed by the Insurance Commissioner
of the state of domicile. For Converium Reinsurance (North America) Inc.,
dividends are payable only from earned surplus and are limited annually to the
greater of 10% of the previous years policyholders surplus or 100% of the
previous years statutory net income. Dividends paid in excess of these
limitations require prior approval of the Insurance Commissioner of the state of
domicile. In Germany, the minimum amount of statutory capital reserves required
is 10% of the nominal value of the common stock. If the 10% criterion is met,
dividends of up to 100% of current years surplus can be paid. If the 10% criterion is
not met, dividends are limited to a maximum of 95% of current
years surplus less
the prior year loss carryover. Under German law, an entitys executive board in
consent with the supervisory board have the authority to reclassify up to 100%
of the current year surplus to retained earnings, thereby not allowing dividends
to be paid.

Converium AG may pay a maximum dividend, net of withholding tax, to Converium
Holding AG without regulatory approval of approximately US$ 141.7 million as of
December 31, 2003. The maximum dividend that Converium Holding AG is able to pay
in 2004, before withholding tax, is approximately US$ 142.9 million as of
December 31, 2003.

Statutory capital and surplus for Converium AG was CHF 2,530.6 million at
December 31, 2002, the date of its most recent statutory report. This amount
includes its holdings in Converium Reinsurance (North America) Inc. and
Converium Rückversicherung (Deutschland) AG, which had aggregate statutory
capital and surplus of approximately US$ 874.2 million at December 31, 2003,
computed under local statutory accounting principles.

As of December 31,2003, Converiums entities were in compliance with all
applicable regulatory capital adequacy requirements.

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Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

15. Transactions with Zurich Financial Services

Quota Share Retrocession Agreement
In connection with the Transactions, the transfer of certain historical
reinsurance business to Converium AG by ZIC and ZIB was affected by means of the
Quota Share Retrocession Agreement effective July 1, 2001. The covered business
consists of the business historically managed by Converium, which has an
inception or renewal date on or after January 1, 1987, and consists of
substantially all of the third party assumed reinsurance business written by ZIC
and ZIB, under the Zurich Re brand name. The liabilities Converium AG assumed
include all net unearned premiums, net losses and loss adjustment expenses and
experience account balances relating to this business.

The Quota Share Retrocession Agreement provides for the payment of premiums to
Converium AG by ZIC as consideration for assuming the covered liabilities. The
Quota Share Retrocession Agreement provides that these premiums are on a funds
withheld basis, whereby the premium is not immediately paid, but is rather
retained by ZIC and credited to a funds withheld account, which is referred to
as the Funds Withheld Asset.

Because the business subject to the Quota Share Retrocession Agreement consists
of business that was historically managed by Converium, this business is already
reflected in the financial statements. Any reinsurance business written by ZIC
or ZIB that is not part of the historically managed and operated third-party
reinsurance business of Converium is not covered by the Quota Share Retrocession
Agreement, and all related legal rights and obligations of this business have
been retained by ZIC and ZIB. Accordingly, this business is excluded from the
financial statements. Therefore, execution of the Quota Share Retrocession
Agreement has no impact on results of operations as reported.

Converium AG will receive the surplus remaining with respect to the Funds
Withheld Asset, if any, after all liabilities have been discharged. Any surplus
or any additional cash flows will be recorded in the financial statements in the
period when they occur. Additionally, Zurich Financial Services has the right to
prepay to Converium AG the full amount or a portion thereof of the Funds
Withheld Asset prior to termination of the agreement.

Converium AG will continue to administer the transferred business on behalf of
ZIC and ZIB, which remain liable to the original cedents of the business.
Additionally, Converium AG will manage third-party retrocessions related to the
business transferred. Converium will bear the credit risk for uncollectible
reinsurance balances excluding those related to the September 11th terrorist
attacks. Converium AG will have a broad right of offset under the Quota Share
Retrocession Agreement so that reinsurance balances owed to ZIC and ZIB may be
offset against the Funds Withheld Asset account directly.

The Quota Share Retrocession Agreement provides for commutation and termination
for special reasons, such as insolvency of a party or loss of its authorization
to do business or a change of control of Converium AG. Each of the parties
agrees to indemnify the other against liability or expense incurred by reason
of its conduct or failure to act in appropriate circumstances. The Quota Share
Retrocession Agreement contains other provisions that are customary for an
agreement of this nature.

Converium has entered into various other transactions with Zurich Financial
Services and its subsidiaries, the most significant of which are described
below.

Converium Reinsurance (North America) Inc. had an intra-Converium aggregate
excess of loss reinsurance agreement in place since July 1,1997 (1997 Aggregate
Excess of Loss Agreement). This agreement provided protection to Converium
Reinsurance (North America) Inc. for losses that exceeded a net retention after
amounts recoverable from its outside retrocessionaires. Because the 1997
Aggregate Excess of Loss Agreement pre-dated the Transactions, ZIC was the
formal counterparty to Converium Reinsurance (North America) Inc. In October
2001, the 1997 Aggregate Excess of Loss Agreement was amended as follows:


    
    Converium Reinsurance (North America) Inc.s coverage for net losses of US$
320.4 million with respect to all Amerisafe business retroceded to the
Unicover Pool remains in effect, with ZIC as counterparty,
    
    Converium Reinsurance (North America) Inc.s coverage for net losses of US$
307.5 million from the September 11th terrorist attacks that exceed US$58.2
million remains in effect, with ZIC as counterparty; and
    
    the remainder of the coverage under the agreement is commuted.


See Notes 3, 6, 8, 9, 12, 13, 16 and 19 for other transactions with Zurich Financial
Services.

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Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

16. Related party transactions

There were no unpaid loans, including guarantee commitments, granted to the
Converium directors and members of the Converium Global Executive Committee as
of December 31, 2003.

In March 2003, upon receipt of all regulatory approvals, Converium finalized an
agreement to acquire a 25% stake in Global Aerospace Underwriting Managers
Limited (GAUM), a leading international aviation-underwriting agency, as a part
of its strategy to strengthen its long-term position in the aviation and
satellite business (see Note 7). In March 2003, Converium as a shareholder
provided a loan to GAUM in the amount of GBP 12.6 million (US$ 19.8 million). In
addition, Converium entered into a pool members agreement for the 2003
underwriting year under which it became a member of the aviation and aerospace
pools run by GAUM and its subsidiary, Associated Aviation Underwriters Inc. For
the 2003 underwriting year, Converium has committed 25% of the overall pools
capacity. Previously, Converium had indirectly reinsured 9% of the pools managed
by GAUM. Gross premiums assumed through the pools managed by GAUM were US$ 266.4
million, US$ 64.4 million and US$ 41.9 million for 2003, 2002 and 2001,
respectively.

Converium has entered into a strategic alliance with the Medical Defence Union
(MDU) that resulted in a 49.9% participation in MDU Services Ltd. MDU Services
Ltd distributes medical malpractice insurance policies to the members of the
Medical Defence Union. As a result of the initial FSA approval in respect of
general liability business, insurance policies underwritten by Converium
Insurance (UK) Ltd were issued to members of the Medical Defence Union beginning
July 1, 2003. These insurance polices replaced policies formerly issued in the
United Kingdom by Zurich Financial Services entities, the majority of which
were reinsured by Converium. Gross premiums from MDU were US$ 137.3 million, US$
140.0 million and US$ 57.0 million for 2003, 2002 and 2001, respectively.

Converium has a 48% participation in SATEC, a leading global space underwriting
agency based in Venice, Italy. Gross premiums assumed through the pool managed
by SATEC were US$ 5.9 million, US$ 5.0 million and US$ 3.2 million for 2003,
2002 and 2001, respectively.

17. Supplemental cash flow disclosures

Beginning in 2002, the change in the Funds Withheld Asset is reported as a
component of cash provided by operating activities, as movements in its balance
consist solely of operating activities subsequent to the Transactions.

Table 17.1Supplemental cash flow disclosures(US$ million)
    
    2003
    
    2002
    
    2001Income taxes paid
    
    
    -2.7
    
    
    
    -2.3
    
    
    
    -46.4Interest expense paid
    
    
    -31.6
    
    
    
    -16.4
    
    
    
    -22.1


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Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

18. Fair value of financial instruments

The methods and assumptions used by Converium in estimating the fair value of
financial instruments are:


    
    fixed maturities securities: fair values are generally based upon quoted
market prices. Where market prices are not readily available, fair values are
estimated using either values obtained from independent pricing services or
quoted market prices of comparable investments.
    
    equity securities: fair values are based on quoted market prices.
    
    Funds Withheld Asset: carrying value of the Funds Withheld Asset approximates fair value.
    
    other investments for which quoted market prices are not readily available
are not fair valued and are not significant to Converium.
    
    cash and short-term investments: carrying amounts approximate fair value.
    
    debt: fair values are generally based upon quoted market prices.


Table 18.1 lists the estimated fair values and carrying values of Converiums financial instruments as of December 31, 2003 and 2002.

Table 18.1
    
    Total
    
    Total
    
    Total
    
    TotalFair value of financial instruments
    
    fair
    
    carrying
    
    fair
    
    carrying(US$ million)
    
    value
    
    value
    
    value
    
    value2003
    
    2003
    
    2002
    
    2002Fixed maturities
    
    
    4,935.9
    
    
    
    4,928.6
    
    
    
    3,443.1
    
    
    
    3,443.1Equity securities
    
    
    840.2
    
    
    
    840.2
    
    
    
    530.8
    
    
    
    530.8Other investments (excluding real estate)
    
    
    43.3
    
    
    
    43.3
    
    
    
    9.4
    
    
    
    9.4Short-term investments
    
    
    55.8
    
    
    
    55.8
    
    
    
    318.0
    
    
    
    318.0Funds Withheld Asset
    
    
    1,530.6
    
    
    
    1,530.6
    
    
    
    1,648.1
    
    
    
    1,648.1Cash and cash equivalents
    
    
    280.8
    
    
    
    280.8
    
    
    
    361.5
    
    
    
    361.5Debt
    
    
    -428.6
    
    
    
    -390.6
    
    
    
    -375.1
    
    
    
    -390.4


19. Commitments and contingencies

In July 2003, Converium obtained a US$ 900 million unsecured syndicated letter
of credit facility. This three-year syndicated letter of credit facility is
available for Converium AG and its nominated subsidiaries as of July 1, 2003.
The syndicate is comprised of 19 banks, which have committed their respective
capacities.

The facility is guaranteed by Converium AG and will be used primarily to
collateralize third-party claims related to the underwriting business of the
Converium. As of December 31, 2003, Converium had outstanding letters of credit
of US$ 633.1 million under the facility. This includes the replacement of
certain existing letters of credit which were previously provided by certain
syndicate banks on an individual basis, as well as the issuance of new letters
of credit under the syndicated facility.

