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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20-Fo
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934ORþ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2004.ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934Commission file number: 333-14106CONVERIUM 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 8CH-6300 ZugSwitzerland(Address of principal executive offices)Securities registered or to be registered pursuant to Section 12(b) of the Act.
 Name of each ExchangeTitle of each class
    
    on which registeredAmerican Depositary Shares (as evidenced by American Depositary Receipts), each
representing one-half (1/2) of one registered share, nominal value CHF 5 per share
    
    New York Stock ExchangeRegistered shares, nominal value CHF 5 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




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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 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 þ No o
    Item 17 o Item 18 þ
   1




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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 PURCHASERSPART IIIITEM 17. FINANCIAL STATEMENTSITEM 18. FINANCIAL STATEMENTSITEM 19. EXHIBITSSIGNATURESINDEX TO EXHIBITSEX-1.3EX-1.4EX-4.40EX-4.41EX-4.42EX-4.43EX-4.44EX-4.45EX-7.1EX-8.1EX-12.1EX-12.2EX-13.1EX-13.2EX-14.1    Table of Contents  TABLE OF CONTENTS (Please Note: Table of Contents not converted due to Hot Links in HTML.) 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 US dollars, and unless we note otherwise, all amounts in
this annual report are expressed in US dollars. As used herein, references to US dollars,
dollars or $ and cents are to US 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:  
    
    the impact of our ratings downgrades or a further lowering or loss of one of our financial strength ratings;
    
    uncertainties of assumptions used in our reserving process;
    
    risks associated with implementing our business strategies and our capital improvement measures and the run-off of our
North American business;
    
    cyclicality of the reinsurance industry;
    
    the occurrence of natural and man-made catastrophic events with a frequency or severity exceeding our estimates;
    
    acts of terrorism and acts of war; 2




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
    
    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;
    
    a loss of our key employees or executive officers without suitable replacements being recruited within a suitable period
of time;
    
    our ability to address material weaknesses we have identified in our internal control environment;
    
    political risks in the countries in which we operate or in which we reinsure risks;
    
    the passage of additional legislation or the promulgation of new regulation in a jurisdiction in which we or our clients
operate or where our subsidiaries are organized;
    
    the effect on the insurance industry as a result of the
investigations being carried out by the US Securities and Exchange
Commission (SEC) and New Yorks
Attorney General;
    
    changes in our investment results due to the changed composition of our invested assets or changes in our investment
policy;
    
    failure of our retrocessional reinsurers to honor their obligations or changes in the credit worthiness our of reinsurers;
    
    our failure to prevail in any current or future arbitration or litigation; and
    
    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. We have made it a policy not to provide any quarterly or annual earnings guidance and we will not
update any past outlook for full year earnings. We will, however, provide investors with a
perspective on our value drivers, our strategic initiatives and those factors critical to
understanding our 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 AND OTHER DATA We have prepared our financial statements included in this annual report in accordance with
accounting principles generally accepted in the United States, or US GAAP. The following financial
data highlights selected information that is derived from our financial statements as of and for
the years ended December 31, 2004, 2003, 2002, 2001 and 2000. 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 3




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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. Year ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000($ millions, except per share information)Income statement data:Revenues:Gross premiums written
    
    $
    3,840.9
    
    
    $
    4,223.9
    
    
    $
    3,535.8
    
    
    $
    2,881.2
    
    
    $
    2,565.8Less ceded premiums written
    
    
    (287.9
    )
    
    
    (396.9
    )
    
    
    (213.6
    )
    
    
    (398.6
    )
    
    
    (569.8
    )Net premiums written
    
    
    3,553.0
    
    
    
    3,827.0
    
    
    
    3,322.2
    
    
    
    2,482.6
    
    
    
    1,996.0Net change in unearned premiums
    
    
    132.1
    
    
    
    (150.5
    )
    
    
    (156.7
    )
    
    
    (187.4
    )
    
    
    (134.5
    )Net premiums earned
    
    
    3,685.1
    
    
    
    3,676.5
    
    
    
    3,165.5
    
    
    
    2,295.2
    
    
    
    1,861.5Net investment income
    
    
    311.6
    
    
    
    233.0
    
    
    
    251.8
    
    
    
    228.7
    
    
    
    176.0Net realized capital gains (losses)
    
    
    46.5
    
    
    
    18.4
    
    
    
    (10.3
    )
    
    
    (18.4
    )
    
    
    83.7Other (loss) income
    
    
    -2.6
    
    
    
    2.7
    
    
    
    (1.2
    )
    
    
    (5.8
    )
    
    
    29.3Total revenues
    
    
    4,040.6
    
    
    
    3,930.6
    
    
    
    3,405.8
    
    
    
    2,499.7
    
    
    
    2,150.5Benefits, losses and expenses:Losses, loss adjustment expenses and life benefits
    
    
    (3,263.1
    )
    
    
    (2,674.2
    )
    
    
    (2,492.0
    )
    
    
    (2,300.5
    )
    
    
    (1,604.5
    )Total costs and expenses
    
    
    (1,093.5
    )
    
    
    (1,032.0
    )
    
    
    (856.4
    )
    
    
    (678.7
    )
    
    
    (587.5
    )Amortization of goodwill (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.8
    )
    
    
    (7.3
    )Impairment of goodwill (1)
    
    
    (94.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    (9.9
    )
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring costs
    
    
    (2.7
    )
    
    
    
    
    
    
    
    
    
    
    (50.0
    )
    
    
    Total benefits, losses and expenses
    
    
    (4,463.2
    )
    
    
    (3,706.2
    )
    
    
    (3,348.4
    )
    
    
    (3,037.0
    )
    
    
    (2,199.3
    )(Loss) income before taxes
    
    
    (422.6
    )
    
    
    224.4
    
    
    
    57.4
    
    
    
    (537.3
    )
    
    
    (48.8
    )Income tax (expense) benefit
    
    
    (338.2
    )
    
    
    (39.3
    )
    
    
    49.4
    
    
    
    169.9
    
    
    
    19.5Net (loss) income
    
    $
    (760.8
    )
    
    $
    185.1
    
    
    $
    106.8
    
    
    $
    (367.4
    )
    
    $
    (29.3
    )(Loss) earnings per share:Average number of shares (millions)
    
    
    63.4
    
    
    
    39.8
    
    
    
    39.9
    
    
    
    40.0
    
    
    
    40.0Basic (loss) earnings per share (2)
    
    $
    (12.00
    )
    
    $
    2.33
    
    
    $
    1.34
    
    
    $
    (4.61
    )
    
    $
    (0.73
    )Diluted (loss) earnings per share (2)
    
    
    (12.00
    )
    
    
    2.32
    
    
    
    1.33
    
    
    
    (4.61
    )
    
    
    (0.73
    )
 Year ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000($ millions, except per share information)Balance sheet data:Total invested assets
    
    $
    7,804.4
    
    
    $
    7,528.7
    
    
    $
    6,117.3
    
    
    $
    4,915.9
    
    
    $
    4,349.7Total assets
    
    
    14,942.6
    
    
    
    14,354.6
    
    
    
    12,051.0
    
    
    
    9,706.5
    
    
    
    8,321.3Insurance liabilities
    
    
    12,389.6
    
    
    
    11,410.8
    
    
    
    9,454.8
    
    
    
    7,677.9
    
    
    
    6,486.6Debt
    
    
    390.9
    
    
    
    390.6
    
    
    
    390.4
    
    
    
    197.0
    
    
    
    196.9Total liabilities
    
    
    13,222.4
    
    
    
    12,271.3
    
    
    
    10,313.0
    
    
    
    8,135.7
    
    
    
    7,232.9Total equity
    
    
    1,720.2
    
    
    
    2,083.3
    
    
    
    1,738.0
    
    
    
    1,570.8
    
    
    
    1,088.4Book value per share (3)
    
    
    11.76
    
    
    
    52.38
    
    
    
    43.55
    
    
    
    39.27
    
    
    
    27.21
 Year ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000($ millions, except ratios)Other data:Net premiums written by segment:Standard Property & Casualty Reinsurance
    
    $
    1,455.0
    
    
    $
    1,645.6
    
    
    $
    1,452.2
    
    
    $
    1,280.0
    
    
    $
    993.4Specialty Lines
    
    
    1,658.1
    
    
    
    1,811.9
    
    
    
    1,555.3
    
    
    
    968.4
    
    
    
    818.2Life & Health Reinsurance
    
    
    439.9
    
    
    
    369.5
    
    
    
    314.7
    
    
    
    234.2
    
    
    
    184.4Total net premiums written
    
    $
    3,553.0
    
    
    $
    3,827.0
    
    
    $
    3,322.2
    
    
    $
    2,482.6
    
    
    $
    1,996.0Non-life combined ratio
    
    
    118.2
    %(4)
    
    
    97.9
    %
    
    
    103.7
    %
    
    
    129.3
    %(5)
    
    
    116.5
    %Ratio of earnings to fixed charges (6)
    
    
    (7
    )
    
    
    7.2
    
    
    
    3.7
    
    
    
    (8
    )
    
    
    (9
    )
 4




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(1)
    
    For a discussion of goodwill and Converiums compliance with SFAS 142, see Notes 2(k) and
8 to our 2004 consolidated financial statements.(2)
    
    For the periods 2001 through 2003, the earnings per share have been restated to reflect the
rights offering (the 2004 rights offering) that occurred in October 2004 (see Note 24 to our
2004 consolidated financial statements). For the year 2000, the information is based on the
40,000,000 registered shares sold in the global offering in December 2001, as no other
information is available for this time period. These 40,000,000 shares are considered
outstanding for all periods prior to December 11, 2001.(3)
    
    For the year 2000, the information is based on the 40,000,000 registered shares sold in the
global offering in December 2001, as no other information is available for this time period.
These 40,000,000 shares are considered outstanding for all periods prior to December 11, 2001.(4)
    
    The impact on the non-life combined ratio of the 2004 reserve development was 17.3%(5)
    
    The impact on the non-life combined ratio of the September 11th terrorist attacks was 13.3%.(6)
    
    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.(7)
    
    Due to Converiums loss in 2004 the ratio coverage was less than 1:1. Converium would have
needed to generate additional earnings of $422.6 million to achieve coverage of 1:1.(8)
    
    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.(9)
    
    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 Risks relating to Converium and the reinsurance industry If we do not successfully implement our new strategy or if such strategy is not effective, it could
have a material adverse effect on our business, financial condition, results of operations and cash
flows Early in 2004 Converium adopted a comprehensive corporate strategy intended to build on its
accomplishments since the Company was formed in 2001. Later in the year the Global Executive
Committee adjusted the business model in response to adverse developments with respect to our
reserves, which led to the decision to cease underwriting in North America, and to the subsequent
downgrading by Standard & Poors and A.M. Best Company of Converium AGs insurer financial strength
ratings to BBB+ and B++, respectively, and the downgrading of certain of our subsidiaries. See
Item 4. Business Overview  Overview and  Our Strategy There can be no assurance, however, that we will be able to successfully implement our new strategy
or that such strategy will be effective. The implementation and the effectiveness of this strategy
are based on a certain number of assumptions (including continued client acceptance outside the
United States) and factors that are not under our control. If economic conditions, our competitive
position, our rating level or our financial condition are not consistent with these assumptions or
our objectives, or if the measures envisaged by the new strategy are insufficient, it is possible
that our strategy would fail and 5




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that we would not achieve our objectives. In this case, our business and financial condition could
deteriorate and new measures would need to be devised. The run-off of our North American business subjects us to particular risks We have ceased the writing of substa;ntially all new business in North America and have decided to
take the following additional steps with respect to our North American business:  
    
    Converium Reinsurance (North America) Inc. (CRNA) has been placed into run-off and will
seek to commute its liabilities wherever appropriate. In addition, CRNA has hired an
experienced run-off professional as its new President and CEO and has restructured its
senior level staffing to function as an entity in run-off;
    
    Converium Insurance (North America) Inc. (CINA) is now a limited writer, offering
continuing coverage for only two discrete primary programs, one of which is mandated by
state law. The plan is for CINA to maintain this status until such time as it becomes a
more widely accepted carrier for its clients;
    
    Converium has implemented a fronting arrangement to enable it to continue to participate
in the Global Aerospace Underwriting Managers Limited (GAUM) pool. The fronting arrangement currently extends until September 30, 2005 with
no contractual guarantee that it will extend beyond that date; and
    
    We will offer reinsurance for US-originated business to select US based clients. This
business will be underwritten and managed through Converium AG, Zurich. By placing CRNA into run-off, it became subject to increased regulatory scrutiny and our plans are
subject to the approval of state insurance regulators in the United States. Although we cannot
predict the effect of any future regulatory orders or proceedings, state insurance regulatory
agencies in the United States have broad power to institute proceedings and seek consensual orders
to, among other things, take possession of the property of an insurer and to conduct the business
of such insurer under rehabilitation and liquidation statutes. On September 7, 2004, we entered
into a voluntary letter of understanding with the Connecticut Department of Insurance (the
Department) pursuant to which CRNA is prevented from taking a number of actions, including the
payment of any dividends, without the approval of the Department. The requirements stated in this
letter will remain in effect until March 15, 2006, at which time the Department will reassess the
financial condition of CRNA. Other insurance regulators may seek similar agreements or initiate
other proceedings or actions. See Note 22 to our 2004 consolidated financial statements. The ratings downgrades as well as our decision to place CRNA into runoff have triggered special
funding clauses in CRNAs and CINAs reinsurance and insurance contracts. These clauses require
CRNA and CINA to provide collateral for their payment obligations under those contracts. In
addition, state insurance regulators may request that CRNA and CINA make special deposits in their
states or provide collateral for contracts issued to residents of their states. The approval of
the Department is required before we provide collateral that is not contractually required. If the
Department withholds its approval, state insurance regulators that requested special deposits or
collateral not contractually required, could seek to revoke CRNAs or CINAs licenses or initiate
proceedings to take possession of the property, business and affairs of CRNA or CINA in the
respective states. Additionally, there can be no assurances that commutations may be available on terms that are
appropriate to our decision to run-off our North American business or that are economically
acceptable. The run-off of our North American business could ultimately have a negative impact on the
perception of our franchise in the reinsurance market. As a result, we may not be able to retain
personnel with the appropriate skill sets for the tasks associated with our run-off. There also can be no assurance that we will be able to successfully write the lines that we
currently contemplate from our operation in Zurich using Converium AG. Although we believe that
Converium AG holds the necessary licenses to write these lines of business as a non-admitted
reinsurer, Converium AG may require increased capitalization to successfully do so and we may in
the future be unable to provide the necessary capitalization. Our ratings downgrades during 2004, and any further downgrades, of our ratings could have a
material adverse effect on our business, financial condition, result of operations or cash flows 6




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Based on the developments of the latter part of 2004, both Standard & Poors Ratings Services and
A.M. Best lowered their respective ratings of Converium, including its subsidiaries. Following
Converium Holding AGs successful 2004 rights offering, some of the ratings were subsequently
raised, although not to the levels preceding the reserving action. Currently, Standard & Poors long-term counterparty credit and insurer financial strength rating of
Converium AG is BBB+ (downgraded from a rating of A). For Converium Rückversicherung
(Deutschland) AG and Converium Insurance (UK) Ltd., the insurer financial strength rating is
currently BBB+ (downgraded from a rating of A). Based on our announcement to place CRNA into
run-off, the long-term counterparty credit and insurer financial strength ratings were downgraded
to R (downgraded from a rating of A). In addition, Standard & Poors issued a long-term
counterparty credit and senior unsecured debt ratings of BB+ for Converium Holdings (North
America) Inc. (downgraded from a rating of BBB). The current junior subordinated debt rating on
Converium Finance S.A. is BBB- (downgraded from a rating of BBB+). All ratings have been
assigned a stable outlook by Standard and Poors. Currently, A.M. Bests financial strength rating of Converium AG, Converium Rückversicherung
(Deutschland) AG and Converium Insurance (UK) Ltd. is B++ (downgraded from a rating of A) and
its issuer credit rating for all three entities is bbb+ (downgraded from a rating of a). CINA
is currently assigned a financial strength rating of B (downgraded from a rating of A) and an
issuer credit rating of bb (downgraded from a rating of a ). For Converium Finance S.A. the
current issuer credit rating is bb+ (downgraded from a rating of bbb) and the junior
subordinated debt rating is bbb- (downgraded from a rating of bbb+). All ratings have been
assigned a stable outlook by A.M. Best. Following our announcement of our intention to place CRNA
into run-off, the financial strength rating was downgraded to B- from A and the issuer credit
rating to bb- from a. For Converium Holdings (North America) Inc. the issuer credit as well as
the senior unsecured debt ratings were lowered to b- from bbb-. Claims-paying ability and financial strength ratings are a key factor in establishing the
competitive position of reinsurers. Given that our main competitors hold higher ratings than us,
our current ratings may significantly hinder our competitive position. Our ratings may not satisfy
the criteria required by some of our clients and brokers or the requirements under our existing
reinsurance contracts, which would negatively impact new business and adversely affect our ability
to compete in our markets. The reduction in our ratings might result in a significant decline in
our premium volume in 2005. Additionally, contracts representing approximately one-third of our total ultimate premiums with
our cedents contain termination provisions relating to a downgrade of our ratings. As a result of
recent downgrades, the termination provisions of many of our contracts have been triggered giving
rise to a right of termination in favor of the cedent that allows the cedent to terminate the
contract on a prospective basis from the date of termination. Alternatively, the cedent and the
reinsurer may renegotiate the terms of the contract. In renegotiating the contract terms, the
cedent will usually require the reinsurer to post collateral to secure the obligations under the
contract, which would have negative financial implications for us, as reinsurer. Moreover,
limitations on our ability to post collateral could force us to renegotiate the contracts on
significantly less favorable terms than if we were able to post collateral or lead to the
termination of the contracts by cedents. Our recent ratings downgrades may make cedents less
inclined to renegotiate the contracts at all, and has led to an increased rate of terminations. The ratings downgrades in 2004 have also made it more difficult to renew our existing contracts,
without regards to whether or not the existing contract contains a ratings trigger. We expect
approximately one third of our existing Non-Life contracts not to be renewed in 2005 which is
partially attributable to the ratings downgrade in 2004. This will, in turn, lead to a
corresponding reduction our premiums written. The pool members agreement with respect to GAUM
provides that if a member of the pool has its financial strength rating downgraded below BBB+ by
Standard & Poors Rating Service it may be served with a notice terminating its membership in the
pool upon approval by the committee of representatives of the pool. Converium believes that no
formal action was taken by the pool membership committee to serve a notice terminating Converiums
pool membership. However, the committee has discussed Converiums downgrade and sought to take
action to limit its rights to dispute the validity of any notice served on Converium. The
continuation of Converiums membership at its current rating was likely to be conditional upon its
entering fronting arrangements acceptable to other pool members in a timely fashion and thereafter
maintaining such arrangements. Converium entered into formal written fronting arrangements,
preventing the termination of its membership in the pool. The fronting arrangements require
Converium to post collateral to secure its reinsurance obligations under the fronting arrangements.
If Converiums membership were to be reduced to less than a 5% share, it would not be permitted to
participate in future pool business and would have to collateralize by way of a letter of credit
its obligations under the business written by the pool in its name prior to its termination. If
Converiums membership were terminated, it also may be required to sell its shares in GAUM at an
amount less than its carrying value. In 2004, this business generated $289.0 million of gross
premiums written. See Notes 3, 8 and 18 to our 2004 consolidated financial statements for
additional information on GAUM. 7




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There can be no assurance that our responses to the adverse developments of 2004 will enable us to
improve or maintain our ratings. 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. As of December 31, 2004 we had $8,776.9 million of gross reserves and $7,641.5 million of net
reserves for losses and loss adjustment expenses. If we underestimated these net reserves by 5%,
this would have resulted in an additional $382.1 million of incurred losses and loss adjustment
expenses, before income taxes, for the year ended December 31, 2004. 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, 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, or extraordinary events affecting our clients such as reorganizations and liquidations
or changes in general economic conditions. We continue to conduct pricing, loss reserving, claims
and underwriting studies for many casualty lines of business, including those in which preliminary
loss trends are noted. Converium has experienced significant adverse development, predominantly in
its US casualty reinsurance lines, for the last several years. Since 2000, Converium has recorded a
total of $868.2 million of additional net provisions on prior years non-life business (2000: $65.4
million: 2001: $123.6 million; 2002: $148.5 million; 2003: $(31.3) million; and 2004: $562.0
million). During early 2004, Converium announced that reported losses from prior year US casualty business
had exceeded expected loss emergence and that the volatility of longer-tail risks was likely to
persist for some time. This adverse loss-reporting trend continued and accelerated into mid-2004
and prompted Converium to initiate additional reviews of its US business from an integrated
underwriting, claims and actuarial perspective in order to examine the adequacy of prior years
provisions. In addition, in order to obtain an external review of our overall reserve position, we
commissioned the actuarial consulting firm Tillinghast-Towers Perrin to perform an independent
actuarial review of our non-life loss and allocated loss adjustment expense reserves as of June 30,
2004 in respect of the Zurich and New York originated businesses. The outcome of these in-depth
internal and external reviews resulted in an aggregate strengthening of prior years non-life loss
reserves by $562.0 million for the year ended December 31, 2004. This action was taken in response
to the continued adverse loss emergence due to increased claims reporting activity from clients
relating to US Casualty business written from 1997 to 2001 as well as deterioration from European
non-proportional motor business written in recent years. While we believe that we have sought to
fully address this issue through our reserving actions, volatility is nonetheless expected to
persist for some time. 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 may be unable to meet the collateral requirements necessary for our business As a result of the 2004 downgrades of our ratings, we have been and may continue to be required to
post additional collateral in order to be accepted as sufficiently secure to write certain
business. In addition, there has been a trend in our industry for a ceding company to require
reinsurers to post collateral in excess of applicable regulatory collateral requirements in order
to secure the reinsurers obligation to pay claims. We may have greater limitation on our ability
to post collateral than some of our competitors. If we are unable to meet the collateral
requirements of ceding companies, we would be limited in our business opportunities, which could
have a material adverse effect on our financial condition, results of operations or cash flows. In November 2004, Converium AG obtained a $1.6 billion, three-year syndicated letter of credit
facility (the Syndicated Letter of Credit Facility) from various banks. The facility provides
Converiums non-US operating companies with a $1.5 billion capacity for issuing letters of credit
and a $100.0 million liquidity reserve. It replaces the existing $900.0 million letter of credit
facility that was signed in July 2003. As of December 31, 2004, Converium had outstanding letters
of credit of 8




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$955.7 million under the facility. Investments of $1,060.8 million are pledged as collateral
related to the Syndicated Letter of Credit Facility. However, Converium must comply with various
financial covenants in order to avoid default under the agreement. In an event of default the
majority lenders may cancel the total commitment and/or may declare that all amounts outstanding
may be immediately due and payable and that full cash cover in respect of each letter of credit is
immediately due and payable. In addition to the Syndicated Letter of Credit Facility, other irrevocable letters of credit of
$639.1 million were outstanding at December 31, 2004 to secure certain assumed reinsurance
contracts. Investments of $704.7 million are pledged as collateral related to certain of these
letters of credit. See Item 3.  Key information  D. Risk factors  Ratings changes for information on collateral
requirements related to GAUM and Notes 3, 8 and 18 to our 2004 consolidated financial statements.
See Item 3.  Key information  D. Risk factors  Run-off of our North American business for
information on collateral requirements related to our North American operations. We are subject to the cyclicality of the reinsurance industry 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 and price setting mechanisms of clients;
    
    frequency of occurrence or severity of both natural and man-made catastrophic events;
    
    levels of capacity and demand;
    
    general economic conditions; and
    
    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 cyclicality, which could have a material adverse effect on our business, financial
condition, results of operations or cash flows. As a result of ongoing investigations of the insurance and reinsurance industry and
non-traditional insurance products, we are conducting an internal review and analysis of certain of
our reinsurance transactions. Ongoing investigations of the insurance and reinsurance industry and non-traditional insurance and
reinsurance products are being conducted by U.S. regulators and governmental authorities, including
the Securities and Exchange Commission and the New York Attorney General. On March 8, 2005, MBIA Inc. (MBIA) issued a press release stating that MBIAs audit committee
undertook an investigation to determine whether there was an oral agreement with MBIA under which
MBIA would replace Axa Re Finance as a reinsurer to CRNA by no later than October 2005. The press
release stated that it appears likely that such an agreement or understanding with Axa Re Finance
was made in 1998. Thereafter, on April 19, 2005, CRNA received subpoenas from the U.S. Securities
and Exchange Commission and the Office of the New York Attorney General seeking documents related
to certain transactions between CRNA and MBIA. In view of the industry investigations and the events relating to MBIA described above, we have
engaged counsel to assist us in a review and analysis of certain of our reinsurance transactions,
including the MBIA transactions. We are fully cooperating with the governmental authorities in
connection with their investigation. The impact of our ongoing review and analysis and the ongoing
regulatory investigations on us is uncertain, and there can be no assurance as to whether or not
the outcome of such investigations will have a material impact on
Converium. Our exposure to catastrophic events, both natural and man-made, may cause large losses A catastrophic event or multiple catastrophic events may cause large losses and could have a
material adverse effect on our business, financial condition, and 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 unusually strong and widespread windstorms and flooding
in Europe. These events adversely affected our results. In 2004, the reinsurance industry suffered
losses from hurricanes in the United States and the Caribbean, the Japanese typhoons and the
tsunami in the Indian Ocean. We are also exposed to man-made catastrophic events, which 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, results of
operations or cash flows. 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, and the frequency and severity of the
events. In addition, depending on the nature of the loss, the speed with which claims are made and
settled, 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 by raising funds at unfavorable costs, both
of which could adversely affect the results of our operations. 9




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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 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 US hurricane, California earthquake, European windstorm and Japanese
earthquake events. Our estimated potential losses, on a probable maximum loss basis, before giving
effect to our retrocessional protection, for 2004, were managed to a self- imposed maximum gross
event limit of $500 million for a 250-year return period loss. See Item 9.  The Offer and
Listing  D. Material Contracts. Terrorist attacks, national security threats, military initiatives and political unrest could
result in the payment of material insurance claims and may have a negative effect on our business Threats of terrorist attacks, national security threats, military initiatives and political unrest
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. We cannot predict the
long-term effects of terrorist attacks, threats to national security, military initiatives and
political unrest on our businesses at this time. 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 a material adverse effect on our business, financial
condition or results of operations. For a discussion of the impact of the September 11th terrorist
attacks on our business, see Note 9 to our 2004 consolidated financial statements. If we are unable to achieve our investment objectives, our investment results 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. For the years ended December 31, 2004 and 2003, net investment
income and net realized capital gains accounted for 8.9% and 6.4% of our revenues, respectively.
Our capital levels, ability to pay 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. 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. In addition, as described under Formation transactions and relationship with Zurich Financial
Services, 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. Capital market fluctuations may adversely impact the value of our investments We had a cash and investments portfolio of $8.5 billion as of December 31, 2004. As with any
institutional investor with a similarly sized portfolio, Converium is exposed to the financial
markets; in particular, an increase in interest rates, and a resulting decline in the market value
of our fixed income securities, would adversely impact our shareholders equity. 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 political conditions and other factors beyond our control. We have historically invested and may continue to 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 10




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conditions and many other factors beyond our control can adversely affect the equity markets and,
consequently, the value of the equity securities we own. Foreign exchange rate fluctuations may impact our financial condition, results of operation and
cash flows We publish our financial statements in US dollars. Therefore, fluctuations in exchange rates used
to translate other currencies, particularly European currencies including the Euro, British pound
and Swiss franc, into US 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 US dollar value of our investments and the return on our investments. For 2004, approximately:  
    
    57% of our net premiums written
    
    43% of our net investment income
    
    42% of our losses, loss adjustment expenses and life benefits, and
    
    67% of our operating expenses were denominated in currencies other than the US 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. As we will no longer be writing business from the United States, a smaller proportion of our
business will be denominated in US dollars in the future. 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 face competitive disadvantages in the reinsurance industry The reinsurance industry is highly competitive. 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 ability to compete is based on many factors, including our overall financial strength and
rating, 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. As a result of the recent ratings downgrades we
expect to be in a less competitive position than we have been historically. We compete for
reinsurance business in international reinsurance markets with numerous reinsurance and insurance
companies, some of which have greater financial or other resources and most of which have 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 majority-owned by the mutual insurance group HDI
Haftpflichtverband der Deutschen Industrie;
    
    Lloyds syndicates active in the London market;
    
    companies active in the Bermuda market, including the PartnerRe Group, XL Capital Ltd.
and RenaissanceRe Holdings Ltd.;
    
    Everest Reinsurance Company;
    
    Transatlantic Reinsurance Company; and
    
    SCOR. 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 also able to offer services similar to our 11




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own. We have also recently seen the creation of alternative products from capital market
participants that are intended to compete with reinsurance products. 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. The loss of key employees and executive officers without suitable replacements being recruited
within a suitable period of time 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 key employees. Our senior 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. Certain of our key
employees and executive officers have recently resigned. If additional executive officers or key
employees 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. In addition, a strong financial
position is important to us in order to retain and attract skilled personnel in the industry,
especially underwriters with specific expertise in high-margin, non-commoditized specialty lines of
business. If our current or future financial position does not allow us to do so, our operations
could be adversely affected. See Item 6.  Directors, Senior Management and Employees  A.
Directors and Senior Management. In addition, one of the two material weaknesses identified within Converiums internal control
environment was the need to train or recruit suitably qualified individuals to fill the knowledge
and experience gaps that have been identified within the financial accounting and reporting
function. Although we are actively undertaking a recruitment search to identify and hire additional
qualified staff and providing further training to existing staff to fill the knowledge and
experience gaps within financial accounting and reporting, there can be no assurance that we will
be able to do so. If we are unable to successfully recruit and train such staff we will be unable
to remedy the material weakness. We have identified two material weaknesses in our internal control environments; investor
confidence and our share value may be adversely impacted if we are unable to remedy the material
weaknesses. As a foreign private issuer we are not currently subject to Section 404 of the Sarbanes-Oxley Act.
However, in connection with our year-end audit and our Sarbanes-Oxley implementation project two
material weaknesses were identified within Converiums internal control environment as at
December 31, 2004. For purposes of Section 404 of the Sarbanes-Oxley Act, a material weakness is
a significant deficiency, or combination of significant deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or interim financial statements will
not be prevented or detected. Two material weaknesses were identified within Converiums financial accounting and reporting
function. The first weakness identified was the need to train or recruit suitably qualified
individuals to fill the knowledge and experience gaps caused by the departure of various key
finance employees. The second weakness identified was the failure in the operation of key internal
controls over the initiation of reinsurance and financial accounting data. Converium is in the process of addressing these weaknesses by actively undertaking a recruitment
search to identify and hire additional suitably qualified staff and by providing further training
to existing staff in order to address the current knowledge and experience gaps within the
financial accounting and reporting function. In addition, Converium is actively addressing the key
internal control weaknesses identified over the initiation of reinsurance and financial accounting
data by committing both internal and third-party consulting resources to address this issue and to
further enhance our overall control environment. However, if our remedial measures are not
successful in addressing these material weaknesses, our ability to report our future financial
results on a timely and accurate basis may be adversely affected. The SEC, as directed by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring public
companies to include a report of management on the companys internal control over financial
reporting in its Annual Report on Form 20-F that contains an assessment by management of the
effectiveness of the companys internal control over financial reporting. In addition, our
principal independent auditor must attest to and report on managements assessment of the
effectiveness of the companys internal control over financial reporting. As a foreign private
issuer, these requirements will first apply to our Annual Report on Form 20-F for the fiscal year
ending December 31, 2006. If we are unable to remedy the material weaknesses we have identified by
that time, or if new material weaknesses come to our attention and remain unremedied at that time,
management will not be permitted to conclude that our internal control over financial reporting is
effective. Moreover, even if management does conclude that our internal control over financial
reporting is effective, if our principal independent auditor is not satisfied with our internal
control over financial reporting or the level at which controls are documented, designed, operated
or reviewed, or if the independent registered public accounting firm interprets the requirements,
rules or regulations differently from us, then they may decline to attest to managements
assessment or may issue a report that is qualified. 12




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Any of these possible outcomes could result in an adverse reaction in the financial marketplace due
to a loss of investor confidence in the reliability of our financial statements, which ultimately
could negatively impact the market price of our securities. 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. Regulatory or legal changes could adversely affect our business Insurance laws, regulations and policies currently governing our clients and us 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, regulatory 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 business. In addition the reinsurance industry may also be impacted by the New York Attorney Generals
investigations of the insurance industry. See Item 4.  B. Business Overview  Regulation. We purchase retrocessional reinsurance, which may become unavailable on acceptable terms and
subjects us to credit risk In order to limit the effect on our financial condition of large and multiple losses, we buy
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 our business, financial
condition, results of operations or cash flows. 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.  B. Business Overview  Retrocessional reinsurance and Note 27
to our 2004 consolidated financial statements. Because we depend on a small number of reinsurance brokers for a large portion of our revenue, loss
of business written through them could adversely affect our financial condition, results of
operations or cash flows We market our reinsurance products worldwide in substantial part through reinsurance brokers. In
some markets we principally write through reinsurance brokers. In 2004, two reinsurance
intermediaries produced approximately 12.0% and 13




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9.0% of our gross premiums written, respectively. Loss of all or a substantial portion of the
business written through brokers could have a material adverse effect on our financial condition,
results of operations or cash flows. Our reliance on reinsurance brokers exposes us to their credit risk In 2004, approximately 49.0% 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 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. 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 described under Formation transactions and relationship with
Zurich Financial Services, 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. 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. See Item 4. 
Information on the Company  A. History and Development of the Company. We may be restricted from consummating a change of control transaction, disposing of assets or
entering new lines of business 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. See Formation transactions and relationship with Zurich Financial Services. We are also restricted from disposing of assets under the terms of our indenture relating to the
$200 million principal amount of 7.125% Senior Notes due 2023. Our inability to dispose of assets or enter new lines of business may render us less able to
respond to changing market and competitive conditions, which could have a material adverse effect
on our financial condition, results of operations or cash flows. European Reinsurance Directive may disadvantage companies like us which are not established within
the European Union In June 2005, the European Parliament adopted a proposal for a directive (the Directive) on
reinsurance for consideration. The Directive, when implemented, will establish the principles
applicable to the operation of reinsurance business in a Member State and 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
European Union (the EU) for insurance companies. The Directive does not provide for any
discrimination of non-EU based reinsurance companies. However, if the final implementation
Directive should bring about 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 financial 14




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##### Table of Contents



condition, results of operations or cash flows. 
 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 our initial
public offering and the associated transactions described below in this offering memorandum 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 Formation Transactions consisted of the following principal steps:  
    
    The transfer to us of the Zurich Re reinsurance business now conducted by
Converium AG, through a series of steps including:  o
    
    Our reinsurance of this business through quota share retrocession agreements
with two units of Zurich Financial Services, (the Quota Share Retrocession
Agreement);o
    
    The establishment of funds withheld balances in our favor by the applicable
units of Zurich Financial Services (the Funds Withheld Asset), on which we will be
paid investment returns by the Zurich Financial Services units;o
    
    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 ZRK,
which was renamed Converium 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 CHNA Inc., a wholly owned subsidiary of Converium AG.
In conjunction with this transfer, CHNA assumed $200 million of public debt from a
subsidiary of Zurich Financial Services, and Zurich Reinsurance (North America), Inc. was
renamed CRNA;
    
    The sale of 35,000,000 of our registered shares to the public by Zurich Financial
Services on December 11, 2001 in our initial public 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; and
    
    After our initial public offering, Converium AG used cash transferred to us by
Zurich Financial Services to acquire from subsidiaries of Zurich Financial Services
approximately $140 million of residential and commercial rental properties located in
Switzerland. 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; and
    
    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 15




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##### Table of Contents



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. For description of our capital raising activities that occurred in October 2004, see Item 10. 
Additional Information  B. Memorandum and Articles of Incorporation. 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. Converium Insurance (UK) Ltd is an insurance company that incorporated for unlimited duration in
the United Kingdom on November 11, 2002. It holds a license as an insurer from the United Kingdom
Financial Services Authority dated May 27, 2003. Converium Insurance (UK) Ltd engages in issuing
insurance policies in conjunction with selected cases, currently comprising of our business
relating to GAUM, MDU and SATEC. It has authorized share capital of GBP 60,000,000 divided into
60,000,000 shares with a par value of GBP 1 per share, all of which are owned by Converium Holdings
(UK) Ltd. Converium PCC Ltd, Guernsey, is a company incorporated for an unlimited time in Guernsey/United
Kingdom on October 31, 2000, which was set up in conjunction with the Formation Transactions of the
IPO. The company holds a reinsurance license from the Guernsey Financial Services Commission dated
October 12, 2001,and its purpose is to facilitate the intra-group reinsurance between certain
branch offices of Converium AG and the parent. In 2004 we formed Converium Finance (Bermuda) Ltd, as well as Converium IP Management Ltd, both of
which were incorporated in Bermuda on December 17, 2004. As part of the formation process,
Converium Holding AG has contributed the rights to commercially exploit the Converium brand to
Converium Finance (Bermuda) Ltd, which in turn has entered into a license agreement with Converium
IP Management Ltd allowing the latter to commercially exploit the Converium brand with respect to
our operating insurance respectively, reinsurance branch offices and subsidiaries. We implemented
this corporate change mainly to comply with relevant tax rules applicable to holding companies in
the Canton of Zug, Switzerland in order to protect the current tax status of Converium Holding AG
as a holding company. B. BUSINESS OVERVIEW Overview We are an international reinsurer whose business operations are recognized for innovation,
professionalism and service. We believe we are accepted as a professional reinsurer for all major
lines of non-life and life reinsurance mainly in Europe, Asia-Pacific and Latin America. We
actively seek to create innovative and efficient reinsurance solutions to complement our target
clients business plans and needs. We focus on core underwriting skills and on developing close
client relationships while honoring our and our clients relationships with intermediaries. We offer a broad range of mostly traditional non-life and life reinsurance solutions to help our
target clients to efficiently manage capital and risks. In non-life reinsurance, our lines of
business are General Third Party Liability, Motor, Personal Accident (assumed from non-life
insurers), Property, Agribusiness, Aviation & Space, Credit & Surety, Engineering, Marine & Energy,
Professional Liability and other Special Liability and Workers Compensation. In Life & Health
Reinsurance, our lines of business are 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 intermediaries, giving us
the flexibility to pursue business in accordance with our ceding companies preferred reinsurance
purchasing method. In 2004, 49% of our gross premiums written were written through intermediaries
and 51% were written on a direct basis. During 2004, our business was organized around three operating segments: Standard Property &
Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance; which are based principally on
lines of business. The business segments are supported by global business support functions such as
Actuarial & Risk Management and Underwriting Technical Services, and by global services such as
Human Resources, Finance and IT. We believe that this structure provides a higher degree of
transparency, accountability and management control. Unless otherwise stated, the information
presented in this Annual Report on Form 20-F is presented on the basis of these business segments
as organized during 2004. 16




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In the first quarter of 2005, Converium formally adopted a change to the reporting line of the
management of its North American operations. This change was introduced to reflect the placement of
CRNA into orderly run-off and managements desire to monitor this business on a stand-alone basis.
Therefore, Converiums business will be organized around three ongoing operating segments: Standard
Property & Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance, which are based
principally on global lines of business, in addition to a Run-Off segment. The Run-Off segment
includes all business, both life and non-life, originating from CRNA and CINA, excluding the US
originated aviation business. Unless otherwise stated, the information included in this Annual
Report on Form 20-F is presented in on the basis of the three business segments organized during
2004 and the Run-Off segment is included within these three segments as appropriate. In addition
to the four segments financial results, the Corporate Center carries certain administration
expenses, such as costs of the Board of Directors, the Global Executive Committee, and other
corporate functions. There are types of business which we historically participated in that we will no longer be able to
write or will write at a significantly reduced level due to the placement of our US operations into
run-off. We have discontinued the writing of reinsurance from offices located in North America.
However, we will offer reinsurance for attractive US originated business to a limited number of
select accounts. This business will be underwritten and managed through Converium AG, Zurich. Our Strategy Early in 2004 Converium adopted a comprehensive corporate strategy intended to build on its
accomplishments since the Company was formed in 2001. Later in the year the Global Executive
Committee adjusted the business model in response to developments which led to the decision to
cease underwriting in North America, and in response to the subsequent downgrading by Standard &
Poors and A.M. Best Company of Converium AGs insurer financial strength rating to BBB+ and
B++, respectively. Certain key elements of Converiums post-IPO strategy have remained both profitable and tactically
sound. Business underwritten outside the United States, since the IPO, has met or exceeded
financial targets based on current estimates. Converium continued to attract business in targeted
lines and regions during the January 1, 2005 renewal period. This success underlines market
appetite for a mid-sized, independent reinsurer, and justifies shareholders decision at the
Extraordinary General Meeting in late September 2004 to support Converium as a stand-alone entity
delivering consistency and continuity under its existing business model. Current strengths arising
from recent strategic positioning and development include the decision to continue to build direct
client relationships in Continental Europe and elsewhere. In general, such relationships have
proven more enduring than broker channels in the current business environment. In the specific case
of Converiums contract renewals for January 1, 2005, the greatest business continuity achievements
were made among clients with whom Converium has direct personal relationships at all levels, with
or without the involvement of intermediaries. In addition, the strategic diversification of
Converiums income streams has created a more robust organization by gaining access to business at
its source. These steps include the development of strategic partnerships such as that with the
Medical Defence Union (MDU) in the United Kingdom, participation in GAUM, and the formation of
Converiums corporate name at Lloyds to support clients operating in that market by providing
capital to them directly. Other successful strategic initiatives include expansion in the
Asia-Pacific region, and refocusing and expanding of Converiums Life & Health Reinsurance segment
in Europe. Strategic decisions to increase activity supported by knowledge-based underwriting in
certain specialty lines markets and to maintain a thoroughly technical and profitability focused
approach to all aspects of Converiums business have also contributed to the Companys resilience. Looking ahead Despite the strength of Converiums strategic business model, changes lie ahead. The Company will
continue to adjust its client base to concentrate on partnership-focused professional reinsurance
buyers within client segments dependent on reinsurance. This move is supported by Converiums value
proposition, built around comprehensive client services such as underwriting support and financial
and natural-hazard modeling. Geographically, Converium now focuses its local presence and
underwriting on clients located in Europe, Asia-Pacific, and Latin America. The Company will
continue to serve North American customers selectively from Zurich, following the decision to place
CRNA into an orderly run-off, which will be accompanied by an active commutation strategy. A
restructuring process is now underway to ensure that Converiums physical presence matches its
strategic outlook. Converium will continue to serve and develop clients that will benefit from its
strong capitalization following the 2004 rights offering. Converiums existing targeting of
strategic partnerships will continue, especially for rating-sensitive specialty lines underwriting.
Although 2004 was a challenging year for Converium, the validity of its incumbent strategic path
outside the United States has been clearly endorsed. Converiums business model will be further
enhanced in 2005, with a clear line-of-business and geographical focus, an emphasis on expertise
and service, and a rigorous technical approach. 17




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Our vision We aim to be a core competitor in the international reinsurance industry, contributing to the
evolution of the sector with forward-thinking and innovative solutions that enable our clients to
efficiently manage their risk. We aspire to be recognized as an agile, credible and interactive
organization that provides a model to a new generation of reinsurers. Our mission We are an international multi-line reinsurer that satisfies our clients business needs by
excelling at analyzing, assuming and managing risks. In an ethical and responsible manner we aspire
to provide:  
    
    sustainable value growth for our shareholders;
    
    excellent service for our customers and intermediaries;
    
    a fulfilling work environment for our employees; and
    
    a spirit of shared responsibility within our community. Our core business Our core business is to analyze, assume and manage portfolios of insurance risks, and to invest our
assets so that they support the insurance risks we assume. Our strategy for each of our business
segments is as follows: Standard Property & Casualty Reinsurance The Standard Property & Casualty Reinsurance segment is comprised of the General Third Party
Liability, Motor, Personal Accident (assumed from non-life insurers) and Property lines of
business. The Standard Property & Casualty Reinsurance segments strategy is to continue as a
stand-alone, multi-line competitor in the international reinsurance marketplace. The strategy was
redefined following the latest rating agencies downgrading in the second half of 2004 and now
focuses on partnership-oriented professional reinsurance buyers in the markets Europe, Latin
America, Asia and Australia. Our long-term client relationships are based on our capabilities, e.g.
natural hazard expertise, financial modeling capabilities, structuring advice and claims and
underwriting audits, contributing to earnings and cash flows. We remain committed to underwriting
discipline to achieve the best possible shareholder return, which is only possible through cycle
management. Specialty Lines The Specialty Lines segment includes the Agribusiness, Aviation & Space, Credit & Surety,
Engineering, Marine & Energy, Professional Liability and other Specialty Liability and Workers
Compensation lines of business. The Specialty Lines segments strategy is to develop specialty
businesses in which Converium can position itself as a market leader and effectively leverage its
intellectual assets in risk analysis, structuring, product design and risk modeling. We focus on
specialty businesses because we believe that Converium possesses superior underwriting and
structuring capabilities in certain areas, which is both a key driver of profitability as well as
an effective barrier to entry in certain business lines. Wherever possible, Converium seeks to develop preferred access to specialty lines through strong
relationships, strategic partnerships or participations in entities that enjoy a unique position,
such as strong control over the origination of their business, which prevent them from having to
compete in annual insurance or reinsurance auctions. Examples of the approach by which we seek to
develop preferred access to these businesses are our strategic partnership with MDU in the U.K.,
our participation in GAUM and our shares in its pools and our participation in SATEC and our share
in its pool, as well as many strong relationships with specialized mono-line insurers. Also, Converium Underwriting Ltd, a Lloyds Corporate Member, has successfully provided third-party
capacity to certain specialist Lloyds syndicates. Some specialty lines are subject to cyclical pricing fluctuations. Converium remains committed to
underwriting discipline to achieve the best possible shareholder return, which is only possible
through cycle management. Life & Health Reinsurance The Life & Health Reinsurance segment comprises the Life and Disability and Accident and Health
lines of business. The Life & Health Reinsurance segments strategy is to increase the stability of
Converiums income. Traditional life reinsurance 18




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has a low correlation to property and casualty risks and can therefore improve our risk
diversification. Our Life & Health Reinsurance segment will continue to grow its activities in its
existing key markets, which are Germany, Italy and France; markets with significant potential for
future opportunities for us include Switzerland, Austria, Denmark, Poland and the Czech Republic. The business segments are supported by global business support functions such as Actuarial & Risk
Management and Underwriting Technical Services, and by global services such as Human Resources,
Finance and IT. Guiding principles for our business We have established the following guiding principles for the development of our business:  
    
    Our lead objective is to maximize economic value. The metrics we use to measure this are
net after-tax operating income and performance excess. Performance excess is the measure
we use to implement economic value-based management at Converium and is the key metric for
measuring expected and actual underwriting performance. Performance excess represents the
economic value added attached to all reinsurance contracts in our portfolio and 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 taxes and the costs of the allocated risk-based capital. Hence, performance
excess equals the expected net present value created for shareholders, in excess of the
cost of capital;
    
    To optimize our overall risk profile, we balance and diversify our by line of business,
by region and by duration;
    
    All contracts we underwrite should be profitable in expectation; that is, a performance
excess target of at least equal to zero. For every individual client relationship, the
performance excess must be greater than or equal to zero in expectation, at every renewal;
    
    We seek to grow our relationships with our target clients, but sustainable profitability
is a prerequisite; and
    
    Assumed retrocession, financial guarantees, underwriting authorities for assumed
reinsurance and fronting are outside of our strategic scope. In addition, we have established the following guiding principles to manage our business: Cycle management.We have a systematic approach to the allocation of capital and resources to
those lines of business and markets that meet our profitability standards, and to withdraw from
businesses that do not meet our performance thresholds. Historically, the reinsurance cycles in
different lines of business and markets have not moved simultaneously. Our strong international
franchise and our distribution and servicing platform provide broad access to an international
reinsurance market, and enable the flexible allocation of resources to those lines of business or
markets in which profitability prospects are most favorable at any point in time. Our well
established relationships with clients and intermediaries, as well as our transparent pricing
approach, allow us to manage the cycle by moving in and out of lines of business or markets without
putting long-term business relationships at risk. Risk management.We continue to maintain, develop and implement an enterprise risk management
culture, including underwriting, pricing, reserving, asset & liability management and operational
risk management, by balancing upside potential and downside risk, based on appropriate capital
allocation and relevant risk migration measures. Operational efficiency.We manage our expense base effectively through continuous analysis of
business processes and operational structures, with a view to enhancing business integration and
achieving synergies and efficiencies. Retention management.We manage our gross and net risk positions on a legal entity basis and on a
group-wide basis, through global risk pooling and the limited use of retrocession. Investment policy.We allocate capital primarily to support underwriting risks with the aim of
optimizing the after-tax risk-return characteristics of our investment portfolio. Our asset
allocation focuses on core portfolios of high-quality bonds and equities, generally managed
passively. Further diversification is achieved through complementary portfolios in other asset
classes, such as real estate, credit portfolios and non-traditional or alternative investments;
these portfolios are generally actively managed. The acquisition of minority stakes in insurance or
reinsurance companies remains outside of our strategic scope. Capital management.We are committed to strengthening our capitalization in order to ensure that
clients, intermediaries and 19




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rating agencies regard us as a credible reinsurer for short-, medium- 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 and it does not jeopardize
the perception of our financial strength. Our business We are an international professional reinsurer, which offers a broad range of non-life and life
reinsurance to help our clients manage capital and risk. Our principal lines of non-life
reinsurance include General Third Party Liability, Motor, Personal Accident (assumed from non-life
insurers), Property, Agribusiness, Aviation & Space, Credit & Surety, Engineering, Marine & Energy,
Professional Liability and other Special Liability and Workers Compensation. The principal life
reinsurance products are 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 Buenos Aires,
Kuala Lumpur, London, Mexico City (to be closed in 2006), Sao Paulo and Tokyo. In addition, we have
administrative offices in Stamford, Connecticut. We have a sub-holding company in London and
finance subsidiaries in Luxembourg and Bermuda, an IP company in Bermuda (to be transferred to Zug,
Switzerland in 2005) and a licensed reinsurance company, Guernsey, facilitating intra-group
reinsurance within Converium. During 2004 our business was organized around three operating segments: Standard Property &
Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance; which are based principally on
lines of business. The business segments are supported by global business support functions such as
Actuarial & Risk Management and Underwriting Technical Services, and by global services such as
Human Resources, Finance and IT. We believe that this structure provides a higher degree of
transparency, accountability and management control. See Item 4.  Information on the Company  B.
Business Overview for discussion regarding the reorganization of our segment structure in the
first quarter of 2005. The table below presents, by segment, the distribution of our premiums written and (loss) income
for the year ended December 31, 2004. 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. As a
result of the ratings downgrades and the run-off of our North American business, we expect a
significant decline in the amount of premiums as well as significant shifts in the geographic and
line of business distributions of premiums that we write going forward as compared to our
historical performance. Year Ended December 31, 2004Segment(loss)Gross premiums written
    
    
    Net premiums written
    
    
    income$ millions
    
    
    % of total
    
    
    $ millions
    
    
    % of total
    
    
    $ millionsBusiness Segment:Standard Property & Casualty Reinsurance
    
    $
    1,617.6
    
    
    
    42.1
    %
    
    $
    1,455.0
    
    
    
    40.9
    %
    
    $
    (12.5
    )Specialty Lines
    
    
    1,777.3
    
    
    
    46.3
    
    
    
    1,658.1
    
    
    
    46.7
    
    
    
    (245.2
    )Life & Health Reinsurance
    
    
    446.0
    
    
    
    11.6
    
    
    
    439.9
    
    
    
    12.4
    
    
    
    15.4Corporate Center
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38.0
    )Total
    
    $
    3,840.9
    
    
    
    100.0
    %
    
    $
    3,553.0
    
    
    
    100.0
    %
    
    
    (280.3
    )Other loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.6
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33.1
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94.0
    )Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.9
    )Restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.7
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (338.2
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (760.8
    )
 The table below presents the geographic distribution of our gross premiums written for
the years ended December 31, 2004, 2003 and 2002, based on the location of the ceding companies. Year Ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    % of
    
    
    $
    
    
    % of
    
    
    $
    
    
    % ofmillions
    
    
    total
    
    
    millions
    
    
    total
    
    
    millions
    
    
    totalUnited Kingdom*
    
    $
    1,005.9
    
    
    
    26.2
    %
    
    $
    1,083.0
    
    
    
    25.6
    %
    
    $
    910.4
    
    
    
    25.8
    %Germany
    
    
    389.6
    
    
    
    10.1
    
    
    
    286.9
    
    
    
    6.8
    
    
    
    176.1
    
    
    
    5.0France
    
    
    158.2
    
    
    
    4.1
    
    
    
    160.5
    
    
    
    3.8
    
    
    
    106.9
    
    
    
    3.0
 20




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Year Ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    % of
    
    
    $
    
    
    % of
    
    
    $
    
    
    % ofmillions
    
    
    total
    
    
    millions
    
    
    total
    
    
    millions
    
    
    totalItaly
    
    
    162.2
    
    
    
    4.2
    
    
    
    131.2
    
    
    
    3.1
    
    
    
    84.0
    
    
    
    2.4Rest of Europe
    
    
    379.9
    
    
    
    9.9
    
    
    
    338.8
    
    
    
    8.0
    
    
    
    224.0
    
    
    
    6.3Far East
    
    
    238.5
    
    
    
    6.2
    
    
    
    266.4
    
    
    
    6.3
    
    
    
    191.9
    
    
    
    5.4Near and Middle East
    
    
    124.3
    
    
    
    3.2
    
    
    
    134.3
    
    
    
    3.2
    
    
    
    124.3
    
    
    
    3.5North America
    
    
    1,252.3
    
    
    
    32.7
    
    
    
    1,671.1
    
    
    
    39.6
    
    
    
    1,553.2
    
    
    
    43.9Latin America
    
    
    130.0
    
    
    
    3.4
    
    
    
    151.7
    
    
    
    3.6
    
    
    
    165.0
    
    
    
    4.7Total
    
    $
    3,840.9
    
    
    
    100.0
    %
    
    $
    4,223.9
    
    
    
    100.0
    %
    
    $
    3,535.8
    
    
    
    100.0
    %
 
 *
    
    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 The table below presents the distribution of our net premiums written by line of business for
the years ended December 31, 2004, 2003 and 2002. Year Ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    % of
    
    
    $
    
    
    % of
    
    
    $
    
    
    % ofmillions
    
    
    total
    
    
    millions
    
    
    total
    
    
    millions
    
    
    totalStandard Property & Casualty ReinsuranceGeneral Third Party Liability
    
    $
    361.4
    
    
    
    10.2
    %
    
    $
    335.0
    
    
    
    8.8
    %
    
    $
    337.7
    
    
    
    10.2
    %Motor
    
    
    484.8
    
    
    
    13.6
    
    
    
    488.5
    
    
    
    12.8
    
    
    
    453.5
    
    
    
    13.7Personal Accident (assumed from non-life insurers)
    
    
    27.1
    
    
    
    0.8
    
    
    
    35.1
    
    
    
    0.9
    
    
    
    35.0
    
    
    
    1.1Property
    
    
    581.7
    
    
    
    16.4
    
    
    
    787.0
    
    
    
    20.5
    
    
    
    626.0
    
    
    
    18.7Total Standard Property & Casualty Reinsurance
    
    
    1,455.0
    
    
    
    41.0
    
    
    
    1,645.6
    
    
    
    43.0
    
    
    
    1,452.2
    
    
    
    43.7Specialty LinesAgribusiness
    
    
    126.9
    
    
    
    3.5
    
    
    
    90.0
    
    
    
    2.4
    
    
    
    22.0
    
    
    
    0.7Aviation & Space
    
    
    404.5
    
    
    
    11.4
    
    
    
    341.8
    
    
    
    8.9
    
    
    
    365.3
    
    
    
    11.0Credit & Surety
    
    
    171.1
    
    
    
    4.8
    
    
    
    236.0
    
    
    
    6.2
    
    
    
    200.1
    
    
    
    6.0Engineering
    
    
    111.9
    
    
    
    3.1
    
    
    
    139.9
    
    
    
    3.7
    
    
    
    116.1
    
    
    
    3.5Marine & Energy
    
    
    86.2
    
    
    
    2.4
    
    
    
    95.3
    
    
    
    2.5
    
    
    
    94.3
    
    
    
    2.8Professional Liability and other Special Liability
    
    
    531.7
    
    
    
    15.0
    
    
    
    598.0
    
    
    
    15.5
    
    
    
    536.9
    
    
    
    16.2Workers Compensation
    
    
    225.8
    
    
    
    6.4
    
    
    
    310.9
    
    
    
    8.1
    
    
    
    220.6
    
    
    
    6.6Total Specialty Lines
    
    
    1,658.1
    
    
    
    46.6
    
    
    
    1,811.9
    
    
    
    47.3
    
    
    
    1,555.3
    
    
    
    46.8Total non-life reinsurance
    
    
    3,113.1
    
    
    
    87.6
    
    
    
    3,457.5
    
    
    
    90.3
    
    
    
    3,007.5
    
    
    
    90.5Life & Health ReinsuranceLife and Disability
    
    
    243.4
    
    
    
    6.9
    
    
    
    162.1
    
    
    
    4.2
    
    
    
    154.7
    
    
    
    4.7Accident and Health
    
    
    196.5
    
    
    
    5.5
    
    
    
    207.4
    
    
    
    5.5
    
    
    
    160.0
    
    
    
    4.8Total Life & Health Reinsurance
    
    
    439.9
    
    
    
    12.4
    
    
    
    369.5
    
    
    
    9.7
    
    
    
    314.7
    
    
    
    9.5Total
    
    $
    3,553.0
    
    
    
    100.0
    %
    
    $
    3,827.0
    
    
    
    100.0
    %
    
    $
    3,322.2
    
    
    
    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,
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 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 21