In addition to the syndicated letter of credit facility, other irrevocable
letters of credit of US$ 390.3 million were outstanding at December 31, 2003,
for which investments of US$ 431.1 million are pledged as collateral related to
certain of these letters of credit. A parental guarantee of US$ 120.0 million
has been issued related to certain of these letters of credit.

Converium has entered into various operating leases as lessee for office space
and certain computer and other equipment. Rental expenses for these items
totaled US$ 15.9 million, US$ 14.8 million and US$ 10.8 million for the years
ending December 31, 2003, 2002 and 2001, respectively.

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Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Table 19.1 lists minimum future payments under operating leases with terms in excess of one year.

Table 19.1
Minimum future payments under operating leases
(US$ million)

Rentalpayments2004
    
    
    12.62005
    
    
    12.42006
    
    
    12.42007
    
    
    12.32008
    
    
    12.32009 and thereafter
    
    
    31.2Total
    
    
    93.2


Converium AG leases office space from Zurich Financial Services. The lease term
is fixed until 2011, with two renewal options for three-year terms each. The
lease payments are fixed with annual rent escalations based on a cost of living
index. Converium Ruckversicherung (Deutschland) AG leases office space from
Zurich Financial Services. The lease term is for a period of ten years, with an
option to renew for up to two additional ten-year terms. Lease payments have
bi-annual rent escalations based on changes in local real estate price indices.

Converium Reinsurance (North America) Inc. entered into a sublease with ZC
Resource LLC (ZC Resource), a subsidiary of Zurich Financial Services in July
2001. The sublease has a term of approximately eleven years, ending in 2012. As
part of the Transactions, Converium Reinsurance (North America) Inc. entered
into an agreement to indemnify Global Asset Holdings Limited (GAHL) (an
indirect parent of ZC Resource and a co-guarantor of the prime lease) for losses
under the prime lease or the guaranty caused by Converium Reinsurance (North
America) Inc.s default under the sublease that results in a default under the
prime lease; GAHL, in turn, will indemnify Converium Reinsurance (North America)
Inc. for any losses under the guaranty caused by a default by ZC Resource under
the prime lease. Centre Insurance Company, a subsidiary of Zurich Financial
Services, will guaranty the punctual payment of all amounts due by GAHL under
the guaranty and all expenses incurred by Converium Reinsurance (North America)
Inc. enforcing the guaranty. See Note 22 for additional information on
guarantees.

Converium Holding AG and its subsidiaries are continuously involved in legal
proceedings, claims and litigation arising, for the most part, in the ordinary
course of its business operations as a reinsurer. The outcome of such current
legal proceedings, claims and litigation could have a material effect on
operating results or cash flows when resolved in a future period. However, in
the opinion of management, these matters are not material to Converiums
financial position, with the exception of the matters described below:

Amerisafe Matters
In September 2003, the parties settled the March 2001 litigation initiated by
American Interstate Insurance Company (Amerisafe) against Converium
Reinsurance (North America) Inc., (CRNA), Guy Carpenter & Company Inc. (Guy
Carpenter) and Zurich Financial Services Group (ZFS) in the United States
District Court for the Western District of Louisiana. ZFS and Guy Carpenter had
previously been dismissed from the suit. Based on the terms of the settlement
agreement and on the basis of the aggregate excess of loss protection
from ZIC (see Note 15), CRNA believes that it is fully protected
through reinsurance agreements for all potential liability in respect of this
action.

Since late fall of 2000, CRNA had received a series of inquires from the
Louisiana Department of Insurance (LDI) investigating CRNAs disputes with
Amerisafe in response to a complaint filed by Amerisafe. As part of the
September 2003 settlement with Amerisafe, Amerisafe has withdrawn the complaint
and the LDI has officially closed the file with respect to the complaint.

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Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Superior National Matters
On January 16, 2002, the California Insurance Commissioner (the Commissioner),
filed a complaint against a subsidiary of ZFS, Centre Insurance Company (CIC)
and affiliates, as well as CRNA and Converium Insurance (North America) Inc.
(CINA), on behalf of the Superior National Insurance Companies in Liquidation
(SNICIL), in a proceeding in the Superior Court of the State of California,
County of Los Angeles. The complaint alleges several counts, including voidable
preferences and fraudulent transfers, seeking the recovery of transfers totaling
US$ 202.9 million, damages for breach of contract in the amount of US$ 59.8
million, additional damages in an amount to be proved at trial, and punitive
damages. The overwhelming bulk of the damages sought appear to arise out of CIC
transactions, not CRNA or CINA transactions. As part of the Transactions, ZFS
has agreed to indemnify Converium for liabilities arising out of or related to
the assets not assumed by or transferred to Converium in the separation from
ZFS. The principal claim brought against CRNA appears to arise from CRNAs
commutation of certain reinsurance obligations. In that connection, however,
while the Complaint does in fact reference the commutation, the payment involved
was a commutation payment made by CRNA, not to CRNA. The liquidator, however, is
apparently claiming that the amount paid by CRNA was inadequate consideration
for the reinsurance obligations commuted and thus, this commutation constituted
a fraudulent transfer. The Commissioners pending complaint in the SNICIL action
does not assign a value to the reinsurance obligations that were commuted,
repeatedly stating that their value is undetermined, however, he has indicated
that he may seek to recover some portion of the difference between the amount
paid by CRNA (US$17.8 million) and the amount purportedly owed under the
commuted reinsurance contracts (informally asserted by certain counsel for the
liquidator to be approximately US$ 41.0 million with no further clarification as
to the basis for this amount). CRNA and CINA intend to defend this litigation
vigorously and to assert various setoffs. Based on the limited information
available to date, we are unable to predict CRNAs and CINAs chances of
prevailing in this action. While Converium believes that it has a strong case,
at this stage of the proceedings it is not possible to make any determination
regarding the potential outcome of the litigation.

No discovery relating to any transaction in which CRNA or CINA was involved is
ongoing and any such discovery is not likely to commence until at least late
2004.

US Life Insurance Co. Arbitration
On November 29, 1999, US Life Insurance Company (US Life) initiated an
arbitration proceeding against SNICIL, CINA and CIC. US Life seeks to rescind a
multi-year quota share reinsurance contract effective May 1, 1998 on the basis
that material misrepresentations and omissions were allegedly made in procuring
that contract. Inception-to-date amounts ceded by Converium to the contract
through December 31, 2003 are US$ 54.0 million premiums earned, US$ 18.1 million
commissions earned and US$ 110.7 million losses incurred. All discovery in this
matter closed in November 2002, and arbitration hearings commenced in late 2002
and continued in 2003. The arbitration has not concluded at this time and the
arbitrators have currently advised that additional dates necessary to conclude
the arbitration will not be available until the second half of 2004. Based on
the limited information available to date, we are unable to predict CINAs
chances of prevailing in this action. While Converium believes that it has a
strong case against US Life for full reinsurance coverage in accordance with the
contract, at this stage of the proceedings it is not possible to make any
determination regarding the potential outcome of the arbitration.

All American Life Insurance Company Arbitration
On December 23, 2002, CRNA and CINA initiated an arbitration against All
American Life Insurance Company (All American). The dispute arises from a
quota share reinsurance contract provided by All American. Because All American
has failed and refused to make payments under the quota share contract, CRNA and
CINA demanded arbitration to collect all outstanding balances due under the
contract. In the arbitration, All American is now seeking to rescind the
contract on the basis of certain alleged misrepresentations and omissions made
by SNICIL, who is also now a party to the arbitration as a reinsured under the
contract. As of this date, the arbitration panel has been constituted and
hearings are scheduled for June 2004. Inception-to-date amounts ceded by
Converium to the contract through December 31, 2003 are US$ 41.1 million
premiums earned, US$ 14.2 million commissions earned and US$ 62.3 million losses
incurred. Based on the limited information available to date, we are unable to
predict CRNAs and CINAs chances of prevailing in this action. While Converium
believes that it has a strong case against All American for full reinsurance
coverage in accordance with the contract, at this stage of the proceedings it
is not possible to make any determination regarding the potential outcome of the
arbitration.

Continental Casualty Company Arbitration
On December 16, 2002, Continental Casualty Company (Continental) and CRNA
served cross demands for arbitration on each other. The dispute arises from a
retrocessional contract pursuant to which Continental reinsured CRNA for 50% of
the accident and health exposures CRNA assumed from a third-party insurer
pursuant to a reinsurance agreement. In October 2002, Continental advised CRNA
that it had identified issues concerning the third-party insurer business that
Continental believes might give rise to defenses under the reinsurance
agreement. CRNA offered to permit Continental to assert those defenses directly
against the third-party insurer and, in addition, advised Continental that, if
Continental did not agree to do so, CRNA would conduct its own investigation
with respect to the putative defenses identified by Continental. However,
Continental instead asserted that CRNA has somehow breached a duty of utmost
good faith to Continental, which justifies rescission of the retrocessional
contract. At arbitration, CRNA would be seeking enforcement of the
retrocessional contract and Continental would be seeking rescission of the same
contract. Inception-to-date amounts ceded to the contract through

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Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

December 31, 2003 are US$ 20.8 million premiums earned, no commissions earned
and US$ 56.4 million losses incurred. The parties have each selected their
party-appointed arbitrators, but at this stage an umpire has not yet been
selected. Based on the limited information available to date, we are unable to
predict CRNAs chances of prevailing in this action. While Converium believes
that it has a strong case against Continental for full reinsurance coverage in
accordance with the contract, at this stage of the proceedings it is not
possible to make any determination regarding the potential outcome of the
arbitration.

Canada Life
On December 21, 2001, The Canada Life Assurance Company, Toronto (Canada
Life), brought action against Converium Ruckversicherung (Deutschland) AG in
the U.S. District Court of the Southern District of New York. Canada Life
alleged that Converium breached certain quota share retrocession agreements with
Canada Life by failing to indemnify its full percentage of Canada Lifes
September 11th losses and by failing to post an US$ 82.4 million letter of
credit for its liability pursuant to the ISA facilities underlying agreements.
Converium is disputing this claim on the grounds that its liability under the
pertinent contracts is limited and is also raising other contracts defenses. In
its decision of April 11, 2002, the U.S. District Court of the Southern District
of New York dismissed Canada Lifes action, ruling that The Air Transportation
Safety and System Stabilization Act, which Canada Life claimed to give the court
jurisdiction over the subject matter, is not applicable. The court ruled that
the Act applies broadly to the actions filed by individual victims of the
September 11th attacks but does not apply to disputes among reinsurers. The
Second Circuit Court of Appeal affirmed the dismissal. As a result of the
decision of the U.S. District Court of the Southern District of New York,
Converium sent Canada Life a request to arbitrate. The organizational meeting of
the arbitrators took place on October 8, 2003. The hearing will be scheduled for
October 2004.