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##### Table of Contents



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. 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. 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. 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. 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 2004, $2.9 billion or approximately 75.2% of our gross premiums written were written on a
proportional treaty basis, $0.6 billion or approximately 15.5% of our gross premiums written were
written on a non-proportional basis, and $0.4 million or approximately 9.3% of our net premiums
written were written on a structured/finite basis. The table below presents the distribution of our gross premiums written by type of reinsurance for
the years ended December 31, 2004, 2003 and 2002. Year Ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    % of
    
    
    $
    
    
    % of
    
    
    $
    
    
    % ofmillions
    
    
    total
    
    
    millions
    
    
    total
    
    
    millions
    
    
    totalProportional
    
    $
    2,888.7
    
    
    
    75.2
    %
    
    $
    2,609.6
    
    
    
    61.8
    %
    
    $
    2,107.2
    
    
    
    59.6
    %Non-proportional
    
    
    596.9
    
    
    
    15.5
    
    
    
    1,155.5
    
    
    
    27.3
    
    
    
    925.2
    
    
    
    26.2Structured/finite
    
    
    355.3
    
    
    
    9.3
    
    
    
    458.8
    
    
    
    10.9
    
    
    
    503.4
    
    
    
    14.2Total
    
    $
    3,840.9
    
    
    
    100.0
    %
    
    $
    4,223.9
    
    
    
    100.0
    %
    
    $
    3,535.8
    
    
    
    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 & Space and
Professional Liability and other Special Liability 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 & Space and Motor as well as opportunities in
proportional Agribusiness. In 2004, we saw increased premium writings from proportional business,
especially in General Third Party Liability and Professional Liability and other Special Liability. 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 22




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##### Table of Contents



strength. We have developed integrated teams of professionals with significant treaty and
individual risk, or facultative, expertise which support the professionals we have in our branch
network. We offer facultative products to a limited extent and only to a selected number of clients
on a proportional and non-proportional basis. We deploy our international specialty lines experts
and local specialists to design solutions to address our clients risk management needs. Structured/finite Structured/finite reinsurance solutions are marketed by our Standard Property & Casualty
Reinsurance, Specialty Lines and Life & Health Reinsurance segments. 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, we deploy teams that
include underwriting, tax, accounting, actuarial and banking experts who can effectively address
all aspects of the solution composed of internal and external resources. We believe this
multi-disciplinary approach provides an efficient way to address the respective issues. Some structured/finite reinsurance markets are rating-sensitive, and due to our recent downgrades
we expect written premium volume in this area to reduce significantly. 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
$3,394.9 million for the year ended December 31, 2004, representing 88.4% 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, 2004, 2003 and 2002: Year Ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    % of
    
    
    $
    
    
    % of
    
    
    $
    
    
    % ofmillions
    
    
    total
    
    
    millions
    
    
    total
    
    
    millions
    
    
    totalProportionalGeneral Third Party Liability
    
    $
    341.5
    
    
    
    13.8
    %
    
    $
    217.9
    
    
    
    9.7
    %
    
    $
    194.5
    
    
    
    11.0
    %Motor
    
    
    390.0
    
    
    
    15.8
    
    
    
    373.6
    
    
    
    16.6
    
    
    
    251.2
    
    
    
    14.2Personal Accident (assumed from non-life insurers)
    
    
    21.4
    
    
    
    0.9
    
    
    
    27.3
    
    
    
    1.2
    
    
    
    31.9
    
    
    
    1.8Property
    
    
    473.2
    
    
    
    19.2
    
    
    
    503.0
    
    
    
    22.4
    
    
    
    423.5
    
    
    
    24.0Agribusiness
    
    
    113.1
    
    
    
    4.6
    
    
    
    83.6
    
    
    
    3.7
    
    
    
    3.5
    
    
    
    0.2Aviation & Space
    
    
    446.4
    
    
    
    18.1
    
    
    
    417.7
    
    
    
    18.6
    
    
    
    310.8
    
    
    
    17.6Credit & Surety
    
    
    203.8
    
    
    
    8.3
    
    
    
    181.8
    
    
    
    8.1
    
    
    
    133.7
    
    
    
    7.6Engineering
    
    
    114.2
    
    
    
    4.6
    
    
    
    141.5
    
    
    
    6.3
    
    
    
    118.8
    
    
    
    6.7Marine & Energy
    
    
    72.6
    
    
    
    2.9
    
    
    
    78.5
    
    
    
    3.5
    
    
    
    81.5
    
    
    
    4.6Professional Liability and other Special Liability
    
    
    270.2
    
    
    
    10.9
    
    
    
    193.6
    
    
    
    8.6
    
    
    
    194.7
    
    
    
    11.0Workers Compensation
    
    
    22.6
    
    
    
    0.9
    
    
    
    29.3
    
    
    
    1.3
    
    
    
    22.6
    
    
    
    1.3Total Proportional
    
    $
    2,469.0
    
    
    
    100.0
    %
    
    $
    2,247.8
    
    
    
    100.0
    %
    
    $
    1,766.7
    
    
    
    100.0
    %Non-ProportionalGeneral Third Party Liability
    
    $
    5.4
    
    
    
    0.9
    %
    
    $
    137.9
    
    
    
    12.6
    %
    
    $
    136.0
    
    
    
    15.0
    %Motor
    
    
    129.8
    
    
    
    22.7
    
    
    
    138.5
    
    
    
    12.7
    
    
    
    123.3
    
    
    
    13.6Personal Accident (assumed from non-life insurers)
    
    
    5.7
    
    
    
    1.0
    
    
    
    7.7
    
    
    
    0.7
    
    
    
    3.1
    
    
    
    0.3Property
    
    
    214.5
    
    
    
    37.6
    
    
    
    354.6
    
    
    
    32.4
    
    
    
    248.2
    
    
    
    27.6Agribusiness
    
    
    6.8
    
    
    
    1.2
    
    
    
    14.9
    
    
    
    1.4
    
    
    
    18.5
    
    
    
    2.0Aviation & Space
    
    
    30.0
    
    
    
    5.3
    
    
    
    67.8
    
    
    
    6.2
    
    
    
    97.4
    
    
    
    10.7Credit & Surety
    
    
    17.4
    
    
    
    3.0
    
    
    
    39.9
    
    
    
    3.7
    
    
    
    35.6
    
    
    
    3.9Engineering
    
    
    4.3
    
    
    
    0.8
    
    
    
    3.4
    
    
    
    0.3
    
    
    
    2.1
    
    
    
    0.2Marine & Energy
    
    
    16.9
    
    
    
    3.0
    
    
    
    22.4
    
    
    
    2.1
    
    
    
    18.8
    
    
    
    2.1Professional Liability and other Special Liability
    
    
    128.3
    
    
    
    22.5
    
    
    
    278.9
    
    
    
    25.5
    
    
    
    213.5
    
    
    
    23.5Workers Compensation
    
    
    11.6
    
    
    
    2.0
    
    
    
    25.9
    
    
    
    2.4
    
    
    
    10.1
    
    
    
    1.1Total Non-Proportional
    
    $
    570.7
    
    
    
    100.0
    %
    
    $
    1,091.9
    
    
    
    100.0
    %
    
    $
    906.6
    
    
    
    100.0
    %Structured/FiniteGeneral Third Party Liability
    
    $
    24.8
    
    
    
    7.0
    %
    
    $
    33.2
    
    
    
    6.9
    %
    
    $
    28.0
    
    
    
    5.4
    %Motor
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.2
    
    
    
    19.3Personal Accident (assumed from non-life insurers)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property
    
    
    11.1
    
    
    
    3.1
    
    
    
    1.6
    
    
    
    0.3
    
    
    
    2.5
    
    
    
    0.5Agribusiness
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aviation & Space
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    Credit & Surety
    
    
    (33.7
    )
    
    
    (9.5
    )
    
    
    39.6
    
    
    
    8.3
    
    
    
    46.8
    
    
    
    9.0Engineering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marine & Energy
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 23




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##### Table of Contents



Year Ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    % of
    
    
    $
    
    
    % of
    
    
    $
    
    
    % ofmillions
    
    
    total
    
    
    millions
    
    
    total
    
    
    millions
    
    
    totalProfessional Liability and other Special Liability
    
    
    164.1
    
    
    
    46.2
    
    
    
    149.7
    
    
    
    31.3
    
    
    
    160.0
    
    
    
    30.8Workers Compensation
    
    
    188.9
    
    
    
    53.2
    
    
    
    253.8
    
    
    
    53.2
    
    
    
    181.8
    
    
    
    35.0Total Structured/Finite
    
    $
    355.2
    
    
    
    100.0
    %
    
    $
    477.7
    
    
    
    100.0
    %
    
    $
    519.3
    
    
    
    100.0
    %TotalGeneral Third Party Liability
    
    $
    371.7
    
    
    
    10.9
    %
    
    $
    389.0
    
    
    
    10.2
    %
    
    $
    358.5
    
    
    
    11.2
    %Motor
    
    
    519.8
    
    
    
    15.3
    
    
    
    512.1
    
    
    
    13.4
    
    
    
    474.7
    
    
    
    14.9Personal Accident (assumed from non-life insurers)
    
    
    27.1
    
    
    
    0.8
    
    
    
    35.0
    
    
    
    1.0
    
    
    
    35.0
    
    
    
    1.1Property
    
    
    698.8
    
    
    
    20.6
    
    
    
    859.2
    
    
    
    22.5
    
    
    
    674.2
    
    
    
    21.1Agribusiness
    
    
    119.9
    
    
    
    3.5
    
    
    
    98.5
    
    
    
    2.6
    
    
    
    22.0
    
    
    
    0.7Aviation & Space
    
    
    476.4
    
    
    
    14.0
    
    
    
    485.3
    
    
    
    12.7
    
    
    
    408.2
    
    
    
    12.8Credit & Surety
    
    
    187.5
    
    
    
    5.6
    
    
    
    261.3
    
    
    
    6.8
    
    
    
    216.1
    
    
    
    6.8Engineering
    
    
    118.5
    
    
    
    3.5
    
    
    
    144.9
    
    
    
    3.8
    
    
    
    120.9
    
    
    
    3.8Marine & Energy
    
    
    89.5
    
    
    
    2.6
    
    
    
    100.9
    
    
    
    2.6
    
    
    
    100.3
    
    
    
    3.1Professional Liability and other Special Liability
    
    
    562.6
    
    
    
    16.6
    
    
    
    622.2
    
    
    
    16.3
    
    
    
    568.2
    
    
    
    17.8Workers Compensation
    
    
    223.1
    
    
    
    6.6
    
    
    
    309.0
    
    
    
    8.1
    
    
    
    214.5
    
    
    
    6.7Total
    
    $
    3,394.9
    
    
    
    100.0
    %
    
    $
    3,817.4
    
    
    
    100.0
    %
    
    $
    3,192.6
    
    
    
    100.0
    %
 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, 2004, 2003 and 2002. 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, 2004
    
    
    2003
    
    
    2002U/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
    
    
    99.2
    %
    
    
    26.8
    %
    
    
    126.0
    %
    
    
    92.1
    %
    
    
    22.1
    %
    
    
    114.2
    %
    
    
    109.4
    %
    
    
    19.0
    %
    
    
    128.4
    %Motor
    
    
    99.5
    
    
    
    18.3
    
    
    
    117.8
    
    
    
    86.3
    
    
    
    18.4
    
    
    
    104.7
    
    
    
    84.8
    
    
    
    22.8
    
    
    
    107.6Personal Accident (assumed
from non-life insurers)
    
    
    64.9
    
    
    
    25.2
    
    
    
    90.1
    
    
    
    68.9
    
    
    
    23.1
    
    
    
    92.0
    
    
    
    69.4
    
    
    
    18.1
    
    
    
    87.5Property
    
    
    55.6
    
    
    
    27.9
    
    
    
    83.5
    
    
    
    46.2
    
    
    
    24.8
    
    
    
    71.0
    
    
    
    52.3
    
    
    
    23.8
    
    
    
    76.1Agribusiness
    
    
    79.6
    
    
    
    9.4
    
    
    
    89.0
    
    
    
    87.0
    
    
    
    8.6
    
    
    
    95.6
    
    
    
    100.9
    
    
    
    4.8
    
    
    
    105.7Aviation & Space
    
    
    53.7
    
    
    
    23.9
    
    
    
    77.6
    
    
    
    44.3
    
    
    
    15.4
    
    
    
    59.7
    
    
    
    69.9
    
    
    
    13.0
    
    
    
    82.9Credit & Surety
    
    
    64.6
    
    
    
    27.7
    
    
    
    92.3
    
    
    
    59.8
    
    
    
    30.2
    
    
    
    90.0
    
    
    
    64.8
    
    
    
    28.8
    
    
    
    93.6Engineering
    
    
    76.9
    
    
    
    25.6
    
    
    
    102.5
    
    
    
    64.7
    
    
    
    29.7
    
    
    
    94.4
    
    
    
    81.7
    
    
    
    21.9
    
    
    
    103.6Marine & Energy
    
    
    87.5
    
    
    
    21.3
    
    
    
    108.8
    
    
    
    73.5
    
    
    
    18.6
    
    
    
    92.1
    
    
    
    86.3
    
    
    
    23.3
    
    
    
    109.6Professional Liability and
other Special Liability
    
    
    151.4
    
    
    
    19.2
    
    
    
    170.6
    
    
    
    79.2
    
    
    
    26.5
    
    
    
    105.7
    
    
    
    101.0
    
    
    
    19.5
    
    
    
    120.5Workers Compensation
    
    
    96.5
    
    
    
    23.8
    
    
    
    120.3
    
    
    
    114.3
    
    
    
    13.0
    
    
    
    127.3
    
    
    
    61.1
    
    
    
    24.3
    
    
    
    85.4Proportional
    
    
    78.0
    
    
    
    26.1
    
    
    
    104.1
    
    
    
    65.0
    
    
    
    25.1
    
    
    
    90.1
    
    
    
    75.7
    
    
    
    24.3
    
    
    
    100.0Non-Proportional
    
    
    141.5
    
    
    
    13.8
    
    
    
    155.3
    
    
    
    84.3
    
    
    
    13.1
    
    
    
    97.4
    
    
    
    80.8
    
    
    
    15.6
    
    
    
    96.4Structured/Finite
    
    
    97.6
    
    
    
    15.7
    
    
    
    113.3
    
    
    
    74.4
    
    
    
    27.4
    
    
    
    101.8
    
    
    
    82.5
    
    
    
    19.2
    
    
    
    101.7Total
    
    
    90.3
    
    
    
    22.9
    
    
    
    113.2
    
    
    
    71.5
    
    
    
    22.0
    
    
    
    93.5
    
    
    
    78.2
    
    
    
    21.1
    
    
    
    99.3
 
 (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 our 2004 consolidated 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 strategy is to continue as a stand-alone,
multi-line competitor in the international reinsurance marketplace. The strategy was redefined
following the latest rating agencies downgrading in the second half of 2004 and now focuses on
partnership-oriented professional reinsurance buyers in the markets Europe, Latin America, Asia and
Australia. Our long-term client relationships are based on our capabilities, e.g. natural hazard
expertise, financial modeling capabilities, structuring advice and claims and underwriting audits,
contributing to earnings and cash flows. We remain committed to underwriting discipline to achieve
the best possible shareholder return, which is only possible through cycle management. 24




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##### Table of Contents



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 Motor insurance can include coverage in three major areas  liability, physical damage and accident
benefits, for all of which we provide reinsurance coverage. 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. Property We reinsure liability for physical damage caused by fire and allied perils such as explosion,
lightning, storm, flood, earthquake and for 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, 2004, 2003 and 2002. Year ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    
    
    
    
    $
    
    
    
    
    
    
    $millions
    
    
    % of total
    
    
    millions
    
    
    % of total
    
    
    millions
    
    
    % of totalStandard Property & Casualty
Reinsurance:General Third Party Liability
    
    $
    361.4
    
    
    
    24.9
    %
    
    $
    335.0
    
    
    
    20.4
    %
    
    $
    337.7
    
    
    
    23.2
    %Motor
    
    
    484.8
    
    
    
    33.3
    
    
    
    488.5
    
    
    
    29.7
    
    
    
    453.5
    
    
    
    31.2Personal Accident (assumed
from non-life insurers)
    
    
    27.1
    
    
    
    1.8
    
    
    
    35.1
    
    
    
    2.1
    
    
    
    35.0
    
    
    
    2.4Property
    
    
    581.7
    
    
    
    40.0
    
    
    
    787.0
    
    
    
    47.8
    
    
    
    626.0
    
    
    
    43.2Total Standard Property &
Casualty Reinsurance
    
    $
    1,455.0
    
    
    
    100.0
    %
    
    $
    1,645.6
    
    
    
    100.0
    %
    
    $
    1,452.2
    
    
    
    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, 2004, 2003 and 2002. Loss, Expense and Combined Ratios
Year Ended December 31, 2004
    
    
    2003
    
    
    2002U/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
    
    
    99.2
    %
    
    
    26.8
    %
    
    
    126.0
    %
    
    
    92.1
    %
    
    
    22.1
    %
    
    
    114.2
    %
    
    
    109.4
    %
    
    
    19.0
    %
    
    
    128.4
    %Motor
    
    
    99.5
    
    
    
    18.3
    
    
    
    117.8
    
    
    
    86.3
    
    
    
    18.4
    
    
    
    104.7
    
    
    
    84.8
    
    
    
    22.8
    
    
    
    107.6Personal Accident (assumed from non-life
insurers)
    
    
    64.9
    
    
    
    25.2
    
    
    
    90.1
    
    
    
    68.9
    
    
    
    23.1
    
    
    
    92.0
    
    
    
    69.4
    
    
    
    18.1
    
    
    
    87.5Property
    
    
    55.6
    
    
    
    27.9
    
    
    
    83.5
    
    
    
    46.2
    
    
    
    24.8
    
    
    
    71.0
    
    
    
    52.3
    
    
    
    23.8
    
    
    
    76.1Proportional
    
    
    74.2
    
    
    
    26.8
    
    
    
    101.0
    
    
    
    55.7
    
    
    
    26.0
    
    
    
    81.7
    
    
    
    77.9
    
    
    
    27.7
    
    
    
    105.6Non-Proportional
    
    
    97.8
    
    
    
    11.8
    
    
    
    109.6
    
    
    
    85.8
    
    
    
    13.7
    
    
    
    99.5
    
    
    
    76.8
    
    
    
    10.6
    
    
    
    87.4Structured/Finite
    
    
    162.7
    
    
    
    30.1
    
    
    
    192.8
    
    
    
    188.2
    
    
    
    40.2
    
    
    
    228.4
    
    
    
    64.0
    
    
    
    29.9
    
    
    
    93.9Total Standard Property & Casualty Reinsurance
    
    
    80.3
    
    
    
    24.3
    
    
    
    104.6
    
    
    
    68.3
    
    
    
    22.3
    
    
    
    90.6
    
    
    
    76.3
    
    
    
    22.2
    
    
    
    98.5
 25




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##### Table of Contents



(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 our 2004 consolidated financial statements. For an explanation of significant loss activity, see Item 5Operating and Financial Review and
Prospects  A. Operating Results. Specialty Lines The Specialty Lines segments strategy is to develop specialty businesses in which Converium can
position itself as a market leader and effectively leverage its intellectual assets in risk
analysis, structuring, product design and risk modeling. We focus on specialty businesses because
we believe that Converium possesses superior underwriting and structuring capabilities in certain
areas, which is both a key driver of profitability as well as an effective barrier to entry in
certain business lines. Wherever possible, Converium seeks to develop preferred access to specialty
lines through strong relationships, strategic partnerships or participations in entities that enjoy
a unique position, such as strong control over the origination of their business, which prevents
them for having to compete in annual insurance or reinsurance auctions. Wherever possible, Converium seeks to develop preferred access to specialty lines through strong
relationships, strategic partnerships or participations in entities that enjoy a unique position,
such as strong control over the origination of their business, which prevent them from having to
compete in annual insurance or reinsurance auctions. Examples of the approach by which we seek to
develop preferred access to these businesses are our strategic partnership with MDU in the U.K.,
our participation in GAUM and our shares in its pools and our participation in SATEC and our share
in its pool, as well as many strong relationships with specialized mono-line insurers. Also, Converium Underwriting Ltd, a Lloyds Corporate Member, has successfully provided third-party
capacity to certain specialist Lloyds syndicates. Some specialty lines are subject to cyclical pricing fluctuations. Converium remains committed to
underwriting discipline to achieve the best possible shareholder return, which is only possible
through cycle management. Due to the long-tail nature of many of the specialty lines of business, the emergence of accounting
profit (on the basis of US GAAP) occurs after a time lag. The high levels of carried reserves
necessary for the specialty lines of business underwritten by the segment can be capital
consumptive during periods of strong growth in premiums written and may pose a constraint on the
amount of growth and the business mix of the segment. 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 provide reinsurance of personal accident and liability risks and hull damage in connection with
the operation of aircraft and 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 fulfillment 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 26




---



##### Table of Contents



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 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. Workers Compensation Our products include reinsurance for statutory workers compensation programs, as well as
individual risk excess workers compensation. The following table presents the distribution of net premiums written by our Specialty Lines
segment for the years ended December 31, 2004, 2003 and 2002. Year ended December 31,2004
    
    
    2003
    
    
    2002$
    
    
    
    
    
    
    $
    
    
    
    
    
    
    $millions
    
    
    % of total
    
    
    millions
    
    
    % of total
    
    
    millions
    
    
    % of totalSpecialty Lines:Agribusiness
    
    $
    126.9
    
    
    
    7.7
    %
    
    $
    90.0
    
    
    
    5.0
    %
    
    $
    22.0
    
    
    
    1.4
    %Aviation & Space
    
    
    404.5
    
    
    
    24.4
    
    
    
    341.8
    
    
    
    18.8
    
    
    
    365.3
    
    
    
    23.4Credit & Surety
    
    
    171.1
    
    
    
    10.3
    
    
    
    236.0
    
    
    
    13.0
    
    
    
    200.1
    
    
    
    12.9Engineering
    
    
    111.9
    
    
    
    6.7
    
    
    
    139.9
    
    
    
    7.7
    
    
    
    116.1
    
    
    
    7.5Marine & Energy
    
    
    86.2
    
    
    
    5.2
    
    
    
    95.3
    
    
    
    5.3
    
    
    
    94.3
    
    
    
    6.1Professional
Liability and other
Special Liability
    
    
    531.7
    
    
    
    32.1
    
    
    
    598.0
    
    
    
    33.0
    
    
    
    536.9
    
    
    
    34.5Workers Compensation
    
    
    225.8
    
    
    
    13.6
    
    
    
    310.9
    
    
    
    17.2
    
    
    
    220.6
    
    
    
    14.2Total Specialty Lines
    
    $
    1,658.1
    
    
    
    100.0
    %
    
    $
    1,811.9
    
    
    
    100.0
    %
    
    $
    1,555.3
    
    
    
    100.0
    %
 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, 2004, 2003 and 2002. Loss, Expense and Combined Ratios
Year Ended December 31, 2004
    
    
    2003
    
    
    2002U/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
    
    
    79.6
    %
    
    
    9.4
    %
    
    
    89.0
    %
    
    
    87.0
    %
    
    
    8.6
    %
    
    
    95.6
    %
    
    
    100.9
    %
    
    
    4.8
    %
    
    
    105.7
    %Aviation & Space
    
    
    53.7
    
    
    
    23.9
    
    
    
    77.6
    
    
    
    44.3
    
    
    
    15.4
    
    
    
    59.7
    
    
    
    69.9
    
    
    

    13.0
    
    
    
    82.9Credit & Surety
    
    
    64.6
    
    
    
    27.7
    
    
    
    92.3
    
    
    
    59.8
    
    
    
    30.2
    
    
    
    90.0
    
    
    
    64.8
    
    
    
    28.8
    
    
    
    93.6Engineering
    
    
    76.9
    
    
    
    25.6
    
    
    
    102.5
    
    
    
    64.7
    
    
    
    29.7
    
    
    
    94.4
    
    
    
    81.7
    
    
    
    21.9
    
    
    
    103.6Marine & Energy
    
    
    87.5
    
    
    
    21.3
    
    
    
    108.9
    
    
    
    73.5
    
    
    
    18.6
    
    
    
    92.1
    
    
    
    86.3
    
    
    
    23.3
    
    
    
    109.6Professional
Liability and other
Special Liability
    
    
    151.4
    
    
    
    19.2
    
    
    
    170.6
    
    
    
    79.2
    
    
    
    26.5
    
    
    
    105.7
    
    
    
    101.0
    
    
    
    19.5
    
    
    
    120.5Workers Compensation
    
    
    96.5
    
    
    
    23.8
    
    
    
    120.3
    
    
    
    114.3
    
    
    
    13.0
    
    
    
    127.3
    
    
    
    61.1
    
    
    
    24.3
    
    
    
    85.4Proportional
    
    
    82.5
    
    
    
    25.3
    
    
    
    107.8
    
    
    
    75.6
    
    
    
    24.1
    
    
    
    99.7
    
    
    
    73.5
    
    
    
    20.9
    
    
    
    94.4Non-Proportional
    
    
    192.0
    
    
    
    16.2
    
    
    
    208.2
    
    
    
    82.3
    
    
    
    12.4
    
    
    
    94.7
    
    
    
    86.7
    
    
    
    22.9
    
    
    
    109.6Structured/Finite
    
    
    91.4
    
    
    
    14.3
    
    
    
    105.7
    
    
    
    62.5
    
    
    
    26.0
    
    
    
    88.5
    
    
    
    89.4
    
    
    
    15.2
    
    
    
    104.6Total Specialty Lines
    
    
    99.4
    
    
    
    21.7
    
    
    
    121.1
    
    
    
    74.6
    
    
    
    21.6
    
    
    
    96.2
    
    
    
    80.0
    
    
    
    20.0
    
    
    
    100.0
 
 (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 our 2004 consolidated financial statements.
For an explanation of significant loss activity, see Item 5Operating and Financial Review and
Prospects  A. Operating 27




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##### Table of Contents



Results. Life & Health Reinsurance The Life & Health Reinsurance segment contains the following lines of business:  
    
    Life and Disability; and
    
    Accident and Health. We offer these lines of business on an international scale. We primarily conduct our Life and
Disability reinsurance business from Cologne, Germany. We have implemented a strategy to
substantially grow our life reinsurance business. In addition, we have established branch offices
in Milan and Paris. We also utilize our non-life offices in many parts of the world to facilitate
direct contacts with our Life & Health Reinsurance clients. As a result of these initiatives, our Life and Disability and Accident and Health lines of business
written from our European offices have grown significantly in recent years, with our net premiums
written increasing from $196.0 million in 2001 to $321.8 million at the end of 2004. 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,
Italy, France and the Middle East;
    
    maintaining a low expense ratio;
    
    selectively providing services in certain target markets to build loyalty and attract premiums;
    
    providing structured/finite solutions; and
    
    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 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; and 28




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
    
    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. We also believe that our health business will positively contribute to the overall profitability of
this segment. We intend to carefully apply our cycle management approach and monitor the market
development in this area to be able to recognize early indications of turning market conditions. 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:  
    
    financial strength;
    
    expertise, reputation, experience and qualifications of employees;
    
    local presence;
    
    client relationships;
    
    products and services offered;
    
    premium levels; and
    
    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 majority-owned by the mutual insurance group HDI
Haftpflichtverband der Deutschen Industrie;
    
    Lloyds syndicates active in the London market;
    
    companies active in the Bermuda Market, including the PartnerRe Group, XL Capital Ltd.
and RenaissanceRe Holdings Ltd.;
    
    Everest Reinsurance Company;
    
    Transatlantic Reinsurance Company; and
    
    SCOR. Non-life underwriting, pricing/structuring and accumulation control We regard underwriting and pricing as core skills. 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 29




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appropriate to the nature of the risk. Our underwriters coordinate 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 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 to significant internal
actuarial expertise, which we deploy to assess pricing 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 capitalization under normal circumstances and an adequate capitalization
after 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 these rules is regularly reviewed by our senior
management, who 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 & 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. We are committed to underwriting for profit. In pricing, we are committed to price to an after-tax
target return of 950 basis points above the local risk-free rate over the cycle. Meeting this
target requires a constant management of the underwriting cycle including the avoidance of
under-priced business. We allocate capital to transactions based on how they contribute to our portfolios 1-in-100 year
or worse losses. Business aggregating with existing treaties (that is, treaties that do not
diversify well within our existing portfolio) are allocated a disproportionately larger amount of
capital than treaties that diversify well. Similarly, larger treaties are allocated a
disproportionately larger amount of capital than smaller treaties. This capital approach helps the
portfolio become more diverse and optimizes the treaty mix. 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, expected future
loss costs, historical and projected premium rate changes, financial stability and history, classes
and nature of underlying business and policy forms, changes in the underlying risk exposure over
time, 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,
adjusted for trends, 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 that reflects risk-free investment income generated by the
cash flows, commissions, brokerage, internal expenses and taxes. We estimate the risk capital by
analyzing the treatys dependency on the current and future planned portfolio. Key factors that we
utilize in the calculation of risk capital are the loss profile of the contract, the duration of
the liabilities and the correlation of the risk factors with the remainder of our book of business.
From this, the performance of the deal, or Performance Excess, is then computed as the
profitability of the deal less the cost of capital. We also consider other items in our pricing analysis such as client and line of business
desirability and associated business opportunities. Whenever necessary, we develop or enhance
additional tools to assess non-traditional or unusual structures. For 30




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specialized lines, such as Aviation, Agribusiness and Credit & Surety, we have developed and
continue to enhance pricing models based on risk factors specific to those lines of business. 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 the flexibility 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. Our modeling expertise and development of very
efficient computational algorithms and simulations enable us to price different structures
promptly. We are able to access our pricing system and databases online and from anywhere around
the world. 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 and use
this information to populate our databases. We utilize this information to 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
department 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 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 department, 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 department provides
feedback to the ceding company, including an assessment of the claims operation and, if
appropriate, recommendations regarding procedures, processing and personnel. Our non-life operating units work together to coordinate issues in a cooperative effort involving
claims services, actuarial, risk modeling and underwriting functions. For example, our Claims
Services personnel help coordinate the reserving and risk assessment functions across our
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. 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. 31




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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. To 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 life
portfolio. Catastrophe risk management and protection Natural peril and man-made catastrophe risk management is an essential part of our overall
corporate risk management plan. To help us 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 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 is responsible for modeling our global catastrophe exposure, and provides
support to 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 international 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 (the Global Cat Data Platform), which
helps us to manage our worldwide accumulations of catastrophe risk by peril and region. In our
analyses we focus on key zones where we face a geographic concentration or peak exposures, such as
European windstorm risk. This centralized analysis is essential for an international 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. By 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 balance sheet supports, 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 probability-based monitoring tools to enhance the utility of our models. 32




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Our central monitoring system models loss potentials for storm and earthquake scenarios to
help us measure our accumulation of risk by type of peril and geographic region. We
continuously perform accumulation analyses during renewal season. We believe that this
centralized review helps us monitor and manage our natural catastrophe loss potential and to
take remedial action if there is a risk that our accumulations will reach levels that are not
acceptable under our guidelines. 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 made a significant
contribution to the enhancement of the market standard for the exchange of exposure data
between primary and reinsurance companies, thereby assisting market participants to adopt
common reporting and better understand their natural catastrophe exposures. We believe that
the use of data standards will improve data quality, enable more accurate risk assessment
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. Historically, a majority of the natural catastrophe reinsurance we have written relates to
exposures within the United States, Europe and Japan. Accordingly, we are exposed to natural
catastrophic events which affect these regions, such as US hurricane, US earthquake, European
windstorm and Japanese earthquake events. Our estimated potential losses, on a probable maximum
loss 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. 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, US hurricanes and European windstorms;
    
    to achieve protection at stable prices for a multi-year period;
    
    to obtain better post-event liquidity relief compared to traditional retrocessionaires
practices and the respective counterparty credit risks on recoveries; and
    
    to diversify sources of risk bearing capacity from more traditional reinsurance products. In 2004, we had the benefit of reinsurance protections on a worldwide basis in excess of $100
million and up to $250 million for any natural catastrophe affecting our property portfolio. These
protections included both traditional reinsurance as well as the catastrophe protection described
more fully below. In addition, we purchased cover for natural catastrophes affecting our non-US
property portfolio in excess of $25 million, once an annual aggregate deductible of $50 million has
been exhausted, with cover up to $100 million. The majority of this coverage was placed with
companies with AAA financial strength ratings. In addition, in June 2004, we entered into a transaction with Helix 04 Ltd (Helix 04), a
dedicated Bermuda special purpose exempted company that ultimately provides us with specific high
limit catastrophe protection. Helix 04s business consists solely of issuing five-year catastrophe
securities; Helix 04 entered into a counterparty contract with us whereby Helix 04 will make
payments to us from its funds to cover defined catastrophic losses. The owners of the securities
are entitled to receive their original investment, plus interest on the notes, paid quarterly, less
any loss payments made to us. The Helix 04 transaction replaced the Trinom transaction that we had
in place since 2001. See Note 11 to our 2004 consolidated financial 33




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statements for additional information on Helix. The coverage we have obtained from the Helix 04 transaction is expected to reduce our net retained
loss for large catastrophe events. Payments from Helix 04 to us are based on modeled losses on a
notional portfolio. Perils covered by the Helix 04 transaction and the Catastrophe agreement
include only US and Japanese earthquake, North Atlantic hurricane and European windstorm losses
that occur before June 23, 2009. Helix 04 provides a second event protection. The first event is
defined as any event in one of the four defined peril regions whose modeled loss for the notional
portfolio exceeds $150 million. After this first event, we are covered for any event in the four
above mentioned peril regions whose modeled loss for the notional portfolio exceeds $175 million.
The amount of coverage is $100 million. We estimate our gross loss for each of the 2004 hurricanes to be less than the Helix 04 activation
threshold of $150 million for each such event and therefore we will not file a trigger event
request in respect of these losses. Unlike traditional reinsurance, the Helix 04 transaction is fully collateralized to eliminate any
counterparty credit risk on recoveries. Helix 04 provides a second event protection over a
five-year horizon, securing a fixed-price capacity, which cannot be impaired by a severe first
industry event. Due to the nature of the transaction, we are exposed to modeling uncertainty,
meaning that the modeled loss might deviate somewhat from the actual indemnity loss of the notional
portfolio (basis risk). The following table illustrates our catastrophe protections in place in 2004: Traditional Reinsurance
    
    
    HelixCatastrophic Event(1)
    
    Gross Loss
    
    
    Recovery(2)
    
    
    Recovery(4)
    
    
    Status1st Catastrophic Event
    $
    150 million to
    

    $
    50 million to
    
    
    N/A
    
    
    Cover triggered$
    250 million
    

    $
    150 million2nd Catastrophic Event
    $
    175 million to
    

    $
    75 million to
    
    $

    0 to
    
    Cover in effect$
    275 million
    

    $
    150 million(3)
    

    $

    100 million(4)
 
 (1)
    
    A catastrophic event in a defined peril region.(2)
    
    On a worldwide basis in excess of $100 million.(3)
    
    Subject to a total recovery of $225 million over the term of the policy.(4)
    
    Recovery is based on modeled losses on a notional portfolio, not on actual losses. Lastly, with respect to man-made catastrophes such as acts of terrorism, we have introduced an
appropriate 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 appropriate 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; and
    
    aggregate stop-loss protections. We have established a control procedure whereby our Chief Executive Officer and Chief Risk Officer,
along with the other members of our senior executive team, review the business purpose for all
reinsurance purchases. One or more members of our senior executive team, generally our Chief Risk
Officer, approve all purchases before they are bound. 34




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Prior to entering into a retrocessional agreement, we analyze the financial strength and rating of
each retrocessionaire and the financial performance and rating status of all material
retrocessionaires is thereafter monitored. In addition, as part of our evaluation before
purchasing reinsurance we also consider the accounting implications of the particular transaction. 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, 2004 and 2003, Converium held $559.4 million and
$635.3 million, respectively, in collateral as security under related retrocessional agreements in
the form of deposits, securities and/or letters of credit. 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 $40.6 million and $35.4 million have been recorded for estimated uncollectible
receivables and reinsurance recoverables at December 31, 2004 and 2003, respectively. The following table sets forth Converiums ten largest retrocessionaires as of December 31, 2004,
based on 2004 ceded premiums written, and their respective Standard & Poors or A.M. Best financial
strength ability rating. Retrocessionaire
    
    Premium ceded
    
    
    
    
    
    
    S&P/A.M. BestRetrocessionaire
    
    Group
    
    in $ millions
    
    
    % of total
    
    
    RatingNational Indemnity Company (1)
    
    Berkshire Hathaway Insurance Group
    
    $
    41.1
    
    
    
    14.3
    %
    
    AAA/A++Helvetia Patria Versicherungen (2)
    
    Helvetia
    
    
    27.2
    
    
    
    9.5
    
    
    BBBpi/NRQBE Insurance & Reinsurance (Europe)
    
    QBE Insurance Group
    
    
    21.2
    
    
    
    7.4
    
    
    A+/AAugsburger Ruck
    
    Augsburger Ruck
    
    
    17.0
    
    
    
    5.9
    
    
    NRInterpolis Reinsurance Services Ltd.
    
    Rabobank
    
    
    16.1
    
    
    
    5.6
    
    
    NRManulife Europe
    
    Manulife Europe
    
    
    14.8
    
    
    
    5.1
    
    
    NRPartnerRe U.S. Group
    
    PartnerRe Group
    
    
    11.0
    
    
    
    3.8
    
    
    AA-/A+ICM Re S.A.
    
    ICM Re
    
    
    10.8
    
    
    
    3.8
    
    
    NRManufactuerers P&C Ltd.
    
    Manufacturers
    
    
    10.7
    
    
    
    3.7
    
    
    NRGE Frankona Reinsurance Ltd.
    
    GE Frankona
    
    
    7.4
    
    
    
    2.6
    
    
    A/ATotal provided by top ten retrocessionaires,
and percentage of total retrocessional reinsurance
    
    
    
    $
    181.8
    
    
    
    63.2
    %Total retrocessional reinsurance
    
    
    
    $
    287.9
    
    
    
    100.0
    %
 
 (1)
    
    National Indemnity Cover:In order to provide additional comfort as regards to our reserve
position, we acquired a retroactive stop-loss retrocession cover from National Indemnity Company, a
Standard & Poors AAA-rated member of the Berkshire Hathaway group of insurance companies. The
stop-loss provides an additional $150.0 million of cover against potential adverse reserve
development on the underwriting years 1987 through 2003 for Converium AG, CRNA and CINA. The cover
of $150.0 million attaches at $100.0 million in excess of the ultimate third-party net
non-life reserves; which are defined as non-life carried losses and allocated loss adjustment
expense reserves as of June 30, 2004 plus the expected losses and allocated loss adjustment
expenses emanating out of the unearned premium reserves as of June 30, 2004 of the portfolio
subject to cover, carried by these legal entities for these underwriting years as of June 30, 2004
and therefore excludes inter-group reinsurance arrangements. The reinsurance charge for this
retrocession is $20.0 million and has been recorded in the income statement under the caption
Other (loss) income. There are additional consideration features associated with this layer of
coverage, which may result in additional consideration of up to $60.0 million being paid in the
event that the cover is fully utilized. No losses have been ceded as of December 31, 2004.In addition, this contract has another layer of coverage of $235.0 million for which a
consideration of $135.0 million has been paid. This layer attaches at $235.0 million below
the ultimate third-party net non-life reserves on the same underwriting years. The economics of
this layer of coverage are such that the reinsurance risk transfer requirements of US GAAP are not
met. Accordingly, this protection is accounted for under deposit accounting rules. As a result,
there is no material income statement impact for 2004 in respect of this layer of coverage.We have retained the right to commute the whole transaction on July 1, 2009, or thereafter at
mutually agreeable terms.(2)
    
    In late 2004, we entered into an agreement to terminate our $75.0 million GMDB reinsurance
protection purchased in the fourth quarter of 2003, for an amount of $9.7 million giving rise to
a net cost of the cover for 2004 of $0.1 million. The primary purpose of this cover was to
address the volatility in the United States equity markets. The cover was also intended to address
potential adverse deviations to other key assumptions such as mortality risk, lapse rate risks and
surrenders. We feel that the current carried reserves for its GMDB exposure are adequate, however,
we continue to monitor 35




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and review other reinsurance and financial product solutions to address the risks associated with
this business. 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 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 our sole
discretion. 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 CRNA, 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. In order to provide additional comfort as regards our reserve position, in August 2004 we acquired
a retrospective stop-loss retrocession cover from National Indemnity Company, a Standard & Poors
AAA-rated member of the Berkshire Hathaway group of insurance companies. See Note 11 to our 2004
consolidated financial statements. See Note 27 to our 2004 consolidated financial statements for further information on retrocesional
risk management. Loss and loss adjustment expense reserves Establishment of loss and loss adjustment expense reserves We are required by applicable insurance laws and regulations and US 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 and its reporting by the insured to the primary insurance company
and subsequently by the insurance company to its reinsurance company. Loss reserves fall into two
categories: reserves for reported losses and loss adjustment expenses, and reserves for 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. 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 data and pricing information and statistical models as well as our pricing analyses. We
revise reserves 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 periodically. Adjustments resulting from this process are reflected
in current income. Our 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, among other things, the
time lag inherent in reporting 36




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##### Table of Contents



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 terms and conditions. After an initial analysis by reserving actuaries,
preliminary results are shared with appropriate underwriters, pricing actuaries, claims and finance
professionals and senior management. Final actuarial recommendations incorporate feedback from
these professionals. During 2004, we updated FRAME, our reserving tool, with a new proprietary global loss reserve
estimation system, which we refer to as CORE. 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. We aggregate the reserves indicated for each
transaction to arrive at the total reserve requirement (bottom-up approach). 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. These top-down analyses provide an alternative view that
is less dependent on pricing information and is independent of our bottom-up approach. The
comparison of these different approaches, namely bottom-up and top-down, provide additional
insights into the reserve position and can lead to reserve adjustments in either bottom-up or
top-down approaches or both. In accordance with US 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 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 protection 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 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. Development of prior years reserves:Converium has experienced significant adverse development,
predominantly in its US casualty reinsurance lines, for the last several years. Since 2000,
Converium has recorded a total of $868.2 million of additional net provisions on prior years
non-life business (2000: $65.4 million: 2001: $123.6 million; 2002: $148.5 million; 2003: $(31.3)
million; and 2004: $562.0 million). During early 2004, Converium announced that reported losses from prior year US casualty business
had exceeded expected loss emergence and that the volatility of longer-tail risks was likely to
persist for some time. This adverse loss-reporting trend continued and accelerated into mid-2004
and prompted Converium to initiate additional reviews of its US business from an integrated
underwriting, claims and actuarial perspective in order to examine the adequacy of prior years
provisions. In addition, in order to obtain an external review of our overall reserve position, we
commissioned the actuarial consulting firm Tillinghast-Towers Perrin to perform an independent
actuarial review of our non-life loss and allocated loss adjustment expense reserves as of June 30,
2004 in respect of the Zurich and New York originated businesses. The outcome of these in-depth
internal and external reviews resulted in an aggregate strengthening of prior years non-life loss
reserves by $562.0 million for the year ended December 31, 2004. This action was taken in response
to the continued adverse loss emergence due to increased claims reporting activity from clients
relating to US casualty business written from 1997 to 2001 as well as deterioration from European
non-proportional motor business written in recent years. While we believe that we have fully
addressed this issue through our reserving actions, volatility is expected to persist for some
time. 37




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##### Table of Contents



In the Standard Property & Casualty Reinsurance segment, the development of prior years reserves
of $73.5 million primarily related to adverse developments of General Third Party Liability ($116.3
million), motor liability outside the United States ($91.7 million) and Personal Accident
(non-life) ($8.1 million), which was partially offset by positive developments related to Property
($82.1 million) and miscellaneous liability ($60.5 million) that also included the impact of whole
account retrocessions. In the Specialty Lines segment, the development of prior years reserves of
$488.5 million primarily related to adverse developments of the Professional Liability and other
Special Liability lines ($449.3 million), particularly excess & surplus lines and umbrella,
Workers Compensation ($55.3 million), and Engineering ($12.9 million). These adverse developments
in the Specialty Lines were partially offset by positive developments related to Aviation & Space
($24.5 million), Agribusiness ($0.7 million), and Credit & Surety ($3.8 million). Commutations:Based on the developments of 2004, we placed our US reinsurance operations into
run-off and started to implement and execute a commutation strategy. Commutations can accelerate
the realization of profit inherent in long-tail reserves by crystallizing outstanding claims
reserves into payments, which are discounted to reflect the time value of money. Since commutation
payments essentially reflect a discounted present value of estimated future cash flows, future
investment income earned is expected to decline as the assets backing those reserves are liquidated
to make payments. As of December 31, 2004, we agreed upon commutations with primarily North
American cedents regarding gross loss reserves of $545.8 million that resulted in a cash outflow of
$526.8 million. The reserve strengthenings as described herein in  Loss Reserve Development have been determined
in accordance with our loss reserving policies as described in  Loss and Loss Adjustment Expense
Reserves  Establishment of Loss and Loss Adjustment Expense Reserves, and was recorded in
accordance with our established accounting policies as described in Note 2(c) to our 2004
consolidated 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 US
dollars. As of December 31, 2004, approximately 43% of our non-life reinsurance reserves are for
liabilities that will be paid in a currency other than the US dollar. We establish these reserves
in original currency, and then, during our consolidation process, translate them to US 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 US dollar are translated at consolidation into
US 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, 2004. 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 (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 offering memorandum. 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 38




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##### Table of Contents



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 US 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, 2004, net
reserves for losses and loss adjustment expenses included approximately $180.0 million of reserves
related to losses from accident years 1994 and prior, or 2.4% of net reserves as of December 31,
2004. The table below presents our loss and loss adjustment expense reserve development as of the dates
indicated. As of December 311994
    
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004($ millions, except percentages)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
    
    
    $
    7,842.8
    
    
    $
    8,776.9Reinsurance recoverable
    
    
    59.6
    
    
    
    102.9
    
    
    
    106.9
    
    
    
    290.1
    
    
    
    457.3
    
    
    
    704.9
    
    
    
    1,212.2
    
    
    
    1,545.0
    
    
    
    1,459.8
    
    
    
    1,385.4
    
    
    
    1,135.4Initial 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
    
    
    $
    6,457.4
    
    
    $
    7,641.5Cumulative paid as of:One year later
    
    
    405.9
    
    
    
    443.9
    
    
    
    466.0
    
    
    
    514.5
    
    
    
    610.0
    
    
    
    850.6
    
    
    
    885.2
    
    
    
    1,101.6
    
    
    
    1,464.7
    
    
    
    1,766.4Two years later
    
    
    611.1
    
    
    
    669.4
    
    
    
    721.2
    
    
    
    843.0
    
    
    
    968.8
    
    
    
    1,339.2
    
    
    
    1,501.0
    
    
    
    2,010.2
    
    
    
    2,548.6Three years later
    
    
    736.2
    
    
    
    803.1
    
    
    
    921.7
    
    
    
    1,064.4
    
    
    
    1,250.7
    
    
    
    1,670.1
    
    
    
    2,066.2
    
    
    
    2,745.5Four years later
    
    
    815.4
    
    
    
    927.0
    
    
    
    1,062.2
    
    
    
    1,261.7
    
    
    
    1,438.6
    
    
    
    2,023.5
    
    
    
    2,548.3Five years later
    
    
    896.9
    
    
    
    1,007.7
    
    
    
    1,178.3
    
    
    
    1,336.5
    
    
    
    1,622.3
    
    
    
    2,309.0Six years later
    
    
    949.9
    
    
    
    1,093.8
    
    
    
    1,197.5
    
    
    
    1,436.7
    
    
    
    1,772.9Seven years later
    
    
    1,006.5
    
    
    
    1,087.1
    
    
    
    1,249.3
    
    
    
    1,545.8Eight years later
    
    
    986.5
    
    
    
    1,115.7
    
    
    
    1,319.4Nine years later
    
    
    1,004.1
    
    
    
    1,157.8Ten years later
    
    
    1,025.8Net 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
    
    
    
    5,597.8
    
    
    
    7,057.0Two years later
    
    
    1,499.0
    
    
    
    1,642.6
    
    
    
    1,853.5
    
    
    
    2,051.3
    
    
    
    2,274.9
    
    
    
    2,922.4
    
    
    
    3,599.5
    
    
    
    4,551.5
    
    
    
    6,080.2Three years later
    
    
    1,364.6
    
    
    
    1,617.7
    
    
    
    1,736.4
    
    
    
    1,970.4
    
    
    
    2,300.8
    
    
    
    3,027.2
    
    
    
    3,802.1
    
    
    
    5,030.2Four years later
    
    
    1,396.2
    
    
    
    1,541.1
    
    
    
    1,677.3
    
    
    
    1,989.1
    
    
    
    2,333.7
    
    
    
    3,171.9
    
    
    
    4,178.5Five years later
    
    
    1,339.0
    
    
    
    1,468.9
    
    
    
    1,661.2
    
    
    
    1,990.7
    
    
    
    2,410.7
    
    
    
    3,385.2Six years later
    
    
    1,284.5
    
    
    
    1,452.9
    
    
    
    1,645.9
    
    
    
    2,013.0
    
    
    
    2,500.2Seven years later
    
    
    1,260.1
    
    
    
    1,446.1
    
    
    
    1,649.3
    
    
    
    2,069.5Eight years later
    
    
    1,263.3
    
    
    
    1,448.7
    
    
    
    1,684.6Nine years later
    
    
    1,272.4
    
    
    
    1,476.8Ten years later
    
    
    1,293.6Reinsurance recoverable re-estimated
as of December 31, 2004
    
    
    130.6
    
    
    
    246.3
    
    
    
    336.3
    
    
    
    422.8
    
    
    
    684.8
    
    
    
    1,292.0
    
    
    
    1,658.5
    
    
    
    1,613.9
    
    
    
    1,435.6
    
    
    
    1,202.2Gross reserves re-estimated as of
December 31, 2004
    
    
    1,424.1
    
    
    
    1,723.2
    
    
    
    2,020.9
    
    
    
    2,492.3
    
    
    
    3,185.0
    
    
    
    4,677.2
    
    
    
    5,837.1
    
    
    
    6,644.1
    
    
    
    7,515.8
    
    
    
    8,259.2Cumulative net redundancy/(deficiency)
    
    
    115.8
    
    
    
    311.7
    
    
    
    453.8
    
    
    
    276.8
    
    
    
    30.6
    
    
    
    (544.3
    )
    
    
    (844.7
    )
    
    
    (864.7
    )
    
    
    (718.7
    )
    
    
    (599.5
    )Cumulative redundancy/(deficiency)
as a percentage of initial net reserves
    
    
    8.2
    %
    
    
    17.4
    %
    
    
    21.2
    %
    
    
    11.8
    %
    
    
    1.2
    %
    
    
    (19.2
    )%
    
    
    (25.3
    )%
    
    
    (20.8
    )%
    
    
    (13.4
    )%
    
    
    (9.3
    )%Cumulative gross
redundancy/(deficiency)
    
    
    44.8
    
    
    
    168.2
    
    
    
    224.4
    
    
    
    144.2
    
    
    
    (196.9
    )
    
    
    (1,131.5
    )
    
    
    (1,291.1
    )
    
    
    (933.7
    )
    
    
    (694.5
    )
    
    
    (416.3
    )Cumulative redundancy/(deficiency) as
a percentage of initial gross reserves
    
    
    3.0
    %
    
    
    8.9
    %
    
    
    10.0
    %
    
    
    5.5
    %
    
    
    (6.6
    )%
    
    
    (31.9
    )%
    
    
    (28.4
    )%
    
    
    (16.4
    )%
    
    
    (10.2
    )%
    
    
    (5.3
    )%
 As a significant portion of our reserves relate to liabilities payable in currencies other
than US dollars, any fluctuations of the US dollar to those currencies will have an impact on the
reserve redundancy/(deficiency). As shown on the table above, the net reserve position for 1998
developed favorably from $2,530.8 million as of December 31, 1998 to $2,500.2 million as of
December 31, 2004, reflecting a redundancy of $30.6 million. However, shown on the table below,
applying the exchange rate as of December 31, 1998 to the 1998 reserves re-estimated as of December
31, 2004 would result in re-estimated reserves of $2,584.9 million, or a deficiency of $54.1
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, 2004 than if the reserves were shown on a constant exchange rate
basis for all years presented. Due to the 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, 2004, we recorded $1,135.4 million of reinsurance recoverables on loss and loss
adjustment expense reserves. Approximately 24.7% of this amount relates to Workers Compensation
business and 25.9% relates to recoverables in connection with the September 11th terrorist attacks. 39




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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
    
    
    2004($ millions, except percentages)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
    
    
    $
    6,457.4
    
    
    $
    7,641.5Net 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
    
    
    
    5,337.9
    
    
    
    6,810.5Two years later
    
    
    1,479.5
    
    
    
    1,758.2
    
    
    
    1,925.4
    
    
    
    2,078.8
    
    
    
    2,412.6
    
    
    
    3,035.5
    
    
    
    3,602.4
    
    
    
    4,436.9
    
    
    
    5,693.0Three years later
    
    
    1,387.9
    
    
    
    1,707.3
    
    
    
    1,865.4
    
    
    
    2,016.6
    
    
    
    2,463.0
    
    
    
    3,118.1
    
    
    
    3,734.8
    
    
    
    4,800.6Four years later
    
    
    1,405.6
    
    
    
    1,674.5
    
    
    
    1,819.3
    
    
    
    2,035.0
    
    
    
    2,469.9
    
    
    
    3,213.4
    
    
    
    4,044.6Five years later
    
    
    1,382.7
    
    
    
    1,612.4
    
    
    
    1,799.4
    
    
    
    2,023.7
    
    
    
    2,507.7
    
    
    
    3,399.5Six years later
    
    
    1,338.7
    
    
    
    1,589.9
    
    
    
    1,775.9
    
    
    
    2,017.9
    
    
    
    2,584.9Seven years later
    
    
    1,306.6
    
    
    
    1,588.4
    
    
    
    1,755.5
    
    
    
    2,065.5Eight years later
    
    
    1,316.7
    
    
    
    1,574.4
    
    
    
    1,782.5Nine years later
    
    
    1,313.6
    
    
    
    1,595.9Ten years later
    
    
    1,329.7Cumulative
redundancy/(deficiency)
    
    
    79.6
    
    
    
    192.6
    
    
    
    355.9
    
    
    
    280.8
    
    
    
    (54.1
    )
    
    
    (558.7
    )
    
    
    (710.9
    )
    
    
    (635.1
    )
    
    
    (331.5
    )
    
    
    (353.1
    )Cumulative
redundancy/(deficiency) as a
percentage of initial net reserves
    
    
    5.7
    %
    
    
    10.8
    %
    
    
    16.6
    %
    
    
    12.0
    %
    
    
    (2.1
    )%
    
    
    (19.7
    )%
    
    
    (21.3
    )%
    
    
    (15.2
    )%
    
    
    (6.2
    )%
    
    
    (5.5
    )%
 As described below, the loss development triangles show net cumulative redundancies for 1995
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, 2004, was 4.1 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, 2004, 2003 and 2002. ($ millions)
    
    2004
    
    
    2003
    
    
    2002As of January 1,Gross reserves for losses and loss adjustment expenses
    
    $
    7,842.8
    
    
    $
    6,821.3
    
    
    $
    5,710.5Less reinsurance recoverable
    
    
    1,385.4
    
    
    
    1,459.8
    
    
    
    1,545.0Net reserves for losses and loss adjustment expenses
    
    
    6,457.4
    
    
    
    5,361.5
    
    
    
    4,165.5Losses and loss adjustment expenses incurred (1)Current year
    
    
    2,865.4
    
    
    
    2,527.9
    
    
    
    2,186.8Prior years
    
    
    342.5
    
    
    
    (31.3
    )
    
    
    148.5Total
    
    
    3,207.9
    
    
    
    2,496.6
    
    
    
    2,335.3Losses and loss adjustment expenses paidCurrent year
    
    
    498.1
    
    
    
    324.7
    
    
    
    299.4Prior years
    
    
    1,766.4
    
    
    
    1,464.7
    
    
    
    1,095.5Total
    
    
    2,265.4
    
    
    
    1,789.4
    
    
    
    1,394.9Foreign currency translation effects
    
    
    240.7
    
    
    
    388.7
    
    
    
    255.6As of December 31,Net reserves for losses and loss adjustment expenses
    
    
    7,641.5
    
    
    
    6,457.4
    
    
    
    5,361.5Reinsurance recoverable
    
    
    1,135.4
    
    
    
    1,385.4
    
    
    
    1,459.8Gross reserves for losses and loss adjustment expenses
    
    $
    8,776.9
    
    
    $
    7,842.8
    
    
    $
    6,821.3
 
 (1)
    
    The loss and loss adjustment expenses incurred includes $272.2 million, $142.0 million and
$103.4 million of loss and loss adjustment expenses incurred
related to Accident and Health business included in the Life & Health
Reinsurance segment for the years ended December 31, 2004, 2003 and 2002, respectively. 40




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In 2004, Converium recorded $(342.5) million at the 2004 average exchange rate and $(353.1) million
at the 2003 average exchange rate of adverse development. See   Adequacy of Reserves. Prior years loss and loss adjustment expenses incurred in 2004 of $(342.5) million net were
primarily driven by reserve strengthening of ($562.0 million) (See  Adequacy of reserves), and
the impacts on losses and loss adjustment expenses incurred of (i) adjustments of ultimate premium
estimates ($206.4 million), (ii) the commutation of the stop-loss protection regarding underwriting
year 2001 of the professional liability business generated through our strategic partnership with
MDU ($(10.5) million), and (iii) the reduction of reinsurance recoverables of ($(12.0) million),
which is offset by the effect of commutations. In 2003, the positive development of $31.3 million consisted of positive development on Property
lines ($113.5 million) and Aviation & Space ($102.2 million), offset by adverse development on
Workers Compensation and Professional Liability and other Special Liability lines ($120.3 million)
and the Motor and General Third Party Liability lines ($64.1 million). The reserve releases in 2003
were primarily from the 2002 underwriting year, while the US business written in 1997 to 2001
mostly saw continued strengthening. 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 Professional Liability and other Special
Liability Lines of business. 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 Rückversicherung (Köln) AG (ZRK). Our asbestos and environmental exposure primarily
originates from US 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
US 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 CRNA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
Formation Transactions and Relationship with Zurich Financial Services. 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, 2004 and 2003, our total loss and adjustment expense reserves, including
additional reserves and IBNR reserves, for US-originated asbestos and environmental losses were
approximately $49.2 million or 0.6% and $45.8 million or 0.7% 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 as of December 31, 2004 and 2003. 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. 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. These uncertainties and 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 41