Converium has fully reserved this matter. However, arrangements entered into
with Zurich Financial Services provide for this matter to be covered by the
agreed-to cap for September 11th related losses provided to Converium by Zurich
Financial Services in conjunction with Converiums global offering.

20. Consolidated entities

A list of operating entities and other important holdings, together with the
country of incorporation, Converiums ownership interest and the share capital
of each entity, is set out below.

Country of
    
    % of equity
    
    
    
    
    
    ShareEntity
    
    incorporation
    
    shares held
    
    
    
    
    
    capitalConverium Rückversicherung (Deutschland) AG
    
    Germany
    
    
    100
    
    
    EUR
    
    
    4,601,627Converium Finance S.A.
    
    Luxembourg
    
    
    100
    
    
    EUR
    
    
    31,000Converium Holding AG
    
    Switzerland
    
    
    100
    
    
    CHF
    
    
    400,062,170Converium AG
    
    Switzerland
    
    
    100
    
    
    CHF
    
    
    400,000,000Converium Holdings (North America) Inc.
    
    US
    
    
    100
    
    
    US$
    
    
    1Converium Reinsurance (North America) Inc.
    
    US
    
    
    100
    
    
    US$
    
    
    3,500,000Converium Insurance (North America) Inc.
    
    US
    
    
    100
    
    
    US$
    
    
    5,000,000Converium Holding (UK) Ltd
    
    UK
    
    
    100
    
    
    GBP
    
    
    101Converium Insurance (UK) Ltd
    
    UK
    
    
    100
    
    
    GBP
    
    
    60,000,000Converium London Management Ltd
    
    UK
    
    
    100
    
    
    GBP
    
    
    1,000Converium Underwriting Ltd
    
    UK
    
    
    100
    
    
    GBP
    
    
    2


Converiums interest in
Converium Rückversicherung (Deutschland) AG increased to 100% in January 2003.

On May 27, 2003, the United Kingdom Financial Services Authority (FSA) granted
Converium Insurance (UK) Ltd permission to conduct the business of insurance in
the class of general liability business in the United Kingdom. On August 27,
2003, the FSA further granted the company permission to conduct the business of
insurance in the classes of aircraft and aircraft liability in the United
Kingdom. Following its permission to write general liability business in May
2003, Converium Insurance (UK) Ltd had an initial capitalization level of GBP 50
million (US$ 82.4 million). As a precondition of the permission of the FSA to
write aircraft and aircraft liability business, in August 2003, the company
increased its capital by GBP 10 million (US$ 16.6 million). Accordingly at
December 31, 2003 the capitalization level of Converium Insurance (UK) Ltd is
GBP 60 million (US$ 99.0 million).

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Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

21. Earnings per share

Converium Holding AG purchased 377,650 shares and 349,126 shares during 2003 and
2002, respectively, related to sharebased compensation plans.

The following table shows the average shares outstanding:

For the years ended December 31
    
    2003
    
    2002
    
    2001Average shares outstanding (000s)
    
    
    39,808
    
    
    
    39,911
    
    
    
    40,000Average diluted shares outstanding (000s)
    
    
    40,309
    
    
    
    40,483
    
    
    
    40,000


Earnings per share data for 2001 is calculated based on 40 million registered
shares of Converium Holding AG issued and outstanding as of December 31, 2001
as if these shares were outstanding for the entire year. Diluted earnings per
share data is computed similar to basic earnings per share data except that the
weighted average shares outstanding is increased to include potential common
shares, such as shares from non-vested stock grants and the assumed exercise of
stock options, if dilutive.

22. Subsidiary issuer information

Presented below are the consolidating balance sheets of Converium Holding AG
(the parent guarantor), Converium AG (the subsidiary guarantor) (together
the guarantor companies), and Converium Finance S.A. (the subsidiary
issuer), for whom the Guaranteed Subordinated Notes are guaranteed, as of
December 31, 2003 and 2002 and the related condensed consolidating statements of
income and condensed consolidating statements of cash flows for each of the
three years in the period ended December 31, 2003. The guarantor companies have
jointly and severally guaranteed payments by the subsidiary issuer on these
notes. The subsidiary issuer and subsidiary guarantor are wholly-owned
subsidiaries of the parent guarantor.

Investments in subsidiaries are accounted for by the guarantor companies under
the equity method for purposes of supplemental consolidating presentation as
of the effective date of the acquisition. Earnings of subsidiaries are reflected
in the investment accounts of the guarantor companies as of the effective date
of the acquisition.

Information for the parent guarantor and the subsidiary issuer is only included
from the date of formation.

Condensed consolidating statements of income

Non-(US$ million)
    
    Converium
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingYear ended December 31, 2003
    
    Holding AG
    
    AG
    
    Finance S.A.
    
    Entities
    
    Adjustments
    
    ConsolidatedRevenuesNet premiums written
    
    
    
    
    
    
    2,492.4
    
    
    
    
    
    
    
    1,334.6
    
    
    
    
    
    
    
    3,827.0Net premiums earned
    
    
    
    
    
    
    2,392.8
    
    
    
    
    
    
    
    1,283.7
    
    
    
    
    
    
    
    3,676.5Net investment income
    
    
    11.0
    
    
    
    129.5
    
    
    
    12.5
    
    
    
    103.5
    
    
    
    -23.5
    
    
    
    233.0Net realized capital (losses) gains
    
    
    
    
    
    
    -10.7
    
    
    
    
    
    
    
    29.1
    
    
    
    
    
    
    
    18.4Other income (loss)
    
    
    35.0
    
    
    
    -30.8
    
    
    
    39.5
    
    
    
    -5.7
    
    
    
    -35.3
    
    
    
    2.7Total revenues
    
    
    46.0
    
    
    
    2,480.8
    
    
    
    52.0
    
    
    
    1,410.6
    
    
    
    -58.8
    
    
    
    3,930.6Benefits, losses and expensesLosses and loss adjustment
expenses and life benefits
    
    
    
    
    
    
    -1,588.9
    
    
    
    
    
    
    
    -1,085.3
    
    
    
    
    
    
    
    -2,674.2Underwriting acquisition costs
    
    
    
    
    
    
    -552.1
    
    
    
    
    
    
    
    -251.1
    
    
    
    
    
    
    
    -803.2Other operating and
administration expenses
    
    
    -8.6
    
    
    
    -119.1
    
    
    
    4.1
    
    
    
    -107.4
    
    
    
    33.2
    
    
    
    -197.8Interest expense
    
    
    -10.5
    
    
    
    
    
    
    
    -16.5
    
    
    
    -29.6
    
    
    
    25.6
    
    
    
    -31.0Total benefits, losses and expenses
    
    
    -19.1
    
    
    
    -2,260.1
    
    
    
    -12.4
    
    
    
    -1,473.4
    
    
    
    58.8
    
    
    
    -3,706.2Income (loss) before taxes
    
    
    26.9
    
    
    
    220.7
    
    
    
    39.6
    
    
    
    -62.8
    
    
    
    
    
    
    
    224.4Income tax (expense) benefit
    
    
    -3.5
    
    
    
    -32.6
    
    
    
    
    
    
    
    -3.2
    
    
    
    
    
    
    
    -39.3Income (loss) before equity
in income (loss) of subsidiaries
    
    
    23.4
    
    
    
    188.1
    
    
    
    39.6
    
    
    
    -66.0
    
    
    
    
    
    
    
    185.1Equity in income (loss) of subsidiaries
    
    
    161.7
    
    
    
    -26.4
    
    
    
    
    
    
    
    
    
    
    
    -135.3
    
    
    
    Net income (loss)
    
    
    185.1
    
    
    
    161.7
    
    
    
    39.6
    
    
    
    -66.0
    
    
    
    -135.3
    
    
    
    185.1


F-38



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Consolidating balance sheets

Non-(US$ million)
    
    Converium
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingDecember 31, 2003
    
    Holding AG
    
    AG
    
    Finance S.A.
    
    Entities
    
    Adjustments
    
    ConsolidatedAssetsInvested assetsFixed maturities
    
    
    
    
    
    
    1,929.5
    
    
    
    14.8
    
    
    
    2,984.3
    
    
    
    
    
    
    
    4,928.6Equity securities
    
    
    
    
    
    
    441.8
    
    
    
    
    
    
    
    398.4
    
    
    
    
    
    
    
    840.2Investment in subsidiaries
    
    
    2,006.8
    
    
    
    1,117.4
    
    
    
    
    
    
    
    
    
    
    
    -3,124.2
    
    
    
    Notes receivable
    
    
    150.0
    
    
    
    
    
    
    
    175.0
    
    
    
    
    
    
    
    -325.0
    
    
    
    Short-term and other investments
    
    
    44.7
    
    
    
    187.5
    
    
    
    
    
    
    
    41.8
    
    
    
    -44.7
    
    
    
    229.3Total investments
    
    
    2,201.5
    
    
    
    3,676.2
    
    
    
    189.8
    
    
    
    3,424.5
    
    
    
    -3,493.9
    
    
    
    5,998.1Funds Withheld Asset
    
    
    
    
    
    
    1,530.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,530.6Total invested assets
    
    
    2,201.5
    
    
    
    5,206.8
    
    
    
    189.8
    
    
    
    3,424.5
    
    
    
    -3,493.9
    
    
    
    7,528.7Other assetsCash and cash equivalents
    
    
    1.2
    
    
    
    121.9
    
    
    
    2.1
    
    
    
    155.6
    
    
    
    
    
    
    
    280.8Premiums receivable
    
    
    
    
    
    
    1,477.4
    
    
    
    
    
    
    
    812.8
    
    
    
    -281.9
    
    
    
    2,008.3Reinsurance assets
    
    
    
    
    
    
    790.7
    
    
    
    
    
    
    
    2,221.4
    
    
    
    -1,069.5
    
    
    
    1,942.6Funds held by reinsureds
    
    
    
    
    
    
    1,043.4
    
    
    
    
    
    
    
    587.3
    
    
    
    -256.7
    
    
    
    1,374.0Deferred policy acquisition costs
    
    
    
    
    
    
    293.6
    
    
    
    
    
    
    
    86.5
    
    
    
    
    
    
    
    380.1Deferred income taxes
    
    
    
    
    
    
    32.7
    
    
    
    
    
    
    
    312.4
    
    
    
    
    
    
    
    345.1Other assets
    
    
    42.7
    
    
    
    170.2
    
    
    
    46.1
    
    
    
    233.9
    
    
    
    2.1
    
    
    
    495.0Total assets
    
    
    2,245.4
    
    
    
    9,136.7
    
    
    