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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
8.9%, 6.4% and 7.1% of our revenues for the years ended December 31, 2004, 2003 and 2002,
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. As of December 31, 2004, total invested assets (excluding cash and cash equivalents) were $7.8
billion compared to $7.5 billion as of December 31, 2003, an increase of $275.7 million, or 3.7%.
This increase is mainly due to the investment of the net proceeds from the 2004 rights offering,
positive operating cash flow and the weakening of the US dollar against European currencies. The
increase was offset by commutations of certain of our North American treaties as well as amounts
paid related to the retroactive stop-loss retrocession cover from National Indemnity Company. The table below presents the carrying value of our consolidated investment portfolios as of
December 31, 2004, 2003 and 2002. As of December 31,2004
    
    
    2003
    
    
    2002$
    
    
    % of
    
    
    $
    
    
    % of
    
    
    $
    
    
    % ofmillions
    
    
    Total
    
    
    millions
    
    
    Total
    
    
    millions
    
    
    TotalFixed maturities securities
    
    $
    5,685.2
    
    
    
    72.8
    %
    
    $
    4,928.6
    
    
    
    65.5
    %
    
    $
    3,443.1
    
    
    
    56.3
    %Equity securities
    
    
    408.5
    
    
    
    5.2
    
    
    
    840.2
    
    
    
    11.2
    
    
    
    530.8
    
    
    
    8.7Funds Withheld Asset
    
    
    1,305.1
    
    
    
    16.7
    
    
    
    1,530.6
    
    
    
    20.3
    
    
    
    1,648.1
    
    
    
    27.0Short-term investments
    
    
    133.3
    
    
    
    1.7
    
    
    
    55.8
    
    
    
    0.7
    
    
    
    318.0
    
    
    
    5.2Other investments
    
    
    272.3
    
    
    
    3.5
    
    
    
    173.5
    
    
    
    2.3
    
    
    
    177.3
    
    
    
    2.8Total investments
    
    $
    7,804.4
    
    
    
    100.0
    %
    
    $
    7,528.7
    
    
    
    100.0
    %
    
    $
    6,117.3
    
    
    
    100.0
    %
 Fixed Maturities As of December 31, 2004, our fixed maturities portfolio, excluding the Funds Withheld Asset
(described more fully below), had a carrying value of $5.7 billion and represented 67.1% of our
total investment portfolio including cash and cash equivalents (82.5% including the Funds Withheld
Asset). This represents an increase in carrying value of $756.6 million, or 15.3%, from December
31, 2003. This increase is mainly due to the sale of approximately $500.0 million in equity
securities, which were subsequently reinvested into fixed maturities, in order to reduce our
exposure to equity securities, as well as the continued weakening of the US dollar against European
currencies. In addition, the increase was due to the deployment of operating cash flow into fixed
maturity securities during 2004. The $400.0 million proceeds of the 2004 rights offering and
related capital increase were mainly invested in treasury securities or remained in cash at the end
of 2004. 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 securities portfolio, excluding
short-term investments, based on carrying value by scheduled maturity. 42




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##### Table of Contents



($ millions, except percentages)
    
    Estimated fair value
    
    
    % of total
    
    
    Carrying value
    
    
    % of totalAs of December 31, 2004
    
    Available-for-sale (AFS)
    
    
    AFS
    
    
    Held-to-maturity (HTM)
    
    
    HTMLess than one year
    
    $
    182.5
    
    
    
    3.8
    %
    
    $
    15.9
    
    
    
    1.9
    %One year through five years
    
    
    2,871.8
    
    
    
    59.4
    
    
    
    450.8
    
    
    
    53.0Five years through ten years
    
    
    923.2
    
    
    
    19.1
    
    
    
    353.5
    
    
    
    41.6Over ten years
    
    
    91.8
    
    
    
    1.9
    
    
    
    30.2
    
    
    
    3.5Subtotal
    
    
    4,069.3
    
    
    
    84.2
    
    
    
    850.4
    
    
    
    100.0Mortgage and asset-backed securities
    
    
    616.6
    
    
    
    12.7
    
    
    
    
    
    
    
    Unit trust bonds
    
    
    148.9
    
    
    
    3.1
    
    
    
    
    
    
    
    Total as of December 31, 2003
    
    $
    4,834.8
    
    
    
    100.0
    %
    
    $
    850.4
    
    
    
    100.0
    %
 Most of our fixed income securities are rated by Standard & Poors, Moodys or similar rating
agencies. As of December 31, 2004, approximately 97.7% of our fixed maturities securities portfolio
was invested in securities rated A or better by these agencies and approximately 85.2% 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. ($ millions, except percentages)
    
    Estimated fair value
    
    
    % of total
    
    
    Carrying value
    
    
    % of totalAs of December 31, 2004
    
    Available-for-sale (AFS)
    
    
    AFS
    
    
    Held-to-maturity (HTM)
    
    
    HTMAAA/Aaa
    
    $
    4,022.5
    
    
    
    83.2
    %
    
    $
    822.1
    
    
    
    96.7
    %AA/Aa2
    
    
    452.0
    
    
    
    9.4
    
    
    
    16.2
    
    
    
    1.9A/A2
    
    
    229.6
    
    
    
    4.7
    
    
    
    12.1
    
    
    
    1.4BBB/Baa2
    
    
    11.1
    
    
    
    0.2
    
    
    
    
    
    
    
    BB
    
    
    3.0
    
    
    
    0.1
    
    
    
    
    
    
    
    Not rated1
    
    
    116.6
    
    
    
    2.4
    
    
    
    
    
    
    
    Total as of December 31, 2003
    
    $
    4,834.8
    
    
    
    100.0
    %
    
    $
    850.4
    
    
    
    100.0
    %
 
 1
    
    Includes $89.3 million private collateralized loans issued by German banks with a
credit rating equivalent to S&P AAA, purchased during 2004. Our guidelines also restrict our maximum investment in bonds issued by any group or industry sector
by reference to local benchmarks and applicable insurance regulations. As of December 31, 2004 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, 2004, our equity securities portfolio had a carrying value of $408.5 million
(including our participation in PSP Swiss Property AG). This represents a decrease in carrying
value of $431.7 million, or 51.4%, from December 31, 2003. The decrease was primarily the result of
the sale of a substantial portion of our equity securities portfolio in order to lower our equity
exposure and related capital charges. Equity securities were approximately 3.7% and 9.7% of our
total investment portfolio as of December 31, 2004 and 2003, respectively, including cash and cash
equivalents and excluding our participation in PSP Swiss Property AG. Substantially our entire equity portfolio consists of listed securities held directly or through
funds. All the equity portfolios are in developed markets. As experienced in recent years, the
equity markets around the world can produce highly volatile and significantly varied results due to
local and worldwide economic and political conditions. Our exposure to private equity fund investments as of December 31, 2004 was approximately $61.5
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 $15.7 million as of December 31, 2004. At December 31, 2004 and 2003, gross unrealized gains on our equity portfolio were $73.0 million
and $96.2 million and gross unrealized losses were $2.5 million and $1.7 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, that exceed 50% regardless of the period of decline or 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 43




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##### Table of Contents



benchmarks and applicable insurance regulations. As of December 31, 2004, excluding our investments in funds and our participation in 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 affected as of July 1,
2001 by means of the Quota Share Retrocession Agreement with Zurich Financial Services. 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, 2004, the Funds Withheld Asset was $1,305.1
million. The decrease of $225.5 million over December 31, 2003 was primarily due to paid claims. 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 Zurich
Insurance Company (ZIC) and Zurich International Bermuda Ltd (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. 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, 2004, we had short-term investments with a carrying value of $133.3 million,
representing 1.6% of our total investment portfolio, including cash and cash equivalents.
Short-term investments at December 31, 2003 were $55.8 million or 0.7% of our total investment
portfolio, including cash and cash equivalents. Real Estate At December 31, 2004, we had real estate held for investment of $138.8 million, consisting
primarily of investments in residential and commercial rental properties located in Switzerland.
Our direct real estate portfolio represented 1.6% of our total investment portfolio, including cash
and cash equivalents. In addition to these properties, Converium owns a 4.9% participation in PSP Swiss Property AG (an
indirect real estate investment, included in equity securities) with a market value of $98.9
million as of December 31, 2004. The ownership in PSP Swiss Property AG decreased from 7.4% as of
December 31, 2003, due to the merger of PSP Swiss Property AG with REG Real Estate Group, another
Swiss real estate company, during 2004. During 2004, we invested approximately $100.0 million in funds of hedge funds. At December 31,
2004, these funds had a carrying value of $102.5 million. This investment is included under the
caption Other investments in the balance sheet. Premiums Receivable We had premiums receivable of $2.2 billion at December 31, 2004 compared to $2.0 billion at
December 31, 2003, an increase of $169.7 million, or 8.4%. This increase is due to premiums
written in 2004 and the weakening of the US dollar against European currencies. 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 some time in the future. See Reinsurance results section for additional
information regarding adjustments of ultimate premium estimates. Current premiums receivable
represented 14.6% and 9.1% of total premiums receivable at December 31, 2004 and 2003,
respectively, and accrued premiums receivable represented 85.4% and 90.9%, 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, 2004, Converium held $559.4 million in collateral as
security under related retrocessional agreements in the form of deposits, securities and/or letters
of credit. 44




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##### Table of Contents



As of December 31, 2004, we had reinsurance recoverables from retrocessionaires of approximately
$1.3 billion on paid and unpaid losses and loss adjustment expenses, unearned premium reserves and
future life benefits balances, compared to $1.7 billion at December 31, 2003. Allowances of $40.6
million have been recorded for estimated uncollectible receivables and reinsurance recoverables at
December 31, 2004, compared to $35.4 million at December 31, 2003 . Capital Expenditures For the three years ended December 31, 2004, 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 Based on the developments of the latter part of 2004, both Standard & Poors Ratings Services and
A.M. Best initially lowered our ratings, but following our successful 2004 rights offering, some of
the ratings were subsequently raised. Such ratings are as follows. Currently, Standard & Poors long-term counterparty credit and insurer financial strength rating of
Converium AG is BBB+ (downgraded from a rating of A). For Converium Rückversicherung
(Deutschland) AG and Converium Insurance (UK) Ltd., the insurer financial strength rating is
currently BBB+ (downgraded from a rating of A). Based on our announcement to place CRNA into
run-off, the long-term counterparty credit and insurer financial strength ratings were downgraded
to R (downgraded from a rating of A). In addition, Standard & Poors issued a long-term
counterparty credit and senior unsecured debt ratings of BB+ for Converium Holdings (North
America) Inc. (downgraded from a rating of BBB). The current junior subordinated debt rating on
Converium Finance S.A. is BBB- (downgraded from a rating of BBB+). All ratings have been
assigned a stable outlook by Standard and Poors. Currently, A.M. Bests financial strength rating of Converium AG, Converium Rückversicherung
(Deutschland) AG and Converium Insurance (UK) Ltd. is B++ (downgraded from a rating of A) and
its issuer credit rating for all three entities is bbb+ (downgraded from a rating of a). CINA
is currently assigned a financial strength rating of B (downgraded from a rating of A) and an
issuer credit rating of bb (downgraded from a rating of a ). For Converium Finance S.A. the
current issuer credit rating is bb+ (downgraded from a rating of bbb) and the junior
subordinated debt rating is bbb- (downgraded from a rating of bbb+). All ratings have been
assigned a stable outlook by A.M. Best. Following our announcement of our intention to place CRNA
into run-off, the financial strength rating was downgraded to B- from A and the issuer credit
rating to bb- from a. For Converium Holdings (North America) Inc. the issuer credit as well as
the senior unsecured debt ratings were lowered to b- from bbb-. 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 US 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. US regulations
accordingly have in the past materially affected our US 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 45




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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 Federal Office of Private Insurance
(Bundesamt für Privatversicherungen) (the FOPI), an administrative unit of the Swiss Ministry of
Finance (Eidgenössisches Finanzdepartment) and is subject to the continued supervision by the FOPI
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 Finance 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 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 first part of
the report was released in July 2003 by the commission. The proposal includes the formation of a
uniform financial services authority, which will become the supervisory authority for banks
(currently supervised by the Federal Banking Commission) and insurance (currently supervised 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 are granted 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. 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 Finance. 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 Swiss Insurance Supervisory Act (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, at the earliest, as of July 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 the EU Solvency
II Directive. By letter dated September 27, 2004, the FOPI has requested that Converium AG provide notice on
certain intra-group transactions between Converium AG and its subsidiaries including loans,
guarantees, cost sharing agreements, capital injections, and investments in subsidiaries.
Furthermore the FOPI requested by letter dated October 14, 2004 certain additional information
including Converiums business strategy, planning, reserves, solvency and collateral issues.
Converium is cooperating with the FOPI and is providing all required information and documentation. In December 2004, per the FOPIs request, Converium AG agreed to submit for approval the following
intra-group transactions: intra-group loans and capital increases to subsidiaries exceeding $100.0
million; guarantees exceeding $10.0 million; transfer of portfolios or novations involving changes
in reserves exceeding $25.0 million, dividends to Converium Holding AG and all intra-group
reinsurance transactions that are not at arms length. Absent consent of the FOPI, the intra-group
transactions exceeding the thresholds cannot be executed, which may in turn have an impact on the
funding in conjunction with intra-group transactions. United States Agreement with Connecticut Department of Insurance 46




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As a result of the reserve strengthening Converium recorded in 2004 and the subsequent placement of
its North American business into run-off, the Connecticut Insurance Department (the Department)
has implemented additional financial monitoring of CRNA. CRNA has entered into a voluntary letter
of understanding with the Department pursuant to which CRNA is prevented from taking a number of
actions without first obtaining the Departments approval, including:  
    
    making any material change in its management or operations;
    
    making any withdrawal of monies from its bank accounts, disbursements
or payments outside the ordinary course of the business run-off;
    
    incurring any debt, obligation or liability for borrowed money not
related directly to the ordinary course of the business run-off;
    
    writing, assuming or issuing any new insurance policies;
    
    making any dividend payment or other payment or distribution to or
engaging in any transaction, or entering into any agreement directly
or indirectly with its parent company, or any affiliated company;
    
    entering into any new material reinsurance agreement; and
    
    entering into any sales, purchases, exchanges, loans, extensions of
credit or investments not in the ordinary course of its run-off
business. In addition, CRNA is required to provide to the Department written reports on a monthly basis
containing detailed information on all commutations of reinsurance treaties and related activities,
including specific impact on CRNAs statutory financial statements, as well as any additional
reports that the Department reasonably determines are necessary to ascertain the financial
condition of the Company. The voluntary letter of understanding does not preclude the Department
from initiating any further actions that it deems in its discretion to be necessary for the
protection of CRNAs policyholders, reinsureds and the public. The foregoing requirements will continue until March 15, 2006, at which time the Department will
reassess the financial condition of CRNA. The recent ratings downgrades as well as our decision to place CRNA into run-off have triggered
special funding clauses in CRNAs and CINAs reinsurance and insurance contracts. These clauses
require CRNA and CINA to provide collateral for their payment obligations under those contracts.
In addition, state insurance regulators may request that CRNA and CINA make special deposits in
their states or provide collateral for contracts issued to residents of their states. The approval
of the Department is required before we provide collateral that is not contractually required. If
the Department withholds its approval, state insurance regulators that requested special deposits
or collateral not contractually required, could seek to revoke CRNAs or CINAs licenses or
initiate proceedings to take possession of the property, business and affairs of CRNA or CINA in
the respective states. General US 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. CRNA is a Connecticut-domiciled
reinsurer which is licensed, accredited or approved in all 50 states, is an accredited reinsurer in
the District of Columbia, is an admitted reinsurer for the United States Treasury and has a license
to transact certain lines of business in Canada. Pursuant to its voluntary letter of understanding
with the Department, CRNA currently must seek prior approval from the Department to write, assume
or issue any new policies in the United States. In addition, CRNA is amending its Canadian license
to restrict its activities to servicing existing policies. CINA 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. CRNA is not currently commercially
domiciled in any state. CINA is currently commercially
domiciled in California and Florida. Insurance holding company regulation We and our US 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 47




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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 CRNA and CINA 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, CRNA 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. Further, pursuant to its voluntary letter of
understanding with the Department, CRNA may not make any dividend payment without prior approval
from the Department. 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 CHNA or either of its US insurance subsidiaries may require prior
notification in the states that have adopted pre-acquisition notification laws. Insurance regulation As a licensed primary insurer, CINA 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 US insurance and reinsurance subsidiaries to file
financial statements with insurance departments everywhere they do business, and the operations of
our US insurance and reinsurance subsidiaries and accounts are subject to the examination by those
departments at any time. Our US 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 NAIC). The Connecticut Insurance Department last
completed a financial examination of CRNA for the five-year period ending December 31, 2002. The
New Jersey Department of Banking and Insurance last completed a financial examination of CINA for
the five-year period ending December 31, 2000. Reinsurance regulation CRNA 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. CRNA is accredited or approved to write reinsurance in certain states. The ability of any primary
insurer, as reinsured, to take 48




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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. US reinsurance regulation of our non-US reinsurance subsidiaries Converium AG and Converium Rückversicherung (Deutschland) AG, our non-US reinsurance subsidiaries,
also assume reinsurance from primary US insurers. In order for primary US insurers to obtain
financial statement credit for the reinsurance obligations of our non-US reinsurers, our non-US
reinsurers must satisfy reinsurance requirements. Non-US 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 US trust fund for the payment of valid reinsurance claims in
an amount equal to the reinsurers US reinsurance liabilities covered by the trust plus an
additional $20 million. In addition, unlicensed and unaccredited reinsurers may secure the US
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
three IRIS loss reserve tests fall outside of the specified parameters as of December 31, 2001 and
December 31, 2002, CRNA 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. For
2004, the same independent loss reserve specialist was used, although only one IRIS loss reserve
ratio was out of the specified range as of December 31, 2003. Risk-based capital The Risk-Based Capital for Insurers Model Act (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. US 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, 2004, the Total Adjusted Capital of
our US reinsurance subsidiary was less than the Company Action Level. As a result, CRNA filed an
RBC plan with the state of domicile, Connecticut, on March 28, 2005. The Connecticut Insurance
Department approved the RBC plan for implementation on May 9, 2005. Our US insurance subsidiary,
CINA, 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 (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 49




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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. 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. 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.
Extraordinary loss experience, loss reserve deficiencies, or prior investment results may result in
the insolvency of certain US insurance companies, increasing the possibility that our US insurance
subsidiaries 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 co-insurance 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
cap of $100 billion on covered losses. Participation in the program for insurers providing
commercial property and casualty insurance is mandatory. While in effect, the TRIA appears to
provide the property and casualty sector with an increased ability to withstand the effect of
potential terrorist events, 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. In June of 2004, the US Treasury Department extended the make
available provisions of TRIA until December 31, 2005. These provisions, originally scheduled to
expire on December 31, 2004, require insurers to offer terrorism insurance coverage in all
commercial property and casualty insurance policies. While the US Congress is considering
legislation to extend TRIA beyond its scheduled expiration on December 31, 2005, the success of
such efforts to extend the program is uncertain. Proposed US legislation regarding US asbestos liability Both the US Senate and the US House of Representatives are considering a bill called the Fairness
in Asbestos Injury Resolution Act of 2005. The proposed bill would establish a privately financed
trust fund to provide payments to individuals with asbestos-related illnesses and would stay
asbestos claims in the tort litigation system. The trust would be financed by primary insurers,
reinsurers and industrial enterprises and the insurance industry would be responsible for funding a
certain share of the total costs. Under the proposed bill an Office of Asbestos Disease
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will manage the trust fund and oversee the settlement of all asbestos claims with awards from the
fund. Medical criteria would be established to ensure that only people who showed signs of
asbestos-related illnesses would be entitled to payments from the trust. An Asbestos Insurers
Commission will determine the trust fund payment obligations of insurers. Judicial review will be
possible, under expedited consideration, for final determinations regarding trust fund obligations
in the US Court of Appeals for the District of Columbia and for award decisions in the US Court of
Appeals for the circuit in which the claimant resides. We are unable to predict whether the proposed bill will be enacted, and if so, what proportion of
trust fund monies the insurance industry will be responsible to provide. Additionally, we are
unable to predict how the insurance industrys obligations to provide the trust fund monies would
be allocated among industry participants. 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 (BaFin) located in Bonn, Germany. Until the end of 2004, and in contrast to insurance enterprises, companies that had been engaged
exclusively in reinsurance activities were subject to a less extensive scope of governmental
supervision. The supervisory authoritys monitoring of reinsurers was limited to ensuring their
compliance with the specific accounting regulations applicable to insurance enterprises. For this
purpose, reinsurance enterprises were required to submit quarterly and annual financial statements
to the supervisory authority. In addition, reinsurers were 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. Under the old regime, German reinsurers used to only be supervised indirectly, principally through
the supervision of primary insurance companies. In particular, the Federal Insurance Supervisory
Office requires German insurance companies to monitor their reinsurance agreements, which has led
to the creation of internal rating systems for reinsurers by German insurance companies. The German legislative has passed an enhanced supervisory act that now fully integrates the
reinsurance industry into the regulatory scheme applicable to the insurance industry under the EU
Directive on reinsurance. See  European Union directives. The new law became effective by
January 1, 2005. The new regulation has an impact on various aspects of reinsurers, including legal
form of the company, location of the headquarters, qualification of the executive management,
control procedures towards shareholders, investment principles, solvency requirements and special
intervention rights for the supervising bodies. In late 2004, in order to meet newly established solvency requirements for reinsurance companies in
Germany, Converium Rückversicherung (Deutschland) AG increased its capital on a local statutory
basis by 100.0 million ($135.9 million). This was accomplished by means of a capital contribution
from Converium AG in the amount of 80.0 million ($108.7 million). In addition, Converium AG
granted Converium Rückversicherung (Deutschland) AG a subordinated loan in the amount of 20.0
million ($27.2 million) for a term of twenty years. In December 2004, Converium AG established a branch office in Cologne, Germany. This move was made
in response to the favorable legal regulatory environment in Germany as the rules regarding
establishment of branch offices were slated to change as of January 1, 2005 . We do not
currently transact any business in this branch. United Kingdom Converium Insurance (UK) Ltd (CIL) is subject to U.K. insurance regulation and the supervision by
the UK Financial Services Authority (FSA). It is anticipated that the U.K. 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
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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 capital
requirements for general insurers, which take effect from January 1, 2005. European Union directives Our businesses in the United Kingdom and Germany, as well as in the other member states of the EU
and the European Economic Area, (the 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 April 2004, the EC presented a proposal for the EU Directive on reinsurance, which will now be
considered under the procedure known as co-decision for adoption by the European Parliament and
Council. The proposed EU Directive, if and when adopted, will essentially establish the principles
applicable to the operation of reinsurance business in a Member State and rules regarding technical
provisions and the solvency requirements applicable to reinsurance companies. The EU Directive is
based largely on solvency related concepts stipulated in the prior directive adopted by the EU for
insurance companies. The proposed EU Directive does not currently provide for any discrimination of
non-EU based reinsurance companies. However, if the final adopted EU 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 financial condition,
result of operations or cash flows. Asia Restrictions imposed by the Monetary Authority of Singapore Citing recent developments affecting the Converium Group, the Monetary Authority of Singapore has
imposed certain restrictions on the conduct of our business originating from our Singapore branch.
Our Singapore branch must, among other things:  
    
    cease issuing any new loans out of insurance funds;
    
    cease acting as a guarantor/surety;
    
    cease investing in the equities of related companies; and
    
    refrain from appointing foreign custodians for any of the assets of the branch. Canada Amended approval by the Office of Superintendent of Financial Institutions Effective September 14, 2004, the Office of the Superintendent of Financial Institutions amended
its order approving CRNAs insuring of risks in Canada. The amended order limits such activity to
the business of reinsurance and to the servicing of existing policies. C. ORGANIZATIONAL STRUCTURE Converium Holding AG has substantially no net assets other than its ownership of 100% of the shares
of Converium AG. As of December 31, 2004, Converium AG held approximately 50% of our net assets
itself, and an additional 48% through its direct and indirect ownership of each of our
subsidiaries. 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 CHNA, which holds our
subsidiaries CRNA and CINA. Converium AG owns directly or indirectly, 100% of all of our operating
companies. Additionally, Converium Holding AG holds 100% of the shares in each of Converium
Finance Ltd., Bermuda and Converium IP Management, Ltd. 52




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The following chart summarizes our corporate structure. (FLOW CHART) Converium Holding Ltd, Zug / Switzerland
Converium Reinsurance (North America) Inc., Connecticut / USA
Converium Insurance (North America) Inc, New Jersey / USA 100% Converium Holdings (North America) Inc, Delaware / USA
Canadian Branch / Toronto, Canada 100% 100%
Converium Finance (Bermuda) Ltd, Hamilton / Bermuda
Converium IP Management Ltd, Hamilton / Bermuda1) 100%
100% Converium Rückversicherung (Deutschland) AG ,
Cologne / Germany
Succursale pour la France (Vie)  Branch Office 100% With reinsurance licenses in the following countries: Argentina, Mexico, Guatemala, Columbia,
El Salvador, Ecuador SATEC S.R.L., Venice / Italy 48% Rappresentanza Generale per lItalia  Branch Office
Converium Finance S.A. / Luxembourg 100% Converium Representaciones S.A., Buenos Aires / Argentina 100% MDU Services Ltd,
London / U.K. 49.9% RISC Ventures LLC,
Delaware / USA 17.5% Inter-Ocean Holdings Ltd,
Hamilton / Bermuda 9.9% Converium PCC Ltd,
Guernsey / UK
Converium Serviços Técnicos Ltda, Sao Paulo / Brazil 100% Global Aerospace Underwriting Managers Ltd,
London / UK 30.1%
100% Nordic Aviation Insurance Group,
Copenhagen / Denmark 25% Converium Insurance (UK) Ltd,
London / UK
Converium Underwriting Ltd, London / UK
(corporate member at Lloyds)
Converium London Management Ltd, London / UK 100%
100%
100% Converium Holding (UK) Ltd,
London / UK 100% Converium Ltd, Zurich / Switzerland With reinsurance licenses in the following countries: Dominican Republic, Peru, Uruguay, Chile,
Bolivia, Puerto Rico, Guatemala, Columbia, Paraguay, Venezuela, El
Salvador, Ecuador, Nicaragua 100%
Australian            Branch, Sydney / Australia
Reinsurance Representative Office, Tokyo / Japan
Bermuda Branch , Hamilton / Bermuda
Regional Reinsurance Branch Office, Management Office Labuan / Malaysia
Regional Reinsurance Branch Office, Singapore / Singapore
Marketing Office Kuala Lumpur / Malaysia (for regional reinsurance Branch Office / Labuan)
Oficina de Representación en México / Mexico
German Branch, Cologne / Germany (1) Currently in the process of transferring to Zug, Switzerland. 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 US 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. 53




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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 also hold other properties
for investment purposes. As a result of the transition to a run-off entity in North America, a decision was made in January
2005 to vacate the primary office space in New York, New York and consolidate in the Stamford,
Connecticut office space. Converium expects the effective date of the transfer to be July 1, 2005. 
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. OPERATING RESULTS The following discussion and analysis should be read in conjunction with our financial statements,
including the related notes to those financial statements. 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. See Cautionary note regarding
forward-looking statements. To the extent that the description of our business presents historical financial data, such
financial data may not reflect our future operating performance. As a result of the ratings
downgrades and the run-off of our North American business, we expect a significant decline in the
amount of premiums as well as significant shifts in the geographic and line of business
distributions of premiums that we write going forward as compared to our historical performance. Overview Converium Holding AG and subsidiaries (Converium) is an international reinsurer whose business
operations are recognized for innovation, professionalism and service. We believe we are accepted
as a professional reinsurer for all major lines of non-life and life reinsurance in Europe,
Asia-Pacific and Latin America. We actively seek to create innovative and efficient reinsurance
solutions to complement our target clients business plans and needs. We focus on core underwriting
skills and on developing close client relationships while honoring our and our clients
relationships with intermediaries. We offer a broad range of traditional non-life and life reinsurance products as well as
non-traditional solutions to help our target clients efficiently manage capital and risks. In
non-life reinsurance, our lines of business are General Third Party Liability, Motor, Personal
Accident (assumed from non-life insurers), Property, Agribusiness, Aviation & Space, Credit &
Surety, Engineering, Marine & Energy, Professional Liability and other Special Liability and
Workers Compensation. In Life & Health Reinsurance, our lines of business are 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 (the Transactions). On December 1, 2001, Converium entered into a Master Agreement
with Zurich Financial Services, 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. Due to the reserving actions and subsequent lowering of Converiums ratings during 2004, we placed
our US operations into run-off, which resulted in the discontinuation of writing reinsurance from
offices located in North America. See Item 4.  Information on the Company  B. Business Overview
 Ratings. We will, however, offer reinsurance for attractive US-originated business to a limited
number of select accounts. This business will be underwritten and managed through Converium AG,
Zurich. Converium Reinsurance (North America) Inc. (CRNA) was placed into orderly run-off and we
are seeking to commute CRNAs liabilities wherever appropriate (see Note 3 to our 2004 consolidated
financial statements). As a result of ratings downgrades, it was necessary to re-evaluate our global strategy to optimize
shareholder value. See Item 4.  Information on the Company  B. Business Overview  Our
Strategy. The decision to place CRNA into run-off and to transfer the underwriting of North
American non-life business to Zurich will result in a reduction of gross premiums written of North
American originated business of approximately $1.0 billion for underwriting year 2005,
predominantly in Standard Property & Casualty Reinsurance and Specialty Lines. We also expect
additional reductions in other parts of our business. Based on the January 1 renewal period,
Converiums renewable non-life premium income was reduced by approximately $727.4 million, or 37%
as compared to 2004. Based on this development, Converiums gross premiums written in 2005 are
expected to reach approximately $2.0 billion During 2004 our business was organized around three operating segments: Standard Property &
Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance; which are based principally on
lines of business. The business segments are 54




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supported by global business support functions such as
Actuarial & Risk Management and Underwriting Technical Services, and by global services such as
Human Resources, Finance and IT. We believe that this structure provides a higher degree of
transparency, accountability and management control. See Item 4.  Information on the Company 
B. Business Overview for discussion regarding the reorganization of our segment structure in the
first quarter of 2005. 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; and
    
    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;
    
    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; and
    
    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; and
    
    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. 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 (US GAAP). The preparation of these
financial statements in accordance with US 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 55




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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 US 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. If a
contract is commuted, we reduce loss and loss adjustment expense carried on our balance sheet and
record a gain or loss for the difference between loss and loss adjustment expense carried on our
balance sheet and the commutation payment. We estimate our loss and loss adjustment reserves on the
basis of facts reported to us by ceding companies, and in conjunction with actuarial estimates and
methodologies 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. During the course of 2004
Converium implemented enhanced procedures for establishing written premium estimates. The new
process mechanically derives the accrued written and earned premium from our ultimate premium
estimates for a period of two years after the expiration of the underlying direct policy. Following
this, the cedents actual reported premiums are used. 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 US 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 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. See Note 27 to our 2004 consolidated
financial statements for additional information regarding retrocessional risk management. 56




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Foreign currency translation In view of our global scale and the fact that more of our business is transacted in US dollars than
in any other currency, we report our financial information in US 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, that
exceed 50% regardless of the period of decline or 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 the entire 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. Goodwill and Other Intangible Assets SFAS No. 142, Goodwill and Other Intangible Assets 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 and other intangible assets 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 and other intangible assets 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. Upon application of SFAS No. 142, Converium ceased amortizing goodwill on January 1, 2002. Investment Results Investment results are an important part of our overall profitability. Our net investment income
increased $78.6 million, or 33.7% for the year ended December 31, 2004 as compared to the same
period in 2003. The increase largely resulted from
growth; in invested assets during 2004, particularly in our fixed maturities portfolio, as well as
income received from the transition of a fixed income bond fund to a direct fixed income investment
portfolio. The decline in income from the Funds 57




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Withheld Asset is due to the declining asset
balance. See Item 4. Information on the Company  B. Business Overview  Investments  Funds
Withheld Asset. Our net investment income decreased $18.8 million, or 7.5%; for 2003 as compared
to 2002. The decrease reflects lower investment income yields offset by an increase in invested
assets from operating cash flows. Our average annualized net investment income yield (pre-tax) was
3.8% for the year ended December 31, 2004 as compared to 3.3% and 4.3% for the same periods in 2003
and 2002, respectively. We recorded net realized capital gains of $46.5 million and $18.4 million for the years ended
December 31, 2004 and 2003, respectively. The 2004 amount includes pre-tax net realized capital
gains associated with the sale of equity securities to adjust our asset allocation. Impairment
charges of $6.2 million are included in the pre-tax net realized capital gains in 2004 as compared
to $27.4 million in 2003. Included in the impairment charges for 2004 were $2.5 million related to
our equity securities portfolio, $3.0 million related to our real estate portfolio and $0.7 million
related to other investments. In 2002, we recorded pre-tax net realized capital losses of $10.3
million. Included in this amount are 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,
losses realized on the sale of WorldCom fixed income investments of $15.8 million and impairment
charges of $48.3 million. We recorded $6.2 million, $27.4 million and $48.3 million of impairment charges during 2004, 2003
and 2002, respectively. See Item 4. Information on the Company  B. Business Overview  Critical
accounting policies for details on our fixed maturities and equity securities impairment
policy. The following table shows the average pre-tax yields and investment results on our investment
portfolio for the years ended December 31, 2004, 2003 and 2002. Net Investment Income and Net Realized and Unrealized Capital Gains (Losses)Year Ended December 31,2004
    
    
    2003
    
    
    2002Net
    
    
    
    
    
    
    Realized
    
    
    Net
    
    
    
    
    
    
    Realized
    
    
    Net
    
    
    
    
    
    
    RealizedInvestment
    
    
    Pre-tax
    
    
    gains
    
    
    Investment
    
    
    Pre-tax
    
    
    gains
    
    
    Investment
    
    
    Pre-tax
    
    
    gainsIncome
    
    
    yield
    
    
    (losses)
    
    
    Income
    
    
    yield
    
    
    (losses)
    
    
    Income
    
    
    yield
    
    
    (losses)($ millions, except percentages)Fixed maturity securities
    
    $
    201.3
    
    
    
    2.5
    %
    
    $
    5.7
    
    
    $
    121.0
    
    
    
    3.0
    %
    
    $
    34.5
    
    
    $
    132.7
    
    
    
    4.6
    %
    
    $
    88.0Equity securities
    
    
    11.5
    
    
    
    0.1
    
    
    
    48.0
    
    
    
    11.4
    
    
    
    1.7
    
    
    
    (16.1
    )
    
    
    14.5
    
    
    
    2.4
    
    
    
    (101.2
    )Funds Withheld Asset /
Zurich Financing Agreement
    
    
    75.1
    
    
    
    0.9
    
    
    
    
    
    
    
    85.6
    
    
    
    5.4
    
    
    
    
    
    
    
    81.1
    
    
    
    5.3
    
    
    
    Short-term and other
    
    
    37.0
    
    
    
    0.5
    
    
    
    (7.2
    )
    
    
    26.0
    
    
    
    3.8
    
    
    
    
    
    
    
    35.4
    
    
    
    4.5
    
    
    
    2.9Less investment expenses
    
    
    (13.3
    )
    
    
    
    
    
    
    
    
    
    
    (11.0
    )
    
    
    
    
    
    
    
    
    
    
    (11.9
    )
    
    
    Total
    
    
    311.6
    
    
    
    3.8
    
    
    
    
    
    
    
    233.0
    
    
    
    3.3
    
    
    
    
    
    
    
    251.8
    
    
    
    4.3Net realized capital gains (losses)
    
    
    46.5
    
    
    
    
    
    
    
    
    
    
    
    18.4
    
    
    
    
    
    
    
    
    
    
    
    (10.3
    )Net investment income and net
realized capital gains (losses)
    
    
    358.1
    
    
    
    4.4
    
    
    
    
    
    
    
    251.4
    
    
    
    3.5
    
    
    
    
    
    
    
    241.5
    
    
    
    4.1Change in net unrealized gains
(losses)
    
    
    (25.1
    )
    
    
    
    
    
    
    
    
    
    
    154.2
    
    
    
    
    
    
    
    
    
    
    
    (109.0
    )Total investment return
    
    $
    333.0
    
    
    
    4.1
    %
    
    
    
    
    
    $
    405.6
    
    
    
    5.7
    %
    
    
    
    
    
    $
    132.5
    
    
    
    2.2
    %
 Our average net investment income yield was 3.8% for the year ended December 31, 2004, as
compared to 3.3% and 4.3% for the same periods in 2003 and 2002, respectively. Our average annualized total investment income yield (pre-tax) was 4.4% for the year ended December
31, 2004 as compared to 3.5% and 4.1% for the same periods in 2003 and 2002, respectively. Yields
are calculated based on the average of beginning and ending total invested assets balances
(including cash and cash equivalents). The total investment income yields were positively impacted
by the increase in realized gains in 2004 resulting from the sale of equity securities to adjust
our asset allocation in order to reduce investment portfolio risks as well as the decline in
impairment charges compared to 2003. We paid fees in the amount of $11.6 million, $8.0 million and
$6.1 million to our asset managers and custodians in 2004, 2003 and 2002, respectively, including
other investment-related costs. Our average annualized total investment return (pre-tax) was 4.1% for the year ended December 31,
2004 as compared to 5.7%, and 2.2% for the same periods in 2003 and 2002, respectively. The total
investment return includes the effect of pre-tax net unrealized gains and losses. The return was
driven by a reduction in net unrealized capital gains due to the realization of gains triggered by
the sale of equity securities, partially offset by the continued positive development of the stock
markets in 2004. In 2003, we had an increase in net unrealized capital gains of $94.5 million as a
result of the strong recovery of the stock markets. The average total investment return in 2002
included the effect of foreign currency on the change in net unrealized capital gains and losses of
$(50.3) million, lowering the return by 0.8%. As of 2003 and forward, the currency effect on the
change in net unrealized capital gains and losses was directly booked to cumulative currency
translation adjustments, and therefore no longer affects the investment return. Restructuring Costs 58




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The placement of CRNA into orderly run-off and the ratings downgrades resulted in a reduction of
premium volume and subsequently the need to reduce the global cost base going forward. As a result,
Converium notified certain of its employees that their employment would be terminated. For the year
ended December 31, 2004, $2.7 million in restructuring costs has been expensed primarily due to the
costs associated with these severance plans. As a result of the transition to a run-off entity in
North America, a decision was made in January 2005 to vacate our primary office space in New York,
New York and consolidate in our Stamford, Connecticut office space. We expect the effective date
of the transfer to be July 1, 2005. Office space in Zurich is also under review.
Associated costs will be recorded as restructuring costs. 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 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 and changes in our valuation allowance, the
relationship between our reported income before tax and our income tax expense may change
significantly from one period to the next. As a result of the developments of 2004, we established a full valuation allowance against the net
deferred tax balances previously recorded at CRNA of $269.8 million and a valuation allowance on
the net operating losses carried forward at Converium AG of $19.9 million. For further information
about our income tax expenses, see Note 13 to our 2004 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. Review of Certain of
our Reinsurance Transactions Ongoing investigations of the insurance and reinsurance industry and certain insurance and
reinsurance products are being conducted by U.S. regulators and governmental authorities, including
the Securities and Exchange Commission and the New York Attorney General. On March 8, 2005, MBIA Inc. (MBIA) issued a press release stating that MBIAs audit committee
undertook an investigation to determine whether there was an oral agreement with MBIA under which
MBIA would replace Axa Re Finance as a reinsurer to CRNA by no later than October 2005. The press
release stated that it appears likely that such an agreement or understanding with Axa Re Finance
was made in 1998. Thereafter, on April 19, 2005, CRNA received subpoenas from the U.S. Securities
a nd Exchange Commission and the Office of the New York Attorney General seeking documents related
to certain transactions between CRNA and MBIA. In view of the industry investigations and the events relating to MBIA described above, we have
engaged counsel to assist us in a review and analysis of certain of our reinsurance transactions,
including the MBIA transactions. We are fully cooperating with the governmental authorities in
connection with their investigation. The impact of our ongoing review and analysis and the ongoing
regulatory investigations on us is uncertain, and there can be no assurance as to whether or not
the outcome of such investigations will have a material impact on
Converium. Results of Operations The table below presents summary income statement data for the years ended December 31, 2004, 2003
and 2002. Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions)Revenues:Gross premiums written
    
    $
    3,840.9
    
    
    $
    4,223.9
    
    
    $
    3,535.8Net premiums written
    
    $
    3,553.0
    
    
    $
    3,827.0
    
    
    $
    3,322.2Net premiums earned
    
    $
    3,685.1
    
    
    $
    3,676.5
    
    
    $
    3,165.5Net investment income and net realized capital
gains (losses)
    
    
    358.1
    
    
    
    251.4
    
    
    
    241.5Other (loss) income
    
    
    (2.6
    )
    
    
    2.7
    
    
    
    (1.2
    )Total revenues
    
    
    4,040.6
    
    
    
    3,930.6
    
    
    
    3,405.8Benefits, losses and expenses:Losses, loss adjustment expenses and life benefits
    
    
    (3,263.1
    )
    
    
    (2,674.2
    )
    
    
    (2,492.0
    )Underwriting acquisition costs
    
    
    (842.5
    )
    
    
    (803.2
    )
    
    
    (666.7
    )Other operating and administration expenses
    
    
    (217.9
    )
    
    
    (197.8
    )
    
    
    (173.3
    )Interest expense
    
    
    (33.1
    )
    
    
    (31.0
    )
    
    
    (16.4
    )Impairment of goodwill
    
    
    (94.0
    )
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    (9.9
    )
    
    
    
    
    
    
    Restructuring costs
    
    
    (2.7
    )
    
    
    
    
    
    
    Total benefits, losses and expenses
    
    
    (4,463.2
    )
    
    
    (3,706.2
    )
    
    
    (3,348.4
    )(Loss) income before taxes
    
    
    (422.6
    )
    
    
    224.4
    
    
    
    57.4Income tax (expense) benefit
    
    
    (338.2
    )
    
    
    (39.3
    )
    
    
    49.4Net (loss) income
    
    $
    (760.8
    )
    
    $
    185.1
    
    
    $
    106.8
 59




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During 2004, there were several items that resulted in measurable effects on our financial results.
These items include (i) the strengthening of prior years reserves, (ii) adjustments of premium
accruals and associated loss and underwriting expenses, (iii) adjustment of retrocessional
recoveries to reflect gross loss developments, and (iv) commutations, which collectively resulted
in a net impact on the technical result of $581.3 million. In addition, we established a full
valuation allowance against the net deferred tax balances previously recorded at CRNA of $269.8
million and a valuation allowance on the net operating losses carried forward at Converium AG of
$19.9 million, and recorded an impairment of goodwill of $94.0 million. The table below shows the reconciliation between pre-tax results and pre-tax operating results. We
use pre-tax operating results to measure performance, as this measure focuses on the underlying
fundamentals of our operations without the influence of realized gains and losses from the sale of
investments, or other non-operating items such as goodwill impairment. Pre-Tax Operating (Loss) Income
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions)(Loss) income before taxes
    
    $
    (422.6
    )
    
    $
    224.4
    
    
    $
    57.4Net realized capital gains (losses)
    
    
    46.5
    
    
    
    18.4
    
    
    
    (10.3
    )Impairment of goodwill
    
    
    (94.0
    )
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    (9.9
    )
    
    
    
    
    
    
    Restructuring costs
    
    
    (2.7
    )
    
    
    
    
    
    
    Pre-tax operating (loss) income
    
    $
    (362.5
    )
    
    $
    206.0
    
    
    $
    67.7Net (loss) income
    
    $
    (760.8
    )
    
    $
    185.1
    
    
    $
    106.8
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Converium Consolidated Net (Loss) Income For the year ended December 31, 2004 we reported a net loss of $760.8 million versus net income of
$185.1 million for the same period in 2003. The decline is primarily due to the impact of those
items as described above, in addition to losses related to the natural catastrophes that occurred
in 2004. We reported a pre-tax operating loss (defined as pre-tax income or loss excluding pre-tax net
realized capital gains or losses, impairment of goodwill, amortization of intangible assets and
restructuring costs) of $362.5 million for the year ended December 31, 2004, a decrease of $568.5
million as compared to the same period in 2003. We use pre-tax operating results to measure
performance, as this measure focuses on the underlying fundamentals of our operations without the
influence of realized gains and losses from the sale of investments, or other non-operating items
such as goodwill impairment and restructuring costs. For the year ended December 31, 2004, gross premiums written decreased 9.1%, net premiums written
decreased 7.2% and net premiums earned increased 0.2%. The reduction in gross and net premiums
written primarily resulted from clients exercising their rights of special termination under
various reinsurance contracts and adjustments of ultimate premium estimates, as described below.
Despite the decrease in premiums, there still remained some growth across lines of business within
the Specialty Lines segment as well as in the Life & Health Reinsurance segment resulting from
overall market conditions and new client relationships. Adjustments of ultimate premium estimates: During the course of 2004 Converium implemented enhanced
procedures for establishing written premium estimates. Our processes require underwriters and
others to assess the realization of premium estimates on a quarterly basis. This was supplemented
at year-end by a detailed review using actuarial techniques, primarily for European non-life
business, which compare estimates with actuarially derived amounts using ceding companies actual
reported premium information. These analyses resulted in a decrease in net premiums written and
earned in the Standard Property & Casualty Reinsurance and Specialty Lines segments in the amount
of $219.8 million; after reflecting the impact on accrued underwriting expenses of $16.5 million
and losses of $206.4 million, the impact of these adjustments on the technical result was $3.0
million. Our non-life combined ratio was 118.2% for the year ended December 31, 2004 as compared to 97.9%
for the same period in 2003. Reserve actions and natural catastrophes in 2004 increased the
combined ratio by 17.3 points and 4.8 points, respectively for the year ended December 31, 2004. We recorded net realized capital gains of $46.5 million and $18.4 million for the years ended
December 31, 2004 and 2003, respectively. The 2004 amount includes pre-tax net realized capital
gains associated with the sale of equity securities to adjust
our asset allocation. Impairment charges of $6.2 million are included in the pre-tax net realized
capital gains in 2004 as compared to $27.4 million in 2003. Included in the impairment charges for
2004 were $2.5 million related to our equity 60




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securities portfolio, $3.0 million related to our real
estate portfolio and $0.7 million related to other investments. Our effective tax rate was 80.0% for the year ended December 31, 2004 as compared to 17.5% for the
same period in 2003. The 2004 consolidated income tax expense reflects an additional expense of
$289.7 million related to the establishment of a full valuation allowance against the net deferred
tax balances previously carried at CRNA ($269.8 million) and a valuation allowance on the net
operating losses carried forward at Converium AG ($19.9 million). Converium Consolidated Premiums Net premiums written decreased for the year ended December 31, 2004 over the same period in 2003
largely due to premium reductions resulting from clients exercising their rights of special
termination under various reinsurance contracts, as described below, adjustments of ultimate
premium estimates, and a reduction of reinsurance recoverables of $12.0 million. For the year ended
December 31, 2004, Standard Property & Casualty Reinsurance decreased by $190.6 million or 11.6%
and Specialty Lines decreased by $153.8 million or 8.5%. Despite this, net premiums written in the
Life & Health Reinsurance segment grew by $70.4 million or 19.1%. We retained 92.5% and 90.6% of
our gross premiums written for the year ended December 31, 2004 and 2003, respectively. Special terminations:Many reinsurance contracts include a ratings or statutory surplus level
provision. Ratings and surplus triggers typically give rise to a right of termination in favor of
the cedent that allows the cedent to terminate the contract on a prospective basis from the date of
termination. As a result of the rating agencies actions and the reduction in surplus due to the
reserve strengthening, contracts with an estimated ultimate premium income of $508.8 million were
triggered in the second half of 2004. This resulted in an estimated impact on gross premiums
written of $(114.5) million for the second half of 2004. As of December 31, 2004, Converiums reserves for unearned premiums, gross were $1,312.3 million,
which relates to business primarily written in 2003 and 2004, and is expected to materially earn
out in 2005. The earn out of these reserves for unearned premiums and the reduced non-life premium
income of the January 1, 2005 renewal period, are expected to result in a reduction of reserves for
unearned premiums in future periods. For the year ended December 31, 2004, based on stable exchange rates, gross premiums written
decreased by 13.1%, net premiums written decreased by 11.5%, and net premiums earned decreased by
4.3%. 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
increased $78.6 million, or 33.7% for the year ended December 31, 2004 as compared to the same
period in 2003. The increase largely resulted from growth in invested assets during 2004,
particularly in our fixed maturities portfolio, as well as income received from the transition of a
fixed income bond fund to a direct fixed income investment portfolio. The decline in income from
the Funds Withheld Asset is due to the declining asset balance. Our average annualized total investment income yield (pre-tax) was 4.4% for the year ended December
31, 2004 as compared to 3.5% for the same period in 2003. Yields are calculated based on the
average of beginning and ending total invested assets balances (including cash and cash
equivalents). The total investment income yields were positively impacted by the increase in
realized gains in 2004 resulting from the sale of equity securities to adjust our asset allocation
in order to reduce investment portfolio risks as well as the decline in impairment charges compared
to 2003. We paid fees in the amount of $11.6 million and $8.0 million to our asset managers and
custodians in 2004 and 2003, respectively, including other investment-related costs. Our average annualized total investment return (pre-tax) was 4.1% for the year ended December 31,
2004 as compared to 5.7% for the same period in 2003. The return was driven by a reduction in net
unrealized capital gains due to the realization of gains triggered by the sale of equity
securities, partially offset by the continued positive development of the stock markets in 2004. In
2003, we had an increase in net unrealized capital gains of $94.5 million as a result of the strong
recovery of the stock markets. As of 2003 and forward, the currency effect on the change in net
unrealized capital gains and losses was directly booked to cumulative currency translation
adjustments, and therefore no longer affects the investment return. We recorded $6.2 million and $27.4 million of impairment charges during 2004 and, 2003,
respectively. Converium Consolidated Other (Loss) Income Other loss for the year ended December 31, 2004 was $2.6 million as compared to other income of
$2.7 million in 2003. Other loss for 2004 includes an amount of $20.0 million for a retroactive
stop-loss retrocession cover from National Indemnity 61




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Company, offset by a reduction of $9.6 million
in the bad debt provision related to the U.S. Life Insurance Company settlement (see Notes 21 and
26 to our 2004 consolidated financial statements). Other (loss) income components also include
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 and non-life loss ratio increased
for the year ended December 31, 2004 as compared to the same period in 2003, mainly due to the
development of prior years loss reserves, as described below. In addition, the impact of the
hurricanes, typhoons and the tsunami in 2004 added $154.5 million of incurred losses, or 4.8 points
to the 2004 loss ratio. Development of prior years reserves:Converium has experienced significant adverse development,
predominantly in its US casualty reinsurance lines, for the last several years. Since 2000,
Converium has recorded a total of $868.2 million of additional net provisions on prior years
non-life business (2000: $65.4 million: 2001: $123.6 million; 2002: $148.5 million; 2003: $(31.3)
million; and 2004: $562.0 million). During early 2004, Converium announced that reported losses from prior year US casualty business
had exceeded expected loss emergence and that the volatility of longer-tail risks was likely to
persist for some time. This adverse loss-reporting trend continued and accelerated into mid-2004
and prompted Converium to initiate additional reviews of its US business from an integrated
underwriting, claims and actuarial perspective in order to examine the adequacy of prior years
provisions. In addition, in order to obtain an external review of our overall reserve position, we
commissioned the actuarial consulting firm Tillinghast-Towers Perrin to perform an independent
actuarial review of our non-life loss and allocated loss adjustment expense reserves as of June 30,
2004 in respect of the Zurich and New York originated businesses. The outcome of these in-depth
internal and external reviews resulted in an aggregate strengthening of prior years non-life loss
reserves by $562.0 million for the year ended December 31, 2004. This action was taken in response
to the continued adverse loss emergence due to increased claims reporting activity from clients
relating to US casualty business written from 1997 to 2001 as well as deterioration from European
non-proportional motor business written in recent years. While we believe that we have fully
addressed this issue through our reserving actions, volatility is expected to persist for some
time. In the Standard Property & Casualty Reinsurance segment, the development of prior years reserves
of $73.5 million primarily related to adverse developments of General Third Party Liability ($116.3
million), motor liability outside the United States ($91.7 million) and Personal Accident
(non-life) ($8.1 million), which was partially offset by positive developments related to Property
($82.1 million) and miscellaneous liability ($60.5 million) that also included the impact of whole
account retrocessions. In the Specialty Lines segment, the development of prior years reserves of
$488.5 million primarily related to adverse developments of the Professional Liability and other
Special Liability lines ($449.3 million), particularly excess & surplus lines and umbrella,
Workers Compensation ($55.3 million), and Engineering ($12.9 million). These adverse developments
in the Specialty Lines were partially offset by positive developments related to Aviation & Space
($24.5 million), Agribusiness ($0.7 million), and Credit & Surety ($3.8 million). In 2003, the positive development of $31.3 million consisted of positive development on Property
lines ($113.5 million) and Aviation & Space ($102.2 million), offset by adverse development on
Workers Compensation and Professional Liability and other Special Liability lines ($120.3 million)
and the Motor and General Third Party Liability lines ($64.1 million). The reserve releases in 2003
were primarily from the 2002 underwriting year, while the US business written in 1997 to 2001
mostly saw continued strengthening. Commutations:Based on the developments of 2004, we placed our US reinsurance operations into
run-off and started to implement and execute a commutation strategy. Commutations can accelerate
the realization of profit inherent in long-tail reserves by crystallizing outstanding claims
reserves into payments, which are discounted to reflect the time value of money. Since commutation
payments essentially reflect a discounted present value of estimated future cash flows, future
investment income earned is expected to decline as the assets backing those reserves are liquidated
to make payments. As of December 31, 2004, we agreed upon commutations with primarily North
American cedents regarding gross loss reserves of $545.8 million that resulted in a cash outflow of
$526.8 million. Guaranteed Minimum Death Benefit (GMDB) business:For the year ended December 31, 2004 there were
no additional reserving actions required for the GMDB book of business. In 2003 and 2002, the Life
& Health Reinsurance segment strengthened reserves for this closed block of variable annuity
business by $20.5 million (to net $56.0 million) and $15.6 million, respectively. As a result of
the positive performance of the US stock markets, GMDBs net amount at risk further decreased to
$635.5 million at December 31, 2004 from $809.7 million at December 31, 2003. Impact of aviation and space business:Our aviation and space business contributes substantially to
the profitability of the 62




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Specialty Lines segment. Related to this business, we had net premiums
written of $404.5 million and $341.8 million and a net non-life technical result (defined as net
premiums earned minus losses and loss adjustment expenses and underwriting acquisition costs) of
$73.2 million and $126.0 million in 2004 and 2003, respectively. Impact of property catastrophe losses:We reported the following large natural catastrophe losses,
defined as those in excess of $10.0 million or more of net incurred losses to us for our
proportional and non-proportional property catastrophe business: hurricanes in the US and the
Caribbean, the Japanese typhoons and the tsunami in the Indian Ocean ($154.5 million) in 2004 and
Typhoon Maemi ($15.4 million) and the Algerian earthquake ($10.6 million) in 2003. 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 CRNA, 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 of Zurich Financial Services units and we are exposed
to credit risk from these subsidiaries of Zurich Financial Services. In December 2004, a federal jury in New York concluded that the two planes that crashed into the
World Trade Center during the attacks of September 11th, for insurance purposes, represented two
separate attacks. This ruling increased our gross losses and loss adjustment expenses by $8.7
million, but as our losses are capped at $289.2 million by Zurich Financial Services, as described
above, this ruling did not have an effect on our net loss position. In 2004 and 2003 there was no
additional development in net reserves for the September 11th terrorist attacks. Asbestos and environmental exposures:As of December 31, 2004 and 2003, we had reserves for
environmental impairment liability and asbestos-related claims of $49.2 million and $45.8 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, 2004 and 2003. Converium Consolidated Underwriting Acquisition Costs Underwriting acquisition costs primarily relate to commissions on treaty and individual risk
business. Our underwriting acquisition costs increased for the year ended December 31, 2004 as
compared to the same period in 2003. The underwriting expense ratio was relatively stable in 2004
as compared to 2003. Converium Consolidated Operating and Administration Expenses Operating and administration expenses increased for the year ended December 31, 2004 over the same
period in 2003 due to increased expenditures to support the growth in operations, additional costs
of $15.7 million related to the retention plans that were rolled out in late 2004 (see Note 15 to
our 2004 consolidated financial statements), and the continued weakening of the US dollar. In
addition approximately $7.0 million of advisory fees were recorded in conjunction with various
corporate strategic initiatives during 2004. The non-life administration expense ratio remained
relatively stable for the year ended December 31, 2004 as compared to the same period in 2003. 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 $10.7
million and $6.1 in 2004 and 2003, respectively. Converium Consolidated Interest Expense, Goodwill and other intangible assets and Restructuring
costs Interest expense:Interest expense remained relatively stable for the year ended December 31, 2004
as compared to the same period in 2003. Goodwill and other intangible assets:Impairment of goodwill was $94.0 million for the year ended
December 31, 2004. Amortization of intangible assets was $9.9 million for the year ended December 31, 2004. 63