    238.0
    
    
    
    7,834.4
    
    
    
    -5,099.9
    
    
    
    14,354.6Liabilities and equityLiabilitiesLosses and loss adjustment
expenses, gross
    
    
    
    
    
    
    4,764.0
    
    
    
    
    
    
    
    3,759.1
    
    
    
    -680.3
    
    
    
    7,842.8Unearned premiums, gross
    
    
    
    
    
    
    827.2
    
    
    
    
    
    
    
    867.8
    
    
    
    -227.6
    
    
    
    1,467.4Future life benefits, gross
    
    
    
    
    
    
    62.4
    
    
    
    
    
    
    
    496.8
    
    
    
    -75.7
    
    
    
    483.5Other reinsurance liabilities
    
    
    
    
    
    
    1,040.4
    
    
    
    
    
    
    
    398.9
    
    
    
    -352.0
    
    
    
    1,087.3Funds held under reinsurance contracts
    
    
    
    
    
    
    247.7
    
    
    
    
    
    
    
    538.9
    
    
    
    -256.8
    
    
    
    529.8Deferred income taxes
    
    
    
    
    
    
    71.4
    
    
    
    
    
    
    
    86.9
    
    
    
    
    
    
    
    158.3Accrued expenses
and other liabilities
    
    
    12.1
    
    
    
    116.8
    
    
    
    0.8
    
    
    
    240.2
    
    
    
    -58.3
    
    
    
    311.6Notes payable
    
    
    150.0
    
    
    
    
    
    
    
    
    
    
    
    175.0
    
    
    
    -325.0
    
    
    
    Debt
    
    
    
    
    
    
    
    
    
    
    193.4
    
    
    
    197.2
    
    
    
    
    
    
    
    390.6Total liabilities
    
    
    162.1
    
    
    
    7,129.9
    
    
    
    194.2
    
    
    
    6,760.8
    
    
    
    -1,975.7
    
    
    
    12,271.3EquityCommon stock and
additional paid-in capital
    
    
    1,569.7
    
    
    
    1,546.1
    
    
    
    
    
    
    
    1,169.3
    
    
    
    -2,715.4
    
    
    
    1,569.7Unearned stock compensation
    
    
    -6.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -6.1Total accumulated other
comprehensive income
    
    
    261.4
    
    
    
    242.7
    
    
    
    4.2
    
    
    
    51.8
    
    
    
    -298.7
    
    
    
    261.4Retained earnings (loss)
    
    
    258.3
    
    
    
    218.0
    
    
    
    39.6
    
    
    
    -147.5
    
    
    
    -110.1
    
    
    
    258.3Total equity
    
    
    2,083.3
    
    
    
    2,006.8
    
    
    
    43.8
    
    
    
    1,073.6
    
    
    
    -3,124.2
    
    
    
    2,083.3Total liabilities and equity
    
    
    2,245.4
    
    
    
    9,136.7
    
    
    
    238.0
    
    
    
    7,834.4
    
    
    
    -5,099.9
    
    
    
    14,354.6


F-39



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Condensed consolidating
statements of cash flows

Non-(US$ million)
    
    Converium
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingYear ended December 31, 2003
    
    Holding AG
    
    AG
    
    Finance S.A.
    
    Entities
    
    Adjustments
    
    ConsolidatedCash provided by (used in)
operating activities
    
    
    3.3
    
    
    
    1,217.9
    
    
    
    -1.1
    
    
    
    45.2
    
    
    
    
    
    
    
    1,265.3Cash flows from investing activitiesPurchases of fixed maturities
held-to-maturity
    
    
    
    
    
    
    -192.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -192.4Proceeds from sales and maturities
of fixed maturities available-for-sale
    
    
    
    
    
    
    904.9
    
    
    
    
    
    
    
    2,908.5
    
    
    
    
    
    
    
    3,813.4Purchases of fixed maturities
available-for-sale
    
    
    
    
    
    
    -1,828.1
    
    
    
    -14.8
    
    
    -
    3,211.1


    
    
    
    
    
    
    -5,054.0Proceeds from sales of equity securities
    
    
    
    
    
    
    47.8
    
    
    
    
    
    
    
    46.5
    
    
    
    
    
    
    
    94.3Purchases of equity securities
    
    
    
    
    
    
    -178.2
    
    
    
    
    
    
    
    -66.0
    
    
    
    
    
    
    
    -244.2Net decrease (increase)
in short-term investments
    
    
    3.6
    
    
    
    256.6
    
    
    
    42.7
    
    
    
    -25.8
    
    
    
    
    
    
    
    277.1Purchase of note receivable
    
    
    
    
    
    
    
    
    
    
    -25.0
    
    
    
    
    
    
    
    25.0
    
    
    
    Investment in subsidiaries
    
    
    29.9
    
    
    
    -106.8
    
    
    
    
    
    
    
    
    
    
    
    76.9
    
    
    
    All other investing activity
    
    
    
    
    
    
    -17.1
    
    
    
    
    
    
    
    -4.9
    
    
    
    
    
    
    
    -22.0Net cash provided by (used in) investing activities
    
    
    33.5
    
    
    
    -1,113.3
    
    
    
    2.9
    
    
    
    -352.8
    
    
    
    101.9
    
    
    
    -1,327.8Cash flows from financing activitiesCapital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106.8
    
    
    
    -106.8
    
    
    
    Issuance of note payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25.0
    
    
    
    -25.0
    
    
    
    Net purchases of common shares
    
    
    -17.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -17.3Dividends to shareholders
    
    
    -29.9
    
    
    
    -29.9
    
    
    
    
    
    
    
    
    
    
    
    29.9
    
    
    
    -29.9Net cash (used in) provided by
financing activities
    
    
    -47.2
    
    
    
    -29.9
    
    
    
    
    
    
    
    131.8
    
    
    
    -101.9
    
    
    
    -47.2Effect of exchange rate changes
on cash and cash equivalents
    
    
    10.8
    
    
    
    18.7
    
    
    
    
    
    
    
    -0.5
    
    
    
    
    
    
    
    29.0Change in cash and cash equivalents
    
    
    0.4
    
    
    
    93.4
    
    
    
    1.8
    
    
    
    -176.3
    
    
    
    
    
    
    
    -80.7Cash and cash equivalents
as of January 1
    
    
    0.8
    
    
    
    28.5
    
    
    
    0.3
    
    
    
    331.9
    
    
    
    
    
    
    
    361.5Cash and cash equivalents
as of December 31
    
    
    1.2
    
    
    
    121.9
    
    
    
    2.1
    
    
    
    155.6
    
    
    
    
    
    
    
    280.8


F-40



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Condensed consolidating
statements of income

Non-(US$ million)
    
    Converium
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingYear ended December 31, 2002
    
    Holding AG
    
    AG
    
    Finance S.A.
    
    Entities
    
    Adjustments
    
    ConsolidatedRevenuesNet premiums written
    
    
    
    
    
    
    1,829.6
    
    
    
    
    
    
    
    1,492.6
    
    
    
    
    
    
    
    3,322.2Net premiums earned
    
    
    
    
    
    
    1,622.4
    
    
    
    
    
    
    
    1,543.1
    
    
    
    
    
    
    
    3,165.5Net investment income
    
    
    12.6
    
    
    
    117.0
    
    
    
    0.1
    
    
    
    135.8
    
    
    
    -13.7
    
    
    
    251.8Net realized capital (losses) gains
    
    
    
    
    
    
    -13.9
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    -10.3Other (loss) income
    
    
    -0.5
    
    
    
    11.9
    
    
    
    
    
    
    
    -2.5
    
    
    
    -10.1
    
    
    
    -1.2Total revenues
    
    
    12.1
    
    
    
    1,737.4
    
    
    
    0.1
    
    
    
    1,680.0
    
    
    
    -23.8
    
    
    
    3,405.8Benefits, losses and expensesLosses and loss adjustment
expenses and life benefits
    
    
    
    
    
    
    -1,178.7
    
    
    
    
    
    
    
    -1,313.3
    
    
    
    
    
    
    
    -2,492.0Underwriting acquisition costs
    
    
    
    
    
    
    -291.0
    
    
    
    
    
    
    
    -375.7
    
    
    
    
    
    
    
    -666.7Other operating and administration expenses
    
    
    20.7
    
    
    
    -98.6
    
    
    
    0.2
    
    
    
    -95.6
    
    
    
    
    
    
    
    -173.3Interest expense
    
    
    -10.7
    
    
    
    -1.2
    
    
    
    -0.3
    
    
    
    -28.0
    
    
    
    23.8
    
    
    
    -16.4Total benefits, losses and expenses
    
    
    10.0
    
    
    
    -1,569.5
    
    
    
    -0.1
    
    
    
    -1,812.6
    
    
    
    23.8
    
    
    
    -3,348.4Income (loss) before taxes
    
    
    22.1
    
    
    
    167.9
    
    
    
    
    
    
    
    -132.6
    
    
    
    
    
    
    
    57.4Income tax (expense) benefit
    
    
    -2.2
    
    
    
    0.5
    
    
    
    
    
    
    
    51.1
    
    
    
    
    
    
    
    49.4Income (loss) before equity
in income (loss) of subsidiaries
    
    
    19.9
    
    
    
    168.4
    
    
    
    
    
    
    
    -81.5
    
    
    
    
    
    
    
    106.8Equity in income (loss) of subsidiaries
    
    
    86.9
    
    
    
    -81.5
    
    
    
    
    
    
    
    
    
    
    
    -5.4
    
    
    
    Net income (loss)
    
    
    106.8
    
    
    
    86.9
    
    
    
    
    
    
    
    -81.5
    
    
    
    -5.4
    
    
    
    106.8


F-41



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Consolidating balance sheets

Non-(US$ million)
    
    Converium
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingDecember 31, 2002
    
    Holding AG
    
    AG
    
    Finance S.A.
    
    Entities
    
    Adjustments
    
    ConsolidatedAssetsInvested assetsFixed maturities
    
    
    
    
    
    
    640.1
    
    
    
    
    
    
    
    2,803.0
    
    
    
    
    
    
    
    3,443.1Equity securities
    
    
    
    
    
    
    228.2
    
    
    
    
    
    
    
    302.6
    
    
    
    
    
    
    
    530.8Investment in subsidiaries
    
    
    1,684.3
    
    
    
    838.4
    
    
    
    
    
    
    
    
    
    
    
    -2,522.7
    
    
    
    Notes receivable
    
    
    150.0
    
    
    
    
    
    
    
    150.0
    
    
    
    
    
    
    
    -300.0
    
    
    
    Short-term and other investments
    
    
    26.8
    
    
    
    435.6
    
    
    
    42.7
    
    
    
    13.4
    
    
    
    -23.2
    
    
    
    495.3Total investments
    
    
    1,861.1
    
    
    
    2,142.3
    
    
    
    192.7
    
    
    
    3,119.0
    
    
    
    -2,845.9
    
    
    
    4,469.2Funds Withheld Asset
    
    
    
    
    
    
    1,648.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,648.1Total invested assets
    
    
    1,861.1
    
    
    
    3,790.4
    
    
    
    192.7
    
    
    
    3,119.0
    
    
    
    -2,845.9
    
    
    
    6,117.3Other assetsCash and cash equivalents
    
    
    0.8
    
    
    
    28.5
    
    
    
    0.3
    
    
    
    331.9
    
    
    
    
    
    
    
    361.5Premiums receivable
    
    
    
    
    
    
    1,276.3
    
    
    
    
    
    
    
    517.8
    
    
    
    -72.8
    
    
    
    1,721.3Reinsurance assets
    
    
    
    
    
    
    942.8
    
    
    
    
    
    
    
    1,507.2
    
    
    
    -582.4
    
    
    
    1,867.6Funds held by reinsureds
    
    
    
    
    
    
    801.0
    
    
    
    
    
    
    
    380.7
    
    
    
    -245.8
    
    
    
    935.9Deferred policy acquisition costs
    
    
    
    
    
    
    174.1
    
    
    
    
    
    
    
    90.8
    
    
    
    
    
    
    
    264.9Deferred income taxes
    
    
    
    
    
    
    37.3
    
    
    
    
    
    
    
    354.5
    
    
    
    
    
    
    
    391.8Other assets
    
    
    29.7
    
    
    
    154.9
    
    
    
    1.1
    
    
    
    217.5
    
    
    
    -12.5
    
    
    
    390.7Total assets
    
    
    1,891.6
    
    
    
    7,205.3
    
    
    
    194.1
    
    
    
    6,519.4
    
    
    
    -3,759.4
    
    
    
    12,051.0Liabilities and equityLiabilitiesLosses and loss adjustment
expenses, gross
    
    
    
    
    
    
    3,724.9
    
    
    
    
    
    
    
    3,553.5
    
    
    
    -457.1
    
    
    
    6,821.3Unearned premiums, gross
    
    
    
    
    
    
    762.4
    
    
    
    
    
    
    
    516.7
    
    
    
    -108.4
    
    
    
    1,170.7Future life benefits, gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    371.7
    
    
    
    
    
    
    
    371.7Other reinsurance liabilities
    
    
    
    
    
    
    588.9
    
    
    
    
    
    
    
    173.7
    
    
    
    -101.0
    
    
    
    661.6Funds held under reinsurance contracts
    
    
    
    
    
    
    345.8
    
    
    
    
    
    
    
    329.6
    
    
    
    -245.9
    
    
    
    429.5Deferred income taxes
    
    
    
    
    
    
    37.8
    
    
    
    
    
    
    
    96.1
    
    
    
    
    
    
    
    133.9Accrued expenses and other liabilities
    
    
    3.6
    
    
    
    61.2
    
    
    
    0.4
    
    
    
    293.0
    
    
    
    -24.3
    
    
    
    333.9Notes payable
    
    
    150.0
    
    
    
    
    
    
    
    
    
    
    
    150.0
    
    
    
    -300.0
    
    
    
    Debt
    
    
    
    
    
    
    
    
    
    
    193.4
    
    
    
    197.0
    
    
    
    
    
    
    
    390.4Total liabilities
    
    
    153.6
    
    
    
    5,521.0
    
    
    
    193.8
    
    
    
    5,681.3
    
    
    
    -1,236.7
    
    
    
    10,313.0EquityCommon stock and
additional paid-in capital
    
    
    1,580.6
    
    
    
    1,546.1
    
    
    
    
    
    
    
    960.9
    
    
    
    -2,507.0
    
    
    
    1,580.6Unearned stock compensation
    
    
    -10.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -10.0Total accumulated other
comprehensive income (loss)
    
    
    60.6
    
    
    
    51.3
    
    
    
    0.3
    
    
    
    -41.3
    
    
    
    -10.3
    
    
    
    60.6Retained earnings (loss)
    
    
    106.8
    
    
    
    86.9
    
    
    
    
    
    
    
    -81.5
    
    
    
    -5.4
    
    
    
    106.8Total equity
    
    
    1,738.0
    
    
    
    1,684.3
    
    
    
    0.3
    
    
    
    838.1
    
    
    
    -2,522.7
    
    
    
    1,738.0Total liabilities and equity
    
    
    1,891.6
    
    
    
    7,205.3
    
    
    
    194.1
    
    
    
    6,519.4
    
    
    
    -3,759.4
    
    
    
    12,051.0


F-42



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Condensed consolidating
statements of cash flows

Non-(US$ million)
    
    Converium
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingYear ended December 31, 2002
    
    Holding AG
    
    AG
    
    Finance S.A.
    
    Entities
    
    Adjustments
    
    ConsolidatedCash provided by operating activities
    
    
    2.0
    
    
    
    635.2
    
    
    
    1.1
    
    
    
    232.1
    
    
    
    
    
    
    
    870.4Cash
flows from investing activitiesProceeds from sales and maturities
of fixed maturities
    
    
    
    
    
    
    476.6
    
    
    
    
    
    
    
    4,096.7
    
    
    
    
    
    
    
    4,573.3Purchases of fixed maturities
    
    
    
    
    
    
    -1,054.1
    
    
    
    
    
    
    
    -4,321.2
    
    
    
    
    
    
    
    -5,375.3Proceeds from sales of equity securities
    
    
    
    
    
    
    144.1
    
    
    
    
    
    
    
    455.1
    
    
    
    
    
    
    
    599.2Purchases of equity securities
    
    
    
    
    
    
    -284.1
    
    
    
    
    
    
    
    -367.0
    
    
    
    
    
    
    
    -651.1Net (increase) decrease
in short-term investments
    
    
    -3.6
    
    
    
    -264.6
    
    
    
    -42.7
    
    
    
    82.4
    
    
    
    
    
    
    
    -228.5Purchase of note receivable
    
    
    
    
    
    
    
    
    
    
    -150.0
    
    
    
    
    
    
    
    150.0
    
    
    
    Investment in subsidiaries
    
    
    
    
    
    
    -104.8
    
    
    
    
    
    
    
    
    
    
    
    104.8
    
    
    
    All other investing activity
    
    
    
    
    
    
    -9.9
    
    
    
    -1.8
    
    
    
    0.8
    
    
    
    
    
    
    
    -10.9Net cash (used in)
provided by investing activities
    
    
    -3.6
    
    
    
    -1,096.8
    
    
    
    -194.5
    
    
    
    -53.2
    
    
    
    254.8
    
    
    
    -1,093.3Cash flows from financing activitiesIssuance of guaranteed
subordinated notes
    
    
    
    
    
    
    
    
    
    
    193.7
    
    
    
    
    
    
    
    
    
    
    
    193.7Issuance of note payable
    
    
    
    
    
    
    150.0
    
    
    
    
    
    
    
    
    
    
    
    -150.0
    
    
    
    Capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.8
    
    
    
    -104.8
    
    
    
    Net purchases of common shares
    
    
    -14.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -14.7Net cash (used in) provided
by financing activities
    
    
    -14.7
    
    
    
    150.0
    
    
    
    193.7
    
    
    
    104.8
    
    
    
    -254.8
    
    
    
    179.0Effect of exchange rate changes
on cash and cash equivalents
    
    
    
    
    
    
    -0.6
    
    
    
    
    
    
    
    -14.5
    
    
    
    
    
    
    
    -15.1Change in cash and cash equivalents
    
    
    -16.3
    
    
    
    -312.2
    
    
    
    0.3
    
    
    
    269.2
    
    
    
    
    
    
    
    -59.0Cash and cash equivalents
as of January 1
    
    
    17.1
    
    
    
    340.7
    
    
    
    
    
    
    
    62.7
    
    
    
    
    
    
    
    420.5Cash and cash equivalents
as of December 31
    
    
    0.8
    
    
    
    28.5
    
    
    
    0.3
    
    
    
    331.9
    
    
    
    
    
    
    
    361.5


F-43



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##### Table of Contents



Converium Holding AG and Subsidiaries
Notes to the consolidated and historical combined financial statements (continued)

Condensed consolidating statements of income

Non-(US$ million)
    
    
    
    
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingYear ended December 31, 2001
    
    
    
    
    

Holding
AG
    

AG
    
    Entities
    
    Adjustments
    
    ConsolidatedRevenuesNet premiums written
    
    
    
    
    
    
    
    
    
    
    1,269.9
    
    
    
    1,212.7
    
    
    
    
    
    
    
    2,482.6Net premiums earned
    
    
    
    
    
    
    
    
    
    
    1,118.2
    
    
    
    1,177.0
    
    
    
    
    
    
    
    2,295.2Net investment income
    
    
    
    
    
    
    1.5
    
    
    
    88.5
    
    
    
    139.0
    
    
    
    -0.3
    
    
    
    228.7Net realized capital gains (losses)
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    -20.9
    
    
    
    
    
    
    
    -18.4Other income (loss)
    
    
    
    
    
    
    
    
    
    
    3.9
    
    
    
    -9.0
    
    
    
    -0.7
    
    
    
    -5.8Total revenues
    
    
    
    
    
    
    1.5
    
    
    
    1,213.1
    
    
    
    1,286.1
    
    
    
    -1.0
    
    
    
    2,499.7Benefits, losses and expensesLosses, loss adjustment expenses
and life benefits
    
    
    
    
    
    
    
    
    
    
    -997.9
    
    
    
    -1,303.1
    
    
    
    0.5
    
    
    
    -2,300.5Underwriting acquisition costs
    
    
    
    
    
    
    
    
    
    
    -221.3
    
    
    
    -286.8
    
    
    
    
    
    
    
    -508.1Other operating and
administration expenses
    
    
    
    
    
    
    -1.2
    
    
    
    -54.8
    
    
    
    -90.9
    
    
    
    0.5
    
    
    
    -146.4Interest expense, amortization of
goodwill and restructuring costs
    
    
    
    
    
    
    -1.2
    
    
    
    -40.6
    
    
    
    -40.2
    
    
    
    
    
    
    
    -82.0Total benefits, losses and expenses
    
    
    
    
    
    
    -2.4
    
    
    
    -1,314.6
    
    
    
    -1,721.0
    
    
    
    1.0
    
    
    
    -3,037.0Loss before taxes
    
    
    
    
    
    
    -0.9
    
    
    
    -101.5
    
    
    
    -434.9
    
    
    
    
    
    
    
    -537.3Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3.5
    
    
    
    166.4
    
    
    
    
    
    
    
    169.9Net loss
    
    
    