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SFAS 142, Goodwill and Other Intangible Assets, requires impairment testing of goodwill annually
or more regularly if any event or change in business circumstances occurs which would indicate that
the carrying value of goodwill may be impaired. An impairment charge of $94.0 million was recorded
due to the reserving actions taken during 2004 in respect of prior year development in the
Specialty Lines segments business written in North America, and the subsequent decision to take a
full valuation allowance against the net deferred tax asset at CRNA. The goodwill impairment charge
represents all the goodwill relating to CRNA. SFAS 142 also requires that useful lives for intangible assets other than goodwill be reassessed
and the remaining amortization periods be adjusted accordingly. On October 1, 2004, the useful life
of our intangible asset relating to GAUM was reduced to less than one year resulting in an
amortization charge of $9.9 million. See Note 8 to our 2004 consolidated financial statements for
additional information regarding the reassessment of the useful life related to GAUM. Restructuring costs:The placement of CRNA into orderly run-off and the ratings downgrades resulted
in a reduction of premium volume and subsequently the need to reduce the global cost base going
forward. As a result, Converium notified certain of its employees that their employment would be
terminated. For the year ended December 31, 2004, $2.7 million in restructuring costs has been
expensed primarily due to the costs associated with these severance plans. In addition, as a result
of the global restructuring, a decision was made in January 2005 to vacate our primary office space
in New York, New York and consolidate in our Stamford, Connecticut office space. We expect the
effective date of the transfer to be July 1, 2005. Office space in Zurich is also under review.
Associated costs will be recorded as restructuring costs. Converium Consolidated Income Tax Expense Converiums consolidated income tax expense for the year ended December 31, 2004 reflects an
additional expense of $289.7 million related to the establishment of a full valuation allowance
against the net deferred income tax balances previously carried at CRNA and a valuation allowance
against the net operating losses carried forward at Converium AG. The 2003 consolidated tax expense
reflects an increase in the tax loss carryforward due to the retrocession of certain contracts from
Germany to Switzerland. As required under SFAS 109, Accounting for Income Taxes, Converium is required to assess if it is
more likely than not that some or all of the net deferred tax assets will not be realized. In
making this assessment, reference is made to, among other things, historical losses. Therefore, a
full valuation allowance was established against CRNAs net deferred tax assets to reflect the
continued net loss position of CRNA. CRNA may offset future taxable income against the existing net
operating losses carried forward, resulting in no US federal tax expense on such income until such
time as the net operating losses are utilized or expire. In addition, Converium AG presents
deferred taxes for timing differences only. Future positive income will offset against net
operating losses carried forward and will not cause any income taxes except changes in timing
differences. As of December 31, 2004, Converiums valuation allowance on deferred tax assets was $711.9 million,
comprising net operating losses carried forward ($571.7 million), loss reserve discount ($110.2
million) and other temporary differences, net ($30.0 million). As of December 31, 2003, the
valuation allowance was $47.9 million, all of which related to net operating losses carried
forward. As of December 31, 2004, Converium has total net operating losses carried forward of $2,512.5
million available to offset future taxable income of certain branches and subsidiaries. The
majority of these net operating losses carried forward relate to CRNA and Converium AG and expire
in the years 2020 through 2024 and 2010 through 2011, respectively. Converium will continue to monitor its tax position and reassess the need for a full valuation
allowance on its net deferred tax assets on a periodic basis. Realization of the deferred tax asset
related to net operating losses carried forward is dependent upon generating sufficient taxable
income within specified future periods. The decision to place CRNA into run-off may limit the
ability to generate taxable income to fully utilize its net operating loss carryforwards. 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 was
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. 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 64




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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 reflected 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. For the year eneded December 31, 2003, the Specialty Lines
segment grew by $256.6 million or 16.5% compared with 2002, driven by strong growth in
Agribusiness, Workers Compensation, Credit & 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 was 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 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. 65




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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 were 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 was 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 US 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 felt, as of December 31, 2003 that its carried reserves for
its GMDB exposure were adequate, it 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 then current volatility and the valuation of the equity markets in the United States.
The annual expense associated with this protection was expected to be less than $0.5 million per
year. Based on information available at the time, Converium felt this additional reinsurance
protection adequately addressed 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:As of December 31, 2003, a substantial portion of our property catastrophe business
was 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 were 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). 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 66




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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 Group (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 US dollar against the
strengthening 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 reflected 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. Converium Consolidated Combined Ratios Our 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. Results of Operations by Operating Segment In 2004, Converiums business was 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. See Item 4.  Information on the Company  B.
Business Overview for discussion regarding the reorganization of our segment structure in the
first quarter of 2005. During 2004, there were several items that resulted in measurable effects on Converiums financial
results. These items include (i) the strengthening of prior years reserves, (ii) adjustments of
premium accruals and associated loss and underwriting expenses, (iii) adjustment of retrocessional
recoveries to reflect gross loss developments, and (iv) commutations, which collectively resulted
in a net impact on the technical result of $581.3 million. In addition, we established a full
valuation allowance against the net deferred tax balances previously recorded at CRNA of $269.8
million and a valuation allowance on the net operating losses carried forward at Converium AG of
$19.9 million, and recorded an impairment of goodwill of $94.0 million. The following table
compares Converiums segment results for the years ended December 31, 2004, 2003, and 2002 and
reconciles segment results to (loss) income before taxes: 67




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##### Table of Contents



Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions)Segment (loss) income:Standard Property & Casualty Reinsurance
    
    $
    (12.5
    )
    
    $
    183.7
    
    
    $
    55.8Specialty Lines
    
    
    (245.2
    )
    
    
    115.2
    
    
    
    56.0Life & Health Reinsurance
    
    
    15.4
    
    
    
    (11.9
    )
    
    
    (6.5
    )Corporate Center
    
    
    (38.0
    )
    
    
    (34.3
    )
    
    
    (30.3
    )Total segment (loss) income
    
    
    (280.3
    )
    
    
    252.7
    
    
    
    75.0Other (loss) income
    
    
    (2.6
    )
    
    
    2.7
    
    
    
    (1.2
    )Interest expense
    
    
    (33.1
    )
    
    
    (31.0
    )
    
    
    (16.4
    )Impairment of goodwill
    
    
    (94.0
    )
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    (9.9
    )
    
    
    
    
    
    
    Restructuring costs
    
    
    (2.7
    )
    
    
    
    
    
    
    (Loss) income before taxes
    
    
    (422.6
    )
    
    
    224.4
    
    
    
    57.4Income tax (expense) benefit
    
    
    (338.2
    )
    
    
    (39.3
    )
    
    
    49.4Net (loss) income
    
    $
    (760.8
    )
    
    $
    185.1
    
    
    $
    106.8
 Non-Life The table below presents information regarding results of operations of our non-life business for
the years ended December 31, 2004, 2003 and 2002. This information is further discussed on a
segment basis below. Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions, except ratios)Revenues:Gross premiums written
    
    $
    3,394.9
    
    
    $
    3,817.4
    
    
    $
    3,192.6Net premiums written
    
    $
    3,113.1
    
    
    $
    3,457.5
    
    
    $
    3,007.5Net premiums earned
    
    $
    3,251.2
    
    
    $
    3,293.5
    
    
    $
    2,854.7Net investment income and net realized capital gains (losses)
    
    
    328.4
    
    
    
    233.9
    
    
    
    223.4Total revenues
    
    
    3,579.6
    
    
    
    3,527.4
    
    
    
    3,078.1Losses and expenses:Losses and loss adjustment expenses
    
    
    (2,935.7
    )
    
    
    (2,354.6
    )
    
    
    (2,231.9
    )Underwriting acquisition costs
    
    
    (744.7
    )
    
    
    (723.2
    )
    
    
    (602.7
    )Other operating and administration expenses
    
    
    (156.9
    )
    
    
    (150.7
    )
    
    
    (131.7
    )Total losses and expenses
    
    
    (3,837.3
    )
    
    
    (3,228.5
    )
    
    
    (2,996.3
    )Segment (loss) income
    
    $
    (257.7
    )
    
    $
    298.9
    
    
    $
    111.8Ratios:Loss ratio
    
    
    90.3
    %
    
    
    71.5
    %
    
    
    78.2
    %Underwriting expense ratio
    
    
    22.9
    %
    
    
    22.0
    %
    
    
    21.1
    %Administration expense ratio
    
    
    5.0
    %
    
    
    4.4
    %
    
    
    4.4
    %Combined ratio
    
    
    118.2
    %
    
    
    97.9
    %
    
    
    103.7
    %
 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, 2004, 2003 and 2002. Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions, except ratios)Revenues:Gross premiums written
    
    $
    1,617.6
    
    
    $
    1,795.4
    
    
    $
    1,542.3Net premiums written
    
    $
    1,455.0
    
    
    $
    1,645.6
    
    
    $
    1,452.2Net premiums earned
    
    $
    1,552.0
    
    
    $
    1,629.9
    
    
    $
    1,396.7Net investment income and net realized capital gains (losses)
    
    
    142.3
    
    
    
    101.5
    
    
    
    98.1Total revenues
    
    
    1,694.3
    
    
    
    1,731.4
    
    
    
    1,494.8Losses and expenses:Losses and loss adjustment expenses
    
    
    (1,246.1
    )
    
    
    (1,113.6
    )
    
    
    (1,065.0
    )Underwriting acquisition costs
    
    
    (376.8
    )
    
    
    (363.1
    )
    
    
    (310.4
    )Other operating and administration expenses
    
    
    (83.9
    )
    
    
    (71.0
    )
    
    
    (63.6
    )Total losses and expenses
    
    
    (1,706.8
    )
    
    
    (1,547.7
    )
    
    
    (1,439.0
    )Segment (loss) income
    
    $
    (12.5
    )
    
    $
    183.7
    
    
    $
    55.8Ratios:
 68




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##### Table of Contents



Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions, except ratios)Loss ratio
    
    
    80.3
    %
    
    
    68.3
    %
    
    
    76.3
    %Underwriting expense ratio
    
    
    24.3
    %
    
    
    22.3
    %
    
    
    22.2
    %Administration expense ratio
    
    
    5.8
    %
    
    
    4.3
    %
    
    
    4.4
    %Combined ratio
    
    
    110.4
    %
    
    
    94.9
    %
    
    
    102.9
    %
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Standard Property & Casualty Reinsurance Segment (Loss) Income Standard Property & Casualty Reinsurance reported a segment loss of $12.5 million in 2004 as
compared to segment income of $183.7 million in 2003. The segment loss in 2004 was primarily
attributable to the following:  
    
    Premium volume was impacted by clients exercising their rights of
special termination under various reinsurance contracts, which
resulted in a reduction of estimated ultimate premium of $57.6
million in the second half of 2004. In addition to the reductions
triggered by special termination clauses, the decrease of the
Standard Property & Casualty Reinsurance segments net premium
written was further affected by adjustments of ultimate premium
estimates in the amount of $119.3 million resulting from a change
in estimate due to the implementation of enhanced procedures for
establishing written premium estimates throughout 2004, as well as
additional expenses of $18.8 million for catastrophe protection.
    
    Hurricanes in the US and the Caribbean, the Japanese typhoons and
the tsunami in the Indian Ocean impacted results negatively by
$154.5 million and added 4.8 points to the consolidated loss
ratio.
    
    The development of prior years reserves of $73.5 million
primarily related to adverse developments of General Third Party
Liability ($116.3 million), motor liability outside the United
States ($91.7 million) and Personal Accident (assumed from
non-life insurers) ($8.1 million), and was partially offset by
positive developments related to Property ($82.1 million) and
miscellaneous liability ($60.5 million) which also included the
impact of whole account retrocessions.
    
    Slightly offsetting the results for 2004 was the increase in
investment results due to the continued recovery of the global
capital markets as well as capital gains realized from the sale of
equity securities to adjust our asset allocation to reduce
investment portfolio risk during 2004. Standard Property & Casualty Reinsurance Premiums For the year ended December 31, 2004, gross premiums written decreased 9.9% to $1,617.6 million,
net premiums written decreased 11.6% to $1,455.0 million and net premiums earned decreased 4.8% to
$1,552.0 million. Adjustments of ultimate premium estimates resulted in a decrease in net premiums
written and earned in the amount of $119.3 million; after reflecting for accrued underwriting
expenses ($18.1 million) and losses ($101.1 million), the impact of these adjustments of ultimate
premium estimates on the technical result was ($0.1) million. For the year ended December 31, 2004, the reduction in net premiums written in the Standard
Property & Casualty Reinsurance segment by line of business included:  
    
    Motor, which decreased by 0.8% or $3.7 million to $484.8 million,
due to cedents in North America exercising special termination
clauses, as well as a decrease in net premiums written in North
America due to the ratings agencies actions. These decreases
were mostly offset by growth in Western Europe;
    
    Property, which decreased by 26.1% or $205.3 million to $581.7
million, due to cedents in North America exercising special
termination clauses as well as a restructuring of a specific
treaty; and
    
    Personal accident (non-life), which decreased by 22.8% or $8.0
million to $27.1 million, due to the cancellation of a major
contract. These decreases were offset by an increase in net premiums written within the General Third Party
Liability line of business, which increased by 7.9% or $26.4 million to $361.4 million as a result
of continuing rate increases and new business. 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 $142.3 million for the year ended December 31, 2004, an increase of $40.8 million, or
40.1%, compared to net investment income and net 69




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##### Table of Contents



realized capital gains of $101.5 million for
the same period in 2003. The investment results were positively impacted due to the continued
recovery of the global capital markets as well as capital gains realized from the sale of equity
securities to adjust our asset allocation to reduce investment portfolio risk during 2004. Standard Property & Casualty Reinsurance Losses and Loss Adjustment Expenses Standard Property & Casualty Reinsurance had losses and loss adjustment expenses incurred of
$1,246.1 million in 2004, an increase of $132.5 million, or 11.9%, over 2003. The non-life loss
and loss adjustment expense ratio was 80.3% in 2004 as compared to 68.3% in 2003. The development of prior years reserves of $73.5 million primarily related to adverse developments
of General Third Party Liability ($116.3 million), motor liability outside the United States ($91.7
million) and Personal Accident (assumed from non-life insurers) ($8.1 million), and was partially
offset by positive developments related to Property ($82.1 million) and miscellaneous liability
($60.5 million) which also included the impact of whole account retrocessions. In the latter half of 2004, the Standard Property & Casualty Reinsurance segment agreed upon
commutations with primarily North American cedents regarding gross loss reserves of $125.9 million. Standard Property & Casualty Reinsurance Underwriting Acquisition Costs Underwriting acquisition costs primarily relate to commissions on treaty and individual risk
business. Standard Property & Casualty Reinsurance underwriting acquisition costs increased $13.7
million or 3.8% to $376.8 million. The non-life underwriting expense ratio was 24.3% in 2004
compared to 22.3% in 2003. Standard Property & Casualty Reinsurance Operating and Administration Expenses Operating and administration expenses increased $12.9 million or 18.2% to $83.9 million in 2004.
The increase primarily arose from costs related to the retention plans that were rolled out in late
2004 and the continued weakening of the US dollar. The non-life administration ratio was 5.8% in
2004 compared to 4.3% in 2003. Standard Property & Casualty Reinsurance Combined Ratios Standard Property & Casualty Reinsurances combined ratio was 110.4% in 2004 and 94.9% in 2003.
The increase in the combined ratio was primarily driven by the adverse development of prior years
loss reserves as well as losses due to the hurricanes in the US and Caribbean, the Japanese
typhoons and the tsunami in the Indian Ocean, which added 4.8 points to the loss ratio. 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, net premium written growth in Standard Property & Casualty
Reinsurance by line of business included:  
    
    Property, increased by 25.7% or $161.0 million to $787.0 million; and 70




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##### Table of Contents




    
    Motor, 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 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 US dollar against the strengthening 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. Specialty Lines The table below presents information regarding results of operations of our Specialty Lines segment
for the years ended December 31, 2004, 2003 and 2002. Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions, except ratios)Revenues:Gross premiums written
    
    $
    1,777.3

    
    
    $
    2,022.0
    
    
    $
    1,650.3Net premiums written
    
    $
    1,658.1
    
    
    $
    1,811.9
    
    
    $
    1,555.3Net premiums earned
    
    $
    1,699.2
    
    
    $
    1,663.6
    
    
    $
    1,458.0Net investment income and net realized capital gains (losses)
    
    
    186.1
    
    
    
    132.4
    
    
    
    125.3Total revenues
    
    
    1,885.3
    
    
    
    1,796.0
    
    
    
    1,583.3
 71




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##### Table of Contents



Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions, except ratios)Losses and expenses:Losses and loss adjustment expenses
    
    
    (1,689.6
    )
    
    
    (1,241.0
    )
    
    
    (1,166.9
    )Underwriting acquisition costs
    
    
    (367.9
    )
    
    
    (360.1
    )
    
    
    (292.3
    )Other operating and administration expenses
    
    
    (73.0
    )
    
    
    (79.7
    )
    
    
    (68.1
    )Total losses and expenses
    
    
    (2,130.5
    )
    
    
    (1,680.8
    )
    
    
    (1,527.3
    )Segment (loss) income
    
    $
    (245.2
    )
    
    $
    115.2
    
    
    $
    56.0Ratios:Loss ratio
    
    
    99.4
    %
    
    
    74.6
    %
    
    
    80.0
    %Underwriting expense ratio
    
    
    21.7
    %
    
    
    21.6
    %
    
    
    20.0
    %Administration expense ratio
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    4.4
    %Combined ratio
    
    
    125.5
    %
    
    
    100.6
    %
    
    
    104.4
    %
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Specialty Lines Segment (Loss) Income Specialty Lines reported a segment loss of $245.2 million in 2004 compared to segment income of
$115.2 million in 2003. The segment loss in 2004 was primarily attributable to the following:  
    
    Premium volume was impacted by clients exercising their rights of
special termination under various reinsurance contracts, which
resulted in a reduction of estimated ultimate premium of $50.5
million in the second half of 2004. In addition to the reductions
triggered by special termination clauses, the decrease of the
Specialty Lines segments net premium written was further affected
by adjustments of ultimate premium estimates, net of expenses, in
the amount of $100.5 million resulting from a change in estimate
due to the implementation of enhanced procedures for establishing
written premium estimates throughout 2004.
    
    In late 2004, we commuted the stop-loss protection regarding
underwriting year 2001 of the professional liability business
generated through our strategic partnership with the MDU that
resulted in a $10.5 million charge.
    
    The development of prior years reserves of $488.5 million
primarily related to adverse developments of the Professional
Liability and other Special Liability lines ($449.3 million),
particularly excess & surplus lines and umbrella, Workers
Compensation ($55.3 million) and Engineering ($12.9 million).
These adverse developments in the Specialty Lines were partially
offset by positive developments related to Aviation & Space ($24.5
million), Agribusiness ($0.7 million) and Credit & Surety ($3.8
million).
    
    Slightly offsetting the results for 2004 was the increase in
investment results due to the continued recovery of the global
capital markets as well as capital gains realized from the sale of
equity securities to adjust our asset allocation to reduce
investment portfolio risks during 2004. Specialty Lines Premiums For the year ended December 31, 2004, gross premiums written decreased 12.1% to $1,777.3 million,
net premiums written decreased 8.5% to $1,658.1 million and net premiums earned increased 2.1% to
$1,699.2 million. Adjustments of ultimate premium estimates resulted in a decrease in net premiums
written and earned in the amount of $100.5 million; after reflecting for accrued underwriting
expenses ($(1.7) million) and losses ($105.3 million), the impact of these adjustments of ultimate
premium estimates on the technical result was $3.1 million. Included in the adjustments were
premium estimate adjustments of the business relationship with a Lloyds syndicate, a major client
of ours, which resulted in a decrease in net premiums written and earned in the amount of $25.5
million. After reflecting for accrued underwriting expenses ($0.4 million) and losses ($19.0
million), the impact of this specific premium accrual adjustment on the technical result was $(6.1)
million. For the year ended December 31, 2004, the reduction in net premiums written in the Specialty Line
segment by line of business included:  
    
    Workers Compensation, which decreased by 27.4% or $85.1 million
to $225.8 million, due to the result of lower premium accruals in
2004 related to the 2003 underwriting year based on revised
estimated premiums received from a large cedent who reports on a
lag, as well as a decrease in run-off premiums from older
underwriting years. In addition, there was a reduction of
participation on premiums written through the involuntary market
with one of our ceding companies;
    
    Credit & Surety, which decreased by 27.5% or $64.9 million to
$171.1 million, due to cedents in North America exercising special
termination clauses, as well as a decrease in net premiums written
due to the ratings agencies actions; 72




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and
    
    Professional Liability and other Special Liability, which
decreased by 11.1% or $66.3 million to $531.7 million, due to
cedents in North America exercising special termination clauses,
as well as a decrease in net premiums written due to the ratings
agencies actions. These decreases were offset by an increase in net premiums written in the Agribusiness line of
business, which increased by 41.0% or $36.9 million to $126.9 million. This was mainly the result
of new business written, as well as return premium received on a specific contract due to favorable
technical results. In addition the Aviation & Space line of business increased by 18.3% or $62.7
million to $404.5 million, which grew as a result of an increased retention in the business
underwritten by GAUM. Specialty Lines Net Investment Income and Net Realized Capital Gains (Losses) Specialty Lines reported a net investment income and net realized capital gains of $186.1 million
for the year ended December 31, 2004, an increase of $53.7 million, or 40.6%, compared to net
investment income and net realized capital gains of $132.4 million. The investment results and
returns for 2004 were positively impacted by the continued recovery of the global capital markets
as well as capital gains realized from the sale of equity securities to adjust our asset allocation
to reduce investment portfolio risks during 2004. Specialty Lines Losses and Loss Adjustment Expenses Specialty Lines losses and loss adjustment expenses increased $448.6 million, or 36.1%, in 2004.
The non-life loss and loss adjustment expense ratio was 99.4% in 2004 compared to 74.6% in 2003, an
increase of 24.8 percentage points. The development of prior years reserves of $488.5 million primarily related to adverse
developments of the Professional Liability and other Special Liability lines ($449.3 million),
particularly excess & surplus lines and umbrella, Workers Compensation ($55.3 million) and
Engineering ($12.9 million). These adverse developments in the Specialty lines were partially
offset by positive developments related to Aviation & Space ($24.5 million), Agribusiness ($0.7
million) and Credit & Surety ($3.8 million). In the latter half of 2004, the Specialty Lines segment agreed upon commutations with
primarily North American cedents regarding gross loss reserves of $401.3 million. Specialty Lines Underwriting Acquisition Costs Underwriting acquisition costs increased $7.8 million, or 2.2%, in 2004. This increase is mainly
related to the increase in net premiums earned. The non-life underwriting expense ratio remained
stable at 21.7% in 2004 as compared to 21.6% in 2003. Specialty Lines Operating and Administration Expenses Operating and administration expenses decreased $6.7 million, or 8.4%, in 2004. The main driver
for the decrese was the reduction in net premiums written for 2004 as compared to the 2003. The
non-life administration ratio was stable at 4.4% in 2004 and 2003. Specialty Lines Combined Ratios Specialty Lines combined ratio was 125.5% in 2004 and 100.6% in 2003. The increase in the combined
ratio was largely the result of prior years loss reserve development. 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:  
    
    The non-life loss ratio improved by 5.4 percentage points for the year ended December 31, 2003, versus the same period 73




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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, net premium written growth in Specialty Lines by line of
business included:  
    
    Professional Liability and other Special Liability, which increased by 11.4% or $61.1 million to $598.0 million, 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, which increased by 40.9% or $90.3 million to $310.9 million, as a result of the renewal of a
large program in 2003;
    
    Credit & Surety, which increased by 17.9% or $35.9 million to $236.0 million; and
    
    Agribusiness, which increased by 309.1% or $68.0 million to $90.0 million, reflecting the hardening market that
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 Underwriting acquisition costs increased $67.8 million or 23.2% in 2003. This increase is mainly
related to the increase in net 74




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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 US 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. Life & Health Reinsurance The table below presents information regarding results of operations of our Life & Health
Reinsurance segment for the years ended December 31, 2004, 2003 and 2002. Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions, except ratios)Revenues:Gross premiums written
    
    $
    446.0
    
    
    $
    406.5
    
    
    $
    343.2Net premiums written
    
    $
    439.9
    
    
    $
    369.5
    
    
    $
    314.7Net premiums earned
    
    $
    433.9
    
    
    $
    383.0
    
    
    $
    310.8Net investment income and net realized capital gains (losses)
    
    
    29.7
    
    
    
    17.5
    
    
    
    18.1Total revenues
    
    
    463.6
    
    
    
    400.5
    
    
    
    328.9Losses and expenses:Losses, loss adjustment expenses and life benefits
    
    
    (327.4
    )
    
    
    (319.6
    )
    
    
    (260.1
    )Underwriting acquisition costs
    
    
    (97.8
    )
    
    
    (80.0
    )
    
    
    (64.0
    )Other operating and administration expenses
    
    
    (23.0
    )
    
    
    (12.8
    )
    
    
    (11.3
    )Total benefits, losses and expenses
    
    
    (448.2
    )
    
    
    (412.4
    )
    
    
    (335.4
    )Segment income (loss)
    
    $
    15.4
    
    
    $
    (11.9
    )
    
    $
    (6.5
    )Ratios:Underwriting expense ratio
    
    
    22.5
    %
    
    
    20.9
    %
    
    
    20.6
    %Administration expense ratio
    
    
    5.2
    %
    
    
    3.5
    %
    
    
    3.6
    %
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Life & Health Reinsurance Segment Income (Loss) The Life & Health Reinsurance reported a segment income of $15.4 million for the year ended
December 31, 2004 as compared to a segment loss of $11.9 million for the same period in 2003. The
technical result for the year ended December 31, 2004 was $14.7 million as compared to ($8.0)
million for the same period in 2003. Technical result is defined as net premiums earned minus losses, loss
adjustment expenses and life benefits minus underwriting acquisition costs plus technical interest.
The increase in 2004 was primarily attributable to the following:  
    
    Strong growth in premium volume driven by the expansion of
existing reinsurance transactions in Continental Europe
and increased shares of current business, which was slightly
offset by a decline in premiums due to commutations in the
Accident and Health line of business.
    
    The termination of the Life & Health Reinsurance segments Master
Retrocession Agreement for its financing contracts, resulting in a
repayment of the non-amortized financing of $36.9 million. The
provisions for this termination led to a realization of a profit
of $3.4 million in 2004.
    
    The development of our Guaranteed Minimum Death Benefit (GMDB)
book during 2004 as compared to 2003. In 2003
net reserves were strengthened by $20.5 million, while no actions were required in 2004. As a
result of the strong performance of the US stock markets, the GMDBs net amount at risk further
decreased to $635.5 million at December 31, 2004 from $809.7 million at December 31, 2003. 75




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In late 2004, Converium entered into an agreement to terminate its $75.0 million GMDB
reinsurance protection purchased in 2003, for an amount of $9.7 million, giving rise to a net
cost of the cover for 2004 of $0.1 million. The purpose of this cover was to address the
volatility in the United States equity markets and potential adverse deviations to other key
assumptions such as mortality risks, lapse rate risks and surrenders.
    