    
    
    
    -0.9
    
    
    
    -98.0
    
    
    
    -268.5
    
    
    
    
    
    
    
    -367.4


Condensed consolidating statements of cash flows

Non-(US$ million)
    
    Converium
    
    Converium
    
    Guarantor
    
    ConsolidatingYear ended December 31, 2001
    

Holding AG
    

AG
    
    Entities
    
    Adjustments
    
    ConsolidatedCash provided by (used in) operating activities
    
    
    5.9
    
    
    
    421.3
    
    
    
    -120.5
    
    
    
    4.8
    
    
    
    311.5Cash
flows from investing activitiesProceeds from sales and maturities of fixed maturities
    
    
    
    
    
    
    100.0
    
    
    
    1,792.2
    
    
    
    
    
    
    
    1,892.2Purchases of fixed maturities
    
    
    
    
    
    
    -123.6
    
    
    
    -1,846.1
    
    
    
    
    
    
    
    -1,969.7Proceeds from sales of equity securities
    
    
    
    
    
    
    38.1
    
    
    
    250.5
    
    
    
    
    
    
    
    288.6Purchases of equity securities
    
    
    
    
    
    
    -152.9
    
    
    
    -272.8
    
    
    
    
    
    
    
    -425.7Net decrease
in short-term investments
    
    
    
    
    
    
    13.5
    
    
    
    12.1
    
    
    
    
    
    
    
    25.6Net change in Funds Withheld Asset
    
    
    
    
    
    
    -290.6
    
    
    
    
    
    
    
    
    
    
    
    -290.6Purchase of real estate held for investment
    
    
    
    
    
    
    -139.4
    
    
    
    
    
    
    
    
    
    
    
    -139.4Purchase of note receivable
    
    
    -150.0
    
    
    
    -150.0
    
    
    
    
    
    
    
    300.0
    
    
    
    Investment in subsidiaries
    
    
    -822.9
    
    
    
    
    
    
    
    
    
    
    
    822.9
    
    
    
    All other investing activity
    
    
    
    
    
    
    -13.7
    
    
    
    5.4
    
    
    
    
    
    
    
    -8.3Net cash (used in) provided by investing activities
    
    
    -972.9
    
    
    
    -718.6
    
    
    
    -58.7
    
    
    
    1,122.9
    
    
    
    -627.3Cash
flows from financing activitiesIssuance of note payable
    
    
    150.0
    
    
    
    
    
    
    
    150.0
    
    
    
    -300.0
    
    
    
    Capital contribution
    
    
    
    
    
    
    822.9
    
    
    
    
    
    
    
    -822.9
    
    
    
    Net transfers from Zurich Financial Services
    
    
    834.1
    
    
    
    9.5
    
    
    
    17.6
    
    
    
    
    
    
    
    861.2Payable to Zurich Financial Services
    
    
    
    
    
    
    -233.4
    
    
    
    
    
    
    
    
    
    
    
    -233.4Net cash provided by (used in) financing activities
    
    
    984.1
    
    
    
    599.0
    
    
    
    167.6
    
    
    
    -1,122.9
    
    
    
    627.8Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    -42.0
    
    
    
    33.4
    
    
    
    -4.8
    
    
    
    -13.4Change in cash and cash equivalents
    
    
    17.1
    
    
    
    259.7
    
    
    
    21.8
    
    
    
    
    
    
    
    298.6Cash and cash equivalents as of January 1
    
    
    
    
    
    
    81.0
    
    
    
    40.9
    
    
    
    
    
    
    
    121.9Cash and cash equivalents as of December 31
    
    
    17.1
    
    
    
    340.7
    
    
    
    62.7
    
    
    
    
    
    
    
    420.5


F-44



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##### Table of Contents



CONVERIUM HOLDING AG
REPORT OF THE GROUP AUDITORS ON
THE FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Shareholders ofConverium Holding AG, Zug Our audits of the consolidated and historical combined financial
statements referred to in our report dated February 13, 2004, also included an
audit of the financial statement schedules listed in Part III Item [18(b)] of
this Form 20-F. In our opinion, these financial statement schedules present
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated and historical combined financial
statements of Converium Group. PricewaterhouseCoopers Ltd. Andrew Hill            Martin Frei Zurich, February 13, 2004 S-1




---



##### Table of Contents



Schedule I Amount at whichSummary of investments other than investments
    
    Cost or
    
    
    
    
    
    shown in thein related parties as of December 31, 2003
    
    amortized cost
    
    Fair value
    
    balance sheet($ millions)Fixed maturities:Bonds held-to-maturity:U.S. government
    
    
    463.8
    
    
    
    471.8
    
    
    
    463.8Other government
    
    
    36.6
    
    
    
    35.9
    
    
    
    36.6Total fixed maturities held-to-maturity
    
    
    500.4
    
    
    
    507.7
    
    
    
    500.4Bonds available-for-sale:U.S. government
    
    
    1,728.0
    
    
    
    1,733.6
    
    
    
    1,733.6Other government
    
    
    1,163.4
    
    
    
    1,164.6
    
    
    
    1,164.6Public utilities
    
    
    21.9
    
    
    
    22.7
    
    
    
    22.7Other corporate debt securities
    
    
    465.3
    
    
    
    470.8
    
    
    
    470.8Unit trust
    
    
    184.4
    
    
    
    187.4
    
    
    
    187.4Mortgage and asset-backed securities
    
    
    839.4
    
    
    
    849.1
    
    
    
    849.1Total fixed maturities available for sale
    
    
    4,402.4
    
    
    
    4,428.2
    
    
    
    4,428.2Total fixed maturities
    
    
    4,902.8
    
    
    
    4,935.9
    
    
    
    4,928.6Equity securities:Common stocks:Public utilities
    
    
    12.7
    
    
    
    14.3
    
    
    
    14.3Banks, trusts, and insurance companies
    
    
    67.8
    
    
    
    80.9
    
    
    
    80.9Industrial, miscellaneous and all other
    
    
    318.6
    
    
    
    363.6
    
    
    
    363.6Unit trust
    
    
    340.0
    
    
    
    374.7
    
    
    
    374.7Non-redeemable preferred stocks
    
    
    6.6
    
    
    
    6.7
    
    
    
    6.7Total equity securities
    
    
    745.7
    
    
    
    840.2
    
    
    
    840.2Real estate
    
    
    130.2
    
    
    
    130.2
    
    
    
    130.2Policyholder, collateral and other loans
    
    
    22.7
    
    
    
    22.7
    
    
    
    22.7Other investments
    
    
    20.6
    
    
    
    20.6
    
    
    
    20.6Short-term investments
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8Total investments
    
    
    5,883.6
    
    
    
    6,005.4
    
    
    
    5,998.1Funds Withheld Asset
    
    
    1,530.6
    
    
    
    1,530.6
    
    
    
    1,530.6Total invested assets
    
    
    7,414.2
    
    
    
    7,536.0
    
    
    
    7,528.7
 S-2




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##### Table of Contents



Schedule II Converium Holding AGStatements of income June 19, 2001 (dateof incorporation) to($ millions)
    
    2003
    
    2002
    
    December 31, 2001RevenuesNet investment income
    
    
    11.0
    
    
    
    12.6
    
    
    
    1.5Other income (loss)
    
    
    35.0
    
    
    
    -0.5
    
    
    
    Total revenues
    
    
    46.0
    
    
    
    12.1
    
    
    
    1.5ExpensesOther operating and administration expenses
    
    
    -8.6
    
    
    
    20.7
    
    
    
    -1.2Interest expense
    
    
    -10.5
    
    
    
    -10.7
    
    
    
    -1.2Total expenses
    
    
    -19.1
    
    
    
    10.0
    
    
    
    -2.4Income (loss) before taxes
    
    
    26.9
    
    
    
    22.1
    
    
    
    -0.9Income tax (expense) benefit
    
    
    -3.5
    
    
    
    -2.2
    
    
    
    Income (loss) before equity in income (loss) of subsidiaries
    
    
    23.4
    
    
    
    19.9
    
    
    
    -0.9Equity in income (loss) of subsidiaries
    
    
    161.7
    
    
    
    86.9
    
    
    
    Net income (loss)
    
    
    185.1
    
    
    
    106.8
    
    
    
    -0.9
 See notes to consolidated financial statements. S-3




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##### Table of Contents



Converium Holding AGBalance sheets December 31,($ millions)
    
    2003
    
    2002AssetsInvested assetsInvestment in subsidiaries
    
    
    2,006.8
    
    
    
    1,684.3Notes receivable
    
    
    150.0
    
    
    
    150.0Short-term and other investments
    
    
    44.7
    
    
    
    26.8Total invested assets
    
    
    2,201.5
    
    
    
    1,861.1Other assetsCash and cash equivalents
    
    
    1.2
    
    
    
    0.8Other assets
    
    
    42.7
    
    
    
    29.7Total assets
    
    
    2,245.4
    
    
    
    1,891.6Liabilities and equityLiabilitiesAccrued expenses and other liabilities
    
    
    12.1
    
    
    
    3.6Notes payable
    
    
    150.0
    
    
    
    150.0Total liabilities
    
    
    162.1
    
    
    
    153.6EquityCommon stock
    
    
    253.0
    
    
    
    253.0Additional paid-in capital
    
    
    1,326.7
    
    
    
    1,330.9Treasury stock
    
    
    -10.0
    
    
    
    -3.3Unearned stock compensation
    
    
    -6.1
    
    
    
    -10.0Total accumulated other comprehensive income
    
    
    261.4
    
    
    
    60.6Retained earnings
    
    
    258.3
    
    
    
    106.8Total equity
    
    
    2,083.3
    
    
    
    1,738.0Total liabilities and equity
    
    
    2,245.4
    
    
    
    1,891.6
 See notes to consolidated financial statements. S-4




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##### Table of Contents



Schedule II Converium Holding AGStatements of cash flows June 19, 2001 (dateof incorporation) to($ millions)
    
    2003
    
    2002
    
    December 31, 2001Cash flows from operating activitiesNet income (loss) before equity in income (loss) of subsidiaries
    
    
    23.4
    
    
    
    19.9
    
    
    
    -0.9Changes in other assets and liabilities
    
    
    -20.1
    
    
    
    -17.9
    
    
    
    6.8Cash provided by operating activities
    
    
    3.3
    
    
    
    2.0
    
    
    
    5.9Cash flows from investing activitiesIssuance of note receivable
    
    
    
    
    
    
    
    
    
    
    -150.0Investment in Converium AG
    
    
    29.9
    
    
    
    
    
    
    
    -822.9Net decrease (increase) in short-term investments
    
    
    3.6
    
    
    
    -3.6
    
    
    
    Net cash provided by (used in) investing activities
    
    
    33.5
    
    
    
    -3.6
    
    
    
    -972.9Cash flows from financing activitiesNet transfer from Zurich Financial Services
    
    
    
    
    
    
    
    
    
    
    834.1Issuance of note payable
    
    
    
    
    
    
    
    
    
    
    150.0Net purchases of common shares
    
    
    -17.3
    
    
    
    -14.7
    
    
    
    Dividends to shareholders
    
    
    -29.9
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    -47.2
    
    
    
    -14.7
    
    
    
    984.1Effect of exchange rate changes on cash and cash equivalents
    
    
    10.8
    
    
    
    
    
    
    
    Change in cash and cash equivalents
    
    
    0.4
    
    
    
    -16.3
    
    
    
    17.1Cash and cash equivalents, beginning of period
    
    
    0.8
    
    
    
    17.1
    
    
    
    Cash and cash equivalents, end of period
    
    
    1.2
    
    
    
    0.8
    
    
    
    17.1
 See notes to consolidated financial statements. S-5




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Schedule IV Gross
    
    Ceded to other
    
    Assumed from other
    
    
    
    
    
    % of amountReinsurance
    
    Amount
    
    Companies
    
    Companies
    
    Net Amount
    
    assumed to netInsurance premiums
and other
considerations:2003
    
    $
    245.6
    
    
    
    ($396.9
    )
    
    $
    3,978.3
    
    
    $
    3,827.0
    
    
    
    104.0
    %2002
    
    
    88.0
    
    
    
    (213.6
    )
    
    
    3,447.8
    
    
    
    3,322.2
    
    
    
    103.8
    %2001
    
    
    124.9
    
    
    
    (398.6
    )
    
    
    2,756.3
    
    
    
    2,482.6
    
    
    
    111.0
    %
 S-6




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##### Table of Contents



GLOSSARY OF SELECTED INSURANCE AND REINSURANCE TERMS Annuity
    
    A contract that pays a periodic income
benefit for the life of a person (the
annuitant) or for a specified number of
years, or a combination of the two, in
return for a single premium payment.
Immediate annuities provide income from the
date the policy is taken out and deferred
annuities provide income at a future
specified date.Cede; ceding insurer; cession
    
    When an insurer reinsures its risk with
another insurer (a cession), it cedes
business and is referred to as the ceding
insurer.Co-insurance
    
    Also referred to as original terms
reinsurance, and refers to reinsurance
contracts in which the reinsurer receives a
portion of the premiums paid to the ceding
company on the policies. Reinsurance
premiums under a co-insurance contract will
normally have the same premium arrangement
as the original insurance policies, which
may extend over several years.Combined ratio
    
    The sum of the loss ratio and the expense
ratio for a non-life insurance company or a
reinsurance company. A combined ratio below
100 generally indicates profitable
underwriting. A combined ratio over 100
generally indicates unprofitable
underwriting. An insurance company with a
combined ratio over 100 may be profitable to
the extent net investment results exceed
underwriting losses. Expense ratio. The
ratio of non-life insurance or reinsurance
operating expenses (i.e., acquisition costs
and profit participation net of reinsurance
commissions) to net premiums earned plus
administration expenses to net premiums
written.Facultative reinsurance
    
    The reinsurance of part or all of the
insurance provided by a single policy
negotiated on a contract-by-contract basis.Finite risk
    
    Insurance and reinsurance policies under
which the aggregate risk to the insurer or
reinsurer is capped at a finite limit.
Typically, such policies have maturities of
several years and provide for sharing
profits arising from the policy with the
client at the policy maturity. The policy
limit-to-premium ratio is frequently
significantly lower than under traditional
insurance and reinsurance policies.Gross premiums written
    
    Total premiums (whether or not earned) for
insurance contracts written or assumed
(including deposits for contracts with an
insignificant amount of mortality or
morbidity risk) during a specific period,
without deduction for premiums ceded.Incurred but not yet reported
(IBNR) reserves
    
    Reserves for estimated losses and LAE which have been incurred but not
yet reported to the insurer or reinsurer, including future development of
claims which have Incurred but not yet reported been reported to the
insurer or reinsurer but where the established reserves may ultimately
prove to be inadequate.Lapse
    
    Termination of a policy because of surrender, failure to pay a premium
or lack of sufficient cash value to maintain in-force status.Loss
    
    An insured event that is the basis for submission or payment of a benefit
under an insurance policy. Losses may be covered, limited or excluded from
coverage, depending on the terms of the policy.
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##### Table of Contents



Loss adjustment expenses (LAE)
    
    The expenses of investigating and settling
claims, including certain legal
and other fees, and the expenses of
administering the claims adjustment process.Loss ratio
    
    The ratio of a non-life insurance or reinsurance companys net
incurred losses and LAE to net premiums earned.Loss reserves
    
    Reserves established by an insurer or reinsurer and reflected on its balance
sheet to reflect the estimated cost of payments for claims for which the
insurer or reinsurer ultimately will be required to indemnify insureds or
reinsureds in the future in respect of losses occurring on or prior to the
balance sheet date on insurance or reinsurance it has written and that has been
earned. Loss reserves are composed of individual case reserves for reported
claims and IBNR reserves.Modified co-insurance
    
    A form of reinsurance which differs from co-insurance only in that reserves are
retained by the ceding company while the risk remains with the reinsurer. The
ceding company normally pays interest to replace the interest the reinsurer
would have earned if it had held the assets corresponding to the reserves in
its own investment portfolio. We principally use the term to refer to a
proportional reinsurance product offered by our Converium Life operations to
clients to finance their initial acquisition costs such as agent and broker
commissions.National Association of Insurance Commissioners
    
    An association of reinsurance regulatory officials of all 50 states and the
District of Columbia organized to promote consistency of regulatory practice
and statutory accounting standards throughout the United States.Net premiums written
    
    Gross premiums less premiums ceded for reinsurance.Non-proportional reinsurance
    
    Reinsurance under which the reinsurers participation in a claim depends on the
size of the claim. Also known as excess reinsurance.Participating contracts
    
    Insurance in which the policyholder is entitled to participate in the earnings
or surplus of the insurance enterprise. The participation occurs through the
distribution of dividends to policyholders.Premiums earned
    
    That portion of gross premiums written in current and past periods applying to
the expired portion of the policy period.Proportional reinsurance
    
    Arrangement whereby the insurer cedes to the reinsurer
an agreed fixed percentage of premiums and claims and other liabilities
for each policy covered on a pro rata basis.Reinsurance
    
    The practice whereby one insurer, called the reinsurer, in
consideration for premiums received, agrees to indemnify the ceding
insurer for all or a portion of the risk under a policy or policies of
insurance issued by the ceding insurer. The legal rights of the insured
generally are not affected by the reinsurance transaction, and the
insurance enterprise issuing the insurance contract remains liable to the
insured for payment of policy benefits.Reserves
    
    Liabilities established by insurers and reinsurers to reflect the
estimated cost of claims payments, benefits payments and the related
expenses that the insurer or reinsurer will ultimately be required to pay
in accordance with the insurance or reinsurance it has written.
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##### Table of Contents



Retention
    
    The amount or portion of risk which a ceding insurer retains for its
own account. Losses and loss expenses paid by the ceding insurer in excess
of the retention level are then reimbursed to the insurer by the
reinsurer. In proportional insurance, the retention may be a percentage of
the original policys limit. In non-proportional insurance, the retention
is an amount of loss, a loss ratio or a percentage.Retrocessional Reinsurance
    
    An arrangement under which a reinsurer cedes to
another reinsurer (the retrocessionaire) all or a portion of the
insurance risks reinsured by the first reinsurer. Retrocessional
reinsurance generally does not legally discharge the ceding reinsurer from
its liability to the original ceding company.Separate account
    
    Investment account established and maintained by an insurer to
which funds have been allocated for certain insurance policies or
contracts of the insurer. The income, gains and losses realized from
assets allocated to the account are, in accordance with the insurance
policies or contracts, credited to or charged against the account without
regard to other income, gains or losses of the company or the companys
other separate accounts. Separate accounts cannot generally be charged
with the liabilities of the general account. Products meeting this
definition are often referred to as investment linked or unit linked
products. The policyholders bear all of the investment risk for these
products.Survival Ratio
    
    An industry measure of the number of years it would take a
company to exhaust its A&E reserves for losses and loss expenses based on
that companys current level of A&E claims payments. The ratio is derived
by dividing the current ending losses and loss expense reserves by the
average annual payments for the prior three years. The ratio is computed
based on the ending reserves for losses and loss expenses over the
respective claims settlements during the fiscal year.Surrender
    
    Many life insurance products permit the insured to withdraw a portion
of the cash surrender value of the contract. Future benefits are reduced
accordingly.Tail
    
    The period of time that elapses between the incurrence and settlement of
losses under a policy. A short-tail insurance product is one where
ultimate losses are known and settled comparatively quickly; ultimate
losses under a long-tail insurance product are sometimes not known and
settled for many years.Term life insurance
    
    Life insurance protection for a limited period which
expires without maturity value if the insured survives the period
specified in the policy.Treaty reinsurance
    
    A type of reinsurance whereby the ceding company
automatically cedes and the reinsurer automatically assumes a
predetermined portion or category of specified risks underwritten by the
ceding company.Underwriting
    
    The process whereby an insurer or reinsurer reviews applications
submitted for insurance or reinsurance coverage and determines whether it
will provide all or part of the coverage being requested for an agreed
premium.Underwriting results
    
    The pre-tax profit or loss experienced by a non-life
insurance company or reinsurance company after deducting incurred losses
and loss expenses and operating expenses from premiums earned. This profit
and loss calculation includes reinsurance assumed and ceded but excludes
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##### Table of Contents



investment income.Unit linked
    
    See Separate account.Unit trust
    
    Unit trusts can be invested in stocks, shares, government
securities and other investment instruments. The fund is divided into
units, which fluctuate in value, depending on the value of the overall
fund. The unit trust is an open ended fund which means it has a variable
number of units in issue at any one time. Units are bought from and sold
to the fund manager.Universal life insurance
    
    A life insurance product under which premiums are
generally flexible, the level of death benefits may be adjusted and
expenses and other charges are specifically disclosed to the policyholder
and deducted from their account balance.Whole life insurance
    
    A permanent life insurance product offering guaranteed
death benefits and guaranteed cash values.
 G-4




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##### Table of Contents



SIGNATURES The registrant
hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on
its behalf. CONVERIUM HOLDING AGBy /s/ Dirk LohmannName:
    Dirk LohmannTitle:
    Chief Executive Officer, Converium Holding AG By /s/ Martin A. KauerName:
    Martin A. KauerTitle:
    Chief Financial Officer, Converium Holding AG  Sig - 1




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Description1.1
    
    Articles of Incorporation of Converium Holding AG, adopted November 8, 2001.*1.2
    
    Bylaws of Converium Holding AG, adopted November 16, 2001.*1.3
    
    Articles of Incorporation of
Converium Holding AG, revised February 5, 2003. ^2.1
    
    Form of Deposit Agreement among Converium Holding AG, The Bank of New
York, as Depositary, and all owners and beneficial owners from time to
time of ADSs issued thereunder (including the form of ADS), incorporated
by reference from the Registration Statement on Form F-6 of Converium
Holding AG (File No. 333-14108), initially 2filed with the Commission on
November 19, 2001.*2.2
    
    Indenture, dated as of October 20, 1993 between Zurich Reinsurance Centre
Holdings, Inc. and The Bank of New York, as Trustee, relating to
$200,000,000 principal amount of 7 1/8% Senior Notes due 2023 (and assumed
by Converium Holdings (North America) Inc. pursuant to the Supplement
Indenture included as Exhibit 2.3 hereto).* (Previously filed as Exhibit
3.1)2.3
    
    First Supplemental Indenture among Zurich Reinsurance Centre Holdings,
Inc., as Issuer, Converium Holdings (North America) Inc., as Guarantor,
and The Bank of New York, as Trustee, dated as of November 20, 2001.*
(Previously filed as Exhibit 3.2)2.4
    
    Form of Indenture between Converium Finance, S.A., as Issuer, Converium
AG and Converium Holding AG as Guarantors and JPMorgan Chase Bank as
Trustee, Calculation Agent and Paying Agent.+2.5
    
    Form of the $200,000,000 principal amount of 8.25% Guaranteed
Subordinated Notes Due 2032 (included in Exhibit 2.4 hereto).+2.6
    
    Subordinated Guarantee by Converium Holding AG and Converium AG relating
to $200,000,000 principal amount of 8.25% Guaranteed Subordinated Notes
Due 2032. ^2.7
    
    Indenture, dated December 23, 2002 between Converium Finance S.A.,
Converium Holding AG, Converium AG and JP Morgan Chase Bank, as trustee,
relating to $200,000,000 principal amount of 8.25% Guaranteed Subordinated
Notes Due 2032. ^4.1
    
    Master Agreement by and among Zurich Financial Services and Converium
Holding AG, dated December 1, 2001.*4.2
    
    Stock Purchase Agreement between Zurich Reinsurance Centre Stock Purchase
Agreement between Zurich Reinsurance Centre Holdings, Inc. and Converium
Holdings (North America) Inc., dated as of October 1, 2001.*4.3
    
    Agreement for the Sale and Transfer of Shares in Zürich Rückversicherung
(Köln) Aktiengesellschaft, dated September 28, 2001.*4.4
    
    Quota Share Retrocession Agreement between Zurich Insurance Company
(including its Singapore, Labuan and Bermuda branches) and Converium AG,
dated October 1, 2001.*4.5
    
    Quota Share Retrocession Agreement between Zurich International (Bermuda)
Ltd. and Converium AG, dated October 1, (and effective as of July 1,
2001).*4.6
    
    Asset purchase and Assumption of Liability Agreement between Zurich
Insurance Company and Converium AG, dated September 28, 2001.*4.7
    
    Indemnity Agreement (Unicover) between Zurich Reinsurance (North
America), Inc. and Zurich Insurance Company, dated as of October 1, 2001.*




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##### Table of Contents



ExhibitNumber
    
    Description4.8
    
    Indemnity Agreement (September 11th Cessions) between Zurich Reinsurance
(North America), Inc. and Zurich Insurance Company, dated as of October 1,
2001.*4.9
    
    Indemnity Agreement (September 11th Losses) between Zürich
Rückversicherung (Köln) Aktiengesellschaft and Zurich Insurance Company,
dated as of October 1, 2001.*4.10
    
    Partial Commutation Agreement between Zurich Reinsurance (North America),
Inc. and Zurich Insurance Company, dated as of October 1, 2001.*4.11
    
    Master Novation and Indemnity Reinsurance Agreement among Zurich
Reinsurance (North America), Inc., Centre Insurance Company, Centre
Solutions (U.S.) Limited and Zurich Insurance Company, Bermuda Branch,
dated as of October 1, 2001.*4.12
    
    Group Reinsurance Business Master Novation and Indemnity Reinsurance
Agreement by and among Zurich Reinsurance (North America), Inc., Zurich
Insurance Company and Zurich International (Bermuda) Ltd., dated as of
October 1, 2001.*4.13
    
    Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1991 through December 31, 1993) between
Zurich Reinsurance (North America), Inc. and Centre Reinsurance Limited,
dated as of October 1, 2001.*4.14
    
    Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1994 through December 31, 1994) between
Zurich Reinsurance (North America), Inc. and Centre Reinsurance
International Company, dated as of October 1, 2001.*4.15
    
    Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1995) between Zurich Reinsurance (North
America), Inc. and Centre Reinsurance Limited, dated as of October 1,
2001.*4.16
    
    Commutation Agreement (covering the Obligatory Surplus Share Reinsurance
Agreement effective October 1, 1995) between Zurich Reinsurance (North
America), Inc. and Centre Reinsurance Limited, dated as of October 1,
2001.*4.17
    
    Commutation Agreement (covering the Obligatory Surplus Share Reinsurance
Agreement effective November 6, 1992) between Zurich Reinsurance (North
America), Inc. and Centre Reinsurance International Company, dated as of
October 1, 2001.*4.18
    
    Agreement Amending and Terminating Centre Reinsurance Dublin Affiliated
Group Tax Allocation Agreement among Orange Stone Delaware Holdings
Limited, Orange Stone Reinsurance, Centre Reinsurance Holdings (Delaware)
Limited, Centre Reinsurance (U.S.) Limited, Zurich Reinsurance Centre
Holdings, Inc., Zurich Reinsurance (North America), Inc., ZC Insurance
Company, ZC Specialty Insurance Company, Centre Risk Advisors, Inc.,
Constellation Reinsurance Company, Centre Re Services, Inc., Zurich Global
Assets LLC, formerly known as BDA/US Services Limited, ZC Management
Corporation, ZC Resource LLC, ZC Property Management, Inc. and Claims
Solutions Group, dated October 1, 2001.*4.19
    
    Catastrophe Cover Retrocession Agreement by and between Converium AG and
Zurich Insurance Company, dated December 1, 2001.*4.20
    
    Stock Purchase Agreement between Zurich Reinsurance (North America), Inc.
and Centre Strategic Investments Holdings Limited, dated August 23, 2001.*4.21
    
    Run-off Services and Management Agreement between Zurich Insurance
Company and Converium AG, dated December 3, 2001.*4.22
    
    Tax Sharing and Indemnification Agreement among Zurich Reinsurance Centre
Holdings, Inc., Orange Stone Delaware Holdings Limited, Converium Holdings
(North America) Inc., Zurich Reinsurance (North America), Inc. and Zurich
Insurance Company, dated as of October 1, 2001. *4.23
    
    Tax Sharing and Indemnification Agreement between Zurich Financial
Services, Zurich Insurance Company, Converium Holding AG and Converium AG
dated December 3, 2001. *




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##### Table of Contents



ExhibitNumber
    
    Description4.24
    
    
    Form of Converium Standard Stock Option Plan for Non-U.S. Employees. *4.25
    
    
    Form of Converium Standard Stock Purchase Plan for Non-U.S. Employees. *4.26
    
    
    Omnibus Share Plan for U.S. Employees. *4.27
    
    
    Converium Employee Stock Purchase Plan for U.S. Subsidiaries.*4.28
    
    
    Form of Converium Annual Incentive Deferral Plan.*4.29
    
    
    Lease, between Zurich Insurance Company and Converium AG, dated August 29, 2001.*4.30
    
    
    Sublease Support Agreement among Zurich Reinsurance (North America),
Inc., Global Asset Holdings Limited and Centre Insurance Company, dated as
of October 1, 2001.*4.31
    
    
    Sublease between ZC Resource LLC and Zurich Reinsurance (North America),
Inc., dated as of June 20, 2001.*4.32
    
    
    Form of Letter Agreement between Converium Holding AG and The Bank of New
York, relating to the pre-release of the ADRs, incorporated by reference
from the Registration Statement on Form F-6 of Converium Holding AG (File
No. 333-14108), initially filed with the Commission on November 19, 2001.*4.33
    
    
    Agreement dated September 2, 2002, between Converium AG and MDU
Investments Ltd, regarding subscription of up to 20 million shares at £1
each. ^4.34
    
    
    Share Purchase Agreement dated November 27, 2002, between Converium AG
and Northern States Agency Inc., Munich Re, Aviva and Royal and Sun
Alliance regarding Global Aerospace Underwriting Managers Limited (GAUM).
^4.35
    
    
    Shareholders Agreement dated March 12, 2003, between Converium AG and
Northern States Agency Inc., Munich Re, Aviva and Royal and Sun Alliance
regarding Global Aerospace Underwriting Managers Limited (GAUM). ^4.36
    
    
    Sale and Purchase Agreement and Assignment between Converium AG and
Converium Finance S.A. regarding the transfer of a $150 million loan
granted to Converium Holding AG. ^4.37
    
    
    Amendment to Share Purchase Agreement dated November 27, 2002 between
Converium AG and Northern States Agency Inc., Munich Re, Aviva and Royal
Sun Alliance regarding Global Aerospace Underwriting Managers Limited
(GAUM). ^4.38
    
    
    Agreement dated December 30, 2003, for the sale and purchase of 5.1% of
Royal and Sun Alliance Insurance PLCs shareholding in Global Aerospace
Underwriting Managers Limited (GAUM).4.39
    
    
    Agreement dated July 24, 2003 $900,000,000 Credit Facility for Converium
AG, Zurich arranged by ABN Amro Bank N.V., Barclays Capital and
Commerzbank Aktiengesellschaft.7.1
    
    
    Computation of ratio of earnings to fixed charges.8.1
    
    
    Subsidiaries of the Registrant.12.1
    
    
    Consent of PricewaterhouseCoopers Ltd, independent accountants.31.1
    
    
    302 Certification of Chief Executive Officer.31.2
    
    
    302 Certification of Chief Financial Officer.32.1
    
    
    906 Certification of Chief Executive Officer.32.2
    
    
    906 Certification of Chief Financial Officer.




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##### Table of Contents



*
    
    Incorporated by reference to the Companys Registration Statement filed on
Form F-1, on December 10, 2001.+
    
    Incorporated by reference to the Companys Registration Statement filed on
Form F-1, on December 18, 2002.^
    
    Incorporated by reference to the Companys Annual Report on Form 20-F for the
year ended December 31, 2002, filed on April 18, 2003.