    The increase was offset by a reduction in premium volume due to clients exercising their
rights of special termination under various reinsurance contracts, which resulted in a
reduction of estimated ultimate premium of $6.4 million in the second half of 2004. Life & Health Reinsurance Premiums For the year ended December 31, 2004, gross premiums written increased 9.7% to $446.0 million, net
premiums written increased 19.1% to $439.9 million and net premiums earned increased 13.3% to
$433.9 million. For the year ended December 31, 2004, net premiums written growth in the Life & Health Reinsurance
segment by line of business included:  
    
    Life and Disability reinsurance, which increased by 50.2% or $81.3 million to $243.4
million, which grew due to the expansion of existing financing reinsurance transactions in
Continental Europe and increased shares of current business. This increase was offset by a decrease of 5.3% or $10.9 million in net premiums written to $196.5
million in the Accident and Health line of business due to commutations. 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 $29.7 million for the year ended December 31, 2004, which was higher by $12.2 million, or 69.7%,
compared to net investment income and net realized capital losses of $17.5 million for the same
period of 2003. The increase was largely due to the continued recovery of the global capital
markets as well as capital gains realized from the sale of equity securities to adjust our asset
allocation to reduce investment portfolio risks during 2004. Life & Health Reinsurance Losses, Loss Adjustment Expenses and Life Benefits Life & Health Reinsurance had losses, loss adjustment expenses and life benefits incurred of $327.4
million, an increase of $7.8 million, or 2.4% for the year ended December 31, 2004. For the year ended December 31, 2004 there were no additional reserving actions required for the
GMDB book of business. In 2003, the Life & Health Reinsurance segment strengthened reserves for
this closed block of variable annuity business by $20.5 million (to net $56.0 million). As a result
of the positive performance of the US stock markets, GMDBs net amount at risk further decreased to
$635.5 million at December 31, 2004 from $809.7 million at December 31, 2003. In the latter half of 2004, the Life & Health Reinsurance segment agreed upon commutations with
primarily North American cedents regarding gross loss reserves of $18.6 million. Life & Health Reinsurance Underwriting Acquisition Costs Underwriting acquisition costs increased $17.8 million or 22.3% to $97.8 in 2004. This increase is
mainly related to the increase in net premiums earned. The underwriting expense ratio was 22.5% in
2004 as compared to 20.9% in 2003. Life & Health Reinsurance Operating and Administration Expenses Operating and administration expenses increased $10.2 million or 79.7% to $23.0 million in 2004. The
increase primarily arose from increased expenditures to support the growth in operations,
additional costs related to the retention plans that were rolled out in late 2004, and the
continued weakening of the US dollar. The administration expense ratio was 5.2% in 2003. 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 76




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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 US 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
felt, as of December 31, 2003, that its carried reserves for its GMDB exposure were adequate, it
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 then current
volatility and the valuation of the equity markets in the United States. The annual expense
associated with this protection was expected to be less than $0.5 million per year. Based on
information available at the time, Converium felt this additional reinsurance protection adequately
addressed 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. In late 2004, Converium entered into an agreement to terminate
its $75.0 million GMDB reinsurance protection purchased in 2003, for an amount of $9.7 million. 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, net premium written growth in the Life & Health Reinsurance
segment by line of business included:  
    
    Accident and Health, which 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 US dollar against the
strengthening 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. Corporate Center The table below presents information regarding results of operations of our Corporate Center for
the years ended December 31, 2004, 2003 and 2002. The Corporate Center carries certain
administration expenses, such as costs of the Board of
Directors, the Global Executive Committee, and other global functions. 77




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Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions)Other operating and administration expenses
    
    $
    (38.0
    )
    
    $
    (34.3
    )
    
    $
    (30.3
    )Segment loss
    
    $
    (38.0
    )
    
    $
    (34.3
    )
    
    $
    (30.3
    )
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Corporate Center Operating and Administration Expenses The Corporate Center reported operating and administration expenses of $38.0 million in 2004,
compared to $34.3 million in 2003. The increases primarily arose from consulting costs relating to
the 2004 rights offering, expenditures to support the growth in operations and the continued
weakening of the US dollar. 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 US dollar. 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 dividends. Individual subsidiaries are
responsible for managing local cash and liquidity positions, including the repayment of debt. In the event of local short-term cash requirements, internal loans are available, subject to
certain required approvals based on amount. Liquidity requirements Our principal cash requirements are for paying reinsurance and insurance claims, which could
periodically include significant cash requirements related to catastrophic events, for servicing
debt, investment in businesses, capital expenditures, servicing retrocessional arrangements and
payment of dividends to shareholders. As of December 31, 2004, we reported total investments including cash and cash equivalents,
excluding the Funds Withheld Asset, of $7,164.2 million, of which (i) $1,060.8 million were pledged as
collateral relating to outstanding letters of credit of $955.7 million of the $1.6 billion
Syndicated Letter of Credit Facility, (ii) $704.7 million were pledged as collateral relating to
other irrevocable letters of credit, (iii) $109.3 million were pledged primarily as deposits with
French cedents, and (iv) $562.1 million were pledged to support Converium-internal reinsurance
transactions. Interest on debt and short-term borrowings was $33.1 million for 2004, $31.0 million in 2003 and
$16.4 million in 2002. We had no scheduled debt repayments in 2004, 2003 or 2002. The carrying
value of our outstanding debt was $390.9 million at December 31, 2004, $390.6 million at December
31, 2003 and $390.4 million at December 31, 2002. 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, Zurich Insurance Company (ZIC) and Zurich International Bermuda Ltd. (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 78




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As a holding company, Converium Holding AG 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. Dividend payments from Converium AG to
Converium Holding AG may be subject to regulatory review, but for 2005 this is not considered a
relevant issue as no payment is expected to be made; any dividend payments from CRNA to CHNA
requires approval of the regulator of the state of Connecticut (see Note 22 to our 2004
consolidated financial statements). Debt Outstanding As of December 31, 2004, we had total debt outstanding with a principal amount of $400.0 million
and a carrying amount of $390.9 million. We had no scheduled debt repayments in 2004, 2003, or
2002. 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
Transactions, for more information see Item 4. Information on the Company  A. History and
Development of Company, Converium Holdings (North America) Inc. assumed $200.0 million principal
amount of non-convertible, unsecured, unsubordinated senior notes issued originally during October
1993. These notes mature in full on October 15, 2023 and bear interest at the rate of 7.125%. In
2004, the interest payments regarding the 7.125% non-convertible, unsecured, unsubordinated senior
notes of CRNA were funded (i) by corresponding dividends of CRNA with regards to the coupon payment
of April 15, 2004; and (ii) by Converium AG with regards to the coupon payment of October 15, 2004,
due to the dividend restrictions of CRNA (see Note 22 to our 2004 consolidated financial
statements). In November 2004, Converium AG signed a $1.6 billion, three-year syndicated letter of credit
facility from various banks. The facility provides Converiums non-US operating companies with a
$1.5 billion capacity for issuing letters of credit and a $100.0 million liquidity reserve. It
replaces the existing $900.0 million letter of credit facility, which was signed in July 2003. As
of December 31, 2004, Converium had outstanding letters of credit of $955.7 million under the
facility. Investments of $1,060.8 million were pledged as collateral related to the Syndicated
Letter of Credit Facility. Converium must maintain the following financial covenants in order to
avoid default under the agreement: (i) consolidated total borrowings do not at any time exceed 35%
of consolidated tangible net worth, which is defined as total shareholders equity less goodwill;
and (ii) consolidated tangible net worth must remain greater than $1,237.5 million at all times.
Converium pays commission fees on outstanding letters of credit, which are distributed to the
facility banks and can only be impacted by a change in the companys credit rating. The maximum
amount of this fee is .50%. In addition to the syndicated letter of credit facility, other irrevocable letters of credit of
$639.1 million were outstanding at December 31, 2004 to secure certain assumed reinsurance
contracts. Investments of $704.7 million were pledged as collateral related to certain of these
letters of credit. Capital Requirements As of December 31, 2004, we had total shareholders equity of $1,720.2 million ($11.76 per share)
compared to $2,083.3 million ($52.38 per share) as of December 31, 2003. This decrease is mainly
comprised of the 2004 net loss of $760.8 million, a reduction in net unrealized gains on
investments, net of taxes of $28.6 million, and $47.8 million of dividends to shareholders paid in
2004. This decrease was offset by the 2004 rights offering whereby an additional 106,683,245 shares
of Converium Holding AG were issued, generating additional shareholders equity of $399.1 million,
net of underwriting issuance costs of $29.7 million. Cash Flows
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002($ millions)Cash flow data:Cash provided by operating activities
    
    $
    224.5
    
    
    $
    1,265.3
    
    
    $
    870.4Net cash used in investing activities
    
    
    (195.3
    )
    
    
    (1,327.8
    )
    
    
    (1,093.3
    )Net cash provided by (used in) financing activities
    
    
    349.5
    
    
    
    (47.2
    )
    
    
    179.0Effect of exchange rate changes on cash and cash equivalents
    
    
    5.4
    
    
    
    29.0
    
    
    
    (15.1
    )Change in cash and cash equivalents
    
    
    384.1
    
    
    
    (80.7
    )
    
    
    (59.0
    )Cash and cash equivalents, beginning of period
    
    
    280.8
    
    
    
    361.5
    
    
    
    420.5Cash and cash equivalents, end of period
    
    $
    664.9
    
    
    $
    280.8
    
    
    $
    361.5
 79




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Cash and cash equivalents increased by $384.1 million to $664.9 million as of December 31, 2004
from $280.8 million as of December 31, 2003. Our cash position increased due to the sale of equity
securities and was offset by commutations executed in 2004 that resulted in a cash outflow of
$526.8 million. The cash balance was maintained in anticipation of pending cash outflows in
connection with commutations. 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 $224.5 million for the year ended December 31, 2004
compared to $1,265.3 million and $870.4 million for the years ended December 31, 2003 and 2002,
respectively. This represented a decrease of $1,040.8 million, or 82.2% in 2004 versus an increase
of $394.9 million, or 45.4% in 2003. This decrease was due to increased claims payment activity,
particularly related to the cash outflows for commutations that have taken place during the latter
part of 2004, as well as amounts paid related to the retroactive stop-loss retrocession cover from
National Indemnity Company. In addition there was a reduction of new business growth as a result of
active cycle management. 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 during 2002. Cash provided by financing activities in 2004 was primarily due to the proceeds, net of related
expenses, received from the 2004 rights offering, offset by the payment of dividends. In 2003, cash
used in financing activities was primarily driven by the payment of dividends to shareholders. Cash
provided by financing activities in 2002 was due to the issuance of our guaranteed subordinated
notes. The charges in 2004 for reserve strengthening, deferred income taxes, and impairment of goodwill do
not have a current impact on cash provided by operating activities. However, future periods may be
affected by higher claim payments on those reserves and the run-off of the North American
operations, offset by lower tax payments (due to net operating loss carryforwards). 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. New Accounting Standards We have or will be required to adopt the following new standards in the future: SFAS 123 (revised 2004), Share-Based Payment In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This
Statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees. This Statement establishes
standards for the accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the entitys equity instruments
or that may be settled by the issuance of those equity instruments. This Statement focuses
primarily on accounting for transactions in which an entity obtains employee services in
share-based payment transactions. For public entities, this Statement is effective as of the
beginning of the first interim or annual reporting period that begins after June 15, 2005. As
Converium has already adopted the standards of SFAS No.123, this statement is not expected to have
a material impact on the financial condition or results of operations. SFAS 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits 
an amendment of FASB Statements No. 87, 88, and 106 In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers Disclosures about
Pensions and Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88 and 106.
This Statement retains the disclosures required by SFAS No. 132, Employers Disclosures about
Pensions and Other Post-retirement Benefits  an amendment of 80




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FASB Statements No. 87, 88, and 106,
which standardized the disclosure requirements for pensions and other post-retirement benefits to
the extent practicable and requires additional information on changes in the benefit obligations
and fair values of plan assets. Additional disclosures have been added in response to concerns expressed by users of financial
statements; those disclosures include information describing the types of plan assets, investment
strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit
cost recognized during interim periods. This statement is effective for financial statements with
fiscal years ending after December 15, 2003, with interim-period disclosures effective for interim
periods beginning after December 15, 2003. This statement has been adopted for all of Converiums
plans. See Note 14 to our 2004 consolidated financial statements for additional information. In December 2003, the Medicare Prescription Drug, Improvements and Modernization Act of 2003 (The
Medicare Act)was approved in the United States. The Medicare Act expands prescription drug
coverage under Medicare. As CRNAs retiree medical coverage is very limited, the Medicare Act did
not have a material impact on the financial condition or results of operations. FASB Interpretation 46, Consolidation of Variable Interest Entities  an interpretation of ARB No.
51 In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51 (FIN 46), which requires an enterprise to assess
whether consolidation of an entity is appropriate based upon its interests in a variable interest
entity (the VIE). A VIE is an entity in which the equity investors do not have the
characteristics of a controlling financial interest, or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial support from other
parties. FIN 46 was effective immediately for new VIEs established or purchased subsequent to
January 31, 2003. The adoption of FIN 46 did not have a material impact on Converiums consolidated
financial condition or results of operations, as there were no VIEs identified which required
consolidation. In December 2003, the FASB issued a revised version of FIN 46 (FIN 46(R)), which incorporates a
number of modifications and changes made to the original version. FIN 46(R) replaces the previously
issued FIN 46 and, subject to certain special provisions, became effective no later than the end of
the first reporting period that ends after December 15, 2003 for entities considered to be
special-purpose entities and no later than the end of the first reporting period that ends after
March 15, 2004 for all other VIEs. Early adoption was permitted. Converium adopted FIN 46(R) at
December 31, 2003. The adoption of FIN 46(R) did not result in the consolidation of any VIEs. We have performed an evaluation of the catastrophic protection counter-party agreement with Helix
04 Limited, issued in 2004, to establish whether we are the primary beneficiary of the VIE which
issued the securities. Management has concluded that we are not the primary beneficiary of the VIE
(see Note 11 to our 2004 consolidated financial statements). EITF Issue 03-1, The Meaning of Other-than-temporary Impairment and Its Application to Certain
Investments (EITF 03-1). On September 30, the FASB delayed the effective date for the measurement and recognition guidance
included in paragraphs 10 through 20 of EITF Issue 03-1. The adoption of EITF 03-1 did not have a
material impact on the financial condition or results of operations. 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 81




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Contractual Obligations
    
    Payment due by periodLess than 1
    
    
    
    
    
    
    
    
    More than($ thousands)
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-Term Debt Obligations  Principal
    
    $
    400,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    400,000Long-Term Debt Obligations  Interest
    
    
    732,750
    
    
    
    30,750
    
    
    
    61,500
    
    
    
    61,500
    
    
    
    579,000Operating Lease Obligations
    
    
    85,600
    
    
    
    13,300
    
    
    
    26,500
    
    
    
    24,900
    
    
    
    20,900Losses and loss adjustment expenses,
gross (1)
    
    
    8,776,900
    
    
    
    2,071,348
    
    
    
    2,554,078
    
    
    
    1,430,635
    
    
    
    2,720,839Total
    
    $
    9,995,250
    
    
    $
    2,115,398
    
    
    $
    2,642,078
    
    
    $
    1,517,035
    
    
    $
    3,720,739
 
  For further detail on our long-term debt principal and interest payments, see Note 12 to our 2004
consolidated financial statements. For further detail on our operating lease payments, see Note 21
to our 2004 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 six. 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 the case of an 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
2004 the Board of Directors met six times physically and held 17 further meetings by way of
conference calls. 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 (CEO) and the members of
the Global Executive Committee, about the course of the business and the activity of the business
segments and the Global Executive Committee. 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 CEO, the Chief Financial
Officer (CFO) and the General Legal Counsel attend Board
meetings on a regular basis. Members of the Global Executive Committee 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 Global Executive Committee 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, terms of office and
committee memberships as of December 31, 2004 are as follows: 82




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Name
    
    Date of Birth
    
    Nationality
    
    Term Expires inPeter C. Colombo (Chairman)(1)(2)(4)
    
    June 15, 1934
    
    Swiss
    
    
    2007Georg Mehl (Vice-Chairman)(1)(2)(4)
    
    August 11, 1939
    
    German
    
    
    2006Terry G. Clarke (1)(2)(3)(5)
    
    October 31, 1941
    
    British
    
    
    2007Derrell J. Hendrix (3)
    
    August 9, 1953
    
    American
    
    
    2007George G. C. Parker (3)(4)
    
    March 29, 1939
    
    American
    
    
    2006Anton K. Schnyder (1)(2)
    
    November 29, 1952
    
    Swiss
    
    
    2006Markus Dennler (6)
    
    January 24, 1956
    
    Swiss
    
    
    2008Rudolf Kellenberger (6)
    
    April 30, 1945
    
    Swiss
    
    
    2008
 
 (1)
    
    Member of the Nomination Committee(2)
    
    Member of the Remuneration Committee(3)
    
    Member of the Finance Committee(4)
    
    Member of the Audit Committee(5)
    
    In connection with his appointment as Chief Executive Officer in February 2005, Mr.
Clarke has resigned from all committees of the Board.(6)
    
    Member elected to the Board of Directors at the Companys Annual General Meeting on
April 12, 2005 in Zug, Switzerland, for a three-year term of office. Jürgen Förterer resigned from the Board of Directors on September 21, 2004. Curricula Vitae of the Board members 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 Directors in 1997. He 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. Georg Mehl had worked for almost 30 years for the Allianz Group, Hamburg and
Munich, Germany. He is Chairman of the Board of Directors 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 institutions. He graduated from the German Insurance
Academy in Cologne, Germany, in 1961. Terry G. Clarkewas a consulting actuary with the Tillinghast Business of 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 prior to retiring 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 has been a member of a number of professional committees both in the United
Kingdom and in Continental Europe. Mr Clarke was appointed as Managing Director on September 10,
2004 and since February 24, 2005 has served as Chief Executive Officer of the Company at which
point he resigned from all committees of the Board. 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 US 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 83




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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 and in 2004 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. Markus Dennlerserved in a series of positions within the Credit Suisse Group, most recently as a
member of the Executive Board of Credit Suisse Financial Services and as Chief Executive Officer
responsible for the global operational Life & Pensions business. Prior, he was a member of the
Corporate Executive Board of Winterthur Insurance (subsidiary of Credit Suisse Group). Mr Dennler
studied law at the University of Zurich and graduated in 1982. He received his doctorate degree in
1984 and was admitted to the Bar of Zurich in 1986. Further he attended the International Bankers
School in New York and the Harvard Business School (AMP) in Boston. Currently he is a member of the
Board of Directors of Swissquote Group and a councilor of the British-Swiss Chamber of Commerce. Rudolf Kellenbergerserved as Deputy Chief Executive Officer of Swiss Re from April 1, 2000 until
the end of 2004. In this function he dedicated much of his time to tasks within the Corporate
Center, in particular in the field of Management Development and E-Business Development.
Previously, he served in a series of positions within Swiss Res Executive Board assuming
responsibilities for the Northern European reinsurance sector and Special Lines and, as of July
1998, taking on the leadership of Swiss Res then newly founded Europe division. Mr Kellenberger
studied civil engineering at the Federal Institute of Technology (ETH), Zurich, graduating in 1970.
He is a member of the Board of Directors of Swiss Life. The business address for each member of our Board of Directors is Converium Holding AG,
Baarerstrasse 8, CH-6300 Zug, Switzerland. Global Executive Committee The Board of Directors has delegated the management of Converium to the Global Executive Committee.
The Global Executive Committee comprises an executive management team currently with seven members.
It is responsible for implementing Converiums global strategy, ensuring effective collaboration
between each subsidiary, and business segment, and reviewing progress against financial and
operating plans as approved by the Board of Directors. At December 31, 2004 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 ReinsuranceHans Peter Boller
    
    October 25, 1962
    
    German
    
    Chief Risk OfficerMartin Kauer
    
    January 20, 1959
    
    Swiss
    
    Chief Financial OfficerChristian Felderer
    
    January 5, 1954
    
    Swiss
    
    General Legal CounselTerry G. Clarke (1)
    
    October 31, 1941
    
    British
    
    Chief Executive OfficerAndreas Zdrenyk (2)
    
    June 5, 1959
    
    Swiss
    
    Chief Financial Officer
 
 (1)
    
    Appointed Chief Executive Officer of the Company as of February 24, 2005.(2)
    
    Appointed interim Chief Financial Officer of the Company as of February 28, 2005. Gary Prestia resigned as Chief Technical Officer effective September 10, 2004. Dirk Lohmann took
over the responsibilities of the Chief Technical Officer in the interim. On November 4, 2004 Martin
Kauer announced his resignation as Chief Financial Officer. The Board appointed Andreas Zdrenyk as interim Chief Financial Officer of
Converium following Martin Kauers agreed departure on February 28, 2005. Andreas Zdrenyk serves as
Converiums Global Chief Information Officer. A 84




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search and recruitment process for Mr Kauers replacement is under way. On February 23, 2005 the Board of Directors appointed Terry G. Clarke as
Chief Executive Officer and replaced Dirk Lohmann with immediate effect. Mr Clarke continues to be
a member of the Board of Directors. Dirk Lohmannwas the Chief Executive Officer of Converium until leaving the Company on February 23,
2005. 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 GAUM and a director and chairman of 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 Zurich. 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 GAUM. Mr Gentsch holds a degree in business
administration of 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. 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. Hans Peter Bolleris the Chief Risk Officer and an Executive Vice President of Converium. He is
responsible for risk management, corporate compliance, pricing, reserving, Asset and Liability
Management (ALM) and natural hazard modeling. In the first quarter of 2005, he additionally
assumed responsibility for group retrocession and corporate compliance. 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) as well as a member of the International Actuarial Association (IAA).
He serves as Chairman of the Reinsurance Subcommittee of the IAA and was a member of the Risk-Based
Capital Solvency Structure Working Party of the IAA, advising the supranational regulatory bodies
on actuarial matters. He also serves on the Swiss Solvency Board advising the Swiss Federal Office
of Private Insurance. Mr Boller holds a Masters degree in economics and engineering and a
doctorate in actuarial science from the University of Karlsruhe. Martin Kauerwas the Chief Financial Officer and an Executive Vice President of Converium until
leaving the Company on February 28, 2005. 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. 85




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Andreas Zdrenykis Chief Information Officer of Converium and has been appointed interim Chief
Financial Officer of the Company as of February 28, 2005. He joined Zurich Re in 1998 and has
gained in-depth insight into the Companys operations in various functions such as Chief Financial
Officer of Converium Zurich and Zurich Re Zurich, respectively, and Head of Internal Audit &
Consulting. Prior to joining Zurich Re Mr Zdrenyk spent a total of 16 years with the Winterthur
Swiss Insurance Group, six years of which as regional Head of Internal Audit North America based in
the United States. Mr Zdrenyk, a Swiss citizen, holds a Masters of Business Administration degree
from Cox School of Business (Dallas, USA) and a Masters of Information Systems/Information
Technology degree from the Swiss Association of Commerce (Zurich, Switzerland). 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 current 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. Board remuneration In 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. Since then the level of compensation remained unchanged. For the office term 2004/2005,
basic cash compensation for an ordinary Board member, set at $80,593, includes compensation for
membership of one Committee. Board members are entitled to receive 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 $20,148 with a restriction period of three years, and share options equal to a value
of $20,148 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 of a second and third Committee:  
    
    $3,224 for membership of a second Committee
    
    $2,418 for membership of a third and any subsequent Committee and additionally,
    
    $4,030 if the member holds one or more chairmanships in the Committees. The remuneration of the Board of Directors is not performance-related. The table below illustrates the compensation paid to each Board member in 2004. Cash compensation
paid at the date of 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 at
    
    
    Options
    
    
    Options heldCash
    
    
    allocated in
    
    
    December 31,
    
    
    allocated in
    
    
    at DecemberBoard Member
    
    Compensation
    
    
    2004
    
    
    2004 (1)
    
    
    2004 (2)
    
    
    31, 2004 (3)Peter C. Colombo
    
    $
    130,556
    
    
    
    641
    
    
    
    3,495
    
    
    
    2,172
    
    
    
    6,375Georg Mehl
    
    
    110,408
    
    
    
    534
    
    
    
    2,158
    
    
    
    1,810
    
    
    
    5,172Terry G. Clarke(4)
    
    
    128,944
    
    
    
    427
    
    
    
    1,563
    
    
    
    1,448
    
    
    
    3,993Jürgen Förterer(5)
    
    
    75,698
    
    
    
    1,698
    
    
    
    2,834
    
    
    
    1,448
    
    
    
    Derrell J. Hendrix
    
    
    80,590
    
    
    
    427
    
    
    
    427
    
    
    
    1,448
    
    
    
    4,249George G.C. Parker
    
    
    87,843
    
    
    
    427
    
    
    
    727
    (6)
    
    
    1,448
    
    
    
    4,249Anton K. Schnyder
    
    
    83,814
    
    
    
    427
    
    
    
    427
    
    
    
    1,448
    
    
    
    4,249
 
 (1)
    
    Includes shares personally bought.(2)
    
    Options vest immediately, have a term of 10.5 years and an exercise price to
equal fair market value at the beginning of the period for which
they were granted.(3)
    
    An adjustment to the exercise price of all options outstanding prior to the
2004 rights offering will be made in early 2005 in order to account for the dilution of
the value of the options as a result of the 2004 rights offering. The reduction in
exercise price maintains the same Black- 86




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##### Table of Contents



Scholes value of the option before and after the 2004 rights offering and does not reflect any other decrease in the share price.(4)
    
    Includes $38,683 for additional professional services as a Board member and
does not include Mr Clarkes compensation as Managing Director of £50,000 per month
plus reimbursement of customary expenses.(5)
    
    Resigned as Board member as of September 21, 2004 and includes pro rata equity
compensation for the office term 2004/2005. Options held by Mr Förterer expired on
December 29, 2004 due to this resignation.(6)
    
    427 shares and 600 ADSs. Until the end of 2004 Converium had retained The RISConsulting Group LLC, of which Mr Hendrix
is co-owner and chief executive officer, for certain consulting services. For 2004 Converium paid
total fees of $250,000 to RISConsulting Group LLC. Mr Hendrix is also a manager and owner of
approximately 57% of the outstanding share capital of RISC Ventures LLC, a Delaware-based limited
liability company created to manage and operate companies engaged in commercializing technologies
and intellectual properties developed by The RISConsulting Group LLC and its affiliates. In April
2004, Converium AG invested $2.0 million in RISC Ventures LLC for an approximate 17.5% ownership
interest in that entity. In 2004 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 2004 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 Managing Director remuneration Terry G. Clarke received for his services as Managing Director a remuneration of £50,000 per month
plus reimbursement for customary expenses. For 2004, Converium paid Terry G. Clarke GBP 190,909
($349,822) related to this role. In February 2005, Terry G. Clarke assumed the role of Chief
Executive Officer of Converium and at the same time the function of Managing Director was
cancelled. Global Executive Committee remuneration The Remuneration Committee sets compensation levels for members of the Global Executive Committee
and proposes to the Board the remuneration of the Chief Executive Officer. Compensation for each member of the Global Executive Committee consists of a base salary and an
incentive component based on Converiums and the individuals performance. The incentive component
may vary highly from year to year depending on the achievement of the incentive award targets set
annually by the Board of Directors. The Remuneration Committee determines the awards paid out to the Global Executive Committee. The performance-based incentive component consists of the annual incentive plan (AIP) and the
long-term incentive plan (LTIP). A minimum of 25% of the performance-based compensation paid under
the AIP is paid in the form of Converium shares. The LTIP is part of Converiums executive share
ownership program and designed to align the interests of management closely with those of
shareholders as well as to encourage stock ownership. 50% of the award paid out under the LTIP is
delivered in Converium shares and the other 50% of the award is paid out in non-qualified options. Total aggregate compensation of all officers of the Global Executive Committee in 2004 was $6.7
million. This total includes base salary and cash awards made under short- and long-term incentive
plans paid during 2004, and the estimated value of other compensation-related items. This sum also
includes the compensation of Gary Prestia who resigned on September 16, 2004. No severance payment
other than the contractual salary and bonus entitlements were made to Gary Prestia. Richard E. Smith, a former member of the Global Executive Committee, was available as consultant to
Converium until December 31, 2004 in exchange for additional compensation of $1.5 million paid in
early 2004. As of December 31, 2004, Converium has no other former members of the Global Executive
Committee available as consultants to Converium. Global Executive Committee members held shares and options at the end of December 2004. Some were
awarded under Converiums AIP and LTIP, 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. Global Executive Committee members participate in local pension plans. More
information about Converiums employee participation and pension plans is contained in Notes 14 and
15 to our 2004 consolidated financial statements. Employee Incentive and Benefit Plans 87




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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-US employees, a standard stock
purchase plan for our non-US employees, and an omnibus share plan for our US 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. The shares required under the plans are 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 $9.6 million of incentive compensation
expense in 2004. An adjustment to the exercise price of all options outstanding prior to the 2004 rights offering
will be made in early 2005 in order to account for the dilution of the value of the options as a
result of the 2004 rights offering. The reduction in exercise price maintains the same
Black-Scholes value of the option before and after the 2004 rights offering and does not reflect
any other decrease in the share price. The re-pricing of options will not have a material impact on
the financial condition or results of operations. Grants to Global Executive Committee Global Executive Committee members held shares and options at the end of December 2004. Some were
awarded under Converiums AIP and LTIP, 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. Options vested ofShares held at
    
    
    
    
    
    
    Options held at
    
    
    options held atGlobal Executive
    
    Shares granted
    
    
    December 31,
    
    
    Options granted
    
    
    December 31,
    
    
    December 31,Committee member
    
    in 2004 (1)
    
    
    2004 (2)
    
    
    in 2004 (3)
    
    
    2004
    
    
    2004Dirk Lohmann
    
    
    96,566
    
    
    
    105,994
    
    
    
    176,688
    
    
    
    432,755
    
    
    
    263,949Frank Schaar
    
    
    27,176
    
    
    
    10,049
    
    
    
    53,617
    
    
    
    129,998
    
    
    
    80,170Benjamin Gentsch
    
    
    28,610
    
    
    
    36,006
    
    
    
    53,239
    
    
    
    99,672
    
    
    
    50,032Martin Kauer
    
    
    25,104
    
    
    
    
    
    
    
    56,537
    
    
    
    138,196
    
    
    
    84,416Gary Prestia(4)
    
    
    3,903
    
    
    
    
    
    
    
    9,103
    
    
    
    
    
    
    
    Hans Peter Boller
    
    
    21,361
    
    
    
    14,051
    
    
    
    42,402
    
    
    
    79,161
    
    
    
    41,322Christian Felderer
    
    
    16,014
    
    
    
    4,024
    
    
    
    32,980
    
    
    
    45,328
    
    
    
    15,790Christoph Ludemann
    
    
    19,086
    
    
    
    2,683
    
    
    
    41,932
    
    
    
    46,981
    
    
    
    13,005
 As a result of the 2004 rights offering this table is not comparable to the similar
table issued for 2003 and does not allow any conclusion in respect of potential share sales by Global Executive Committee
members. 
 (1)
    
    Shares granted in 2004 include shares awarded under the AIP and LTIP, which are
subjected to various vesting schedules, and shares 88




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##### Table of Contents



purchased through the employee stock purchase plan.(2)
    
    Includes only vested shares (includes shares held by closely linked parties). A
majority of shares granted in 2004 vest ratably over three years. Thus certain shares
granted in 2004 or prior are not indicated to be held by Global Executive Committee
members at December 31, 2004.(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 16, 2004. 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 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 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. Employee retention plan In September 2004, Converium adopted a retention plan for certain of its key employees in order to
ensure the successful continuation of business operations at Converium AG and Converium
Rückversicherung (Deutschland) AG and the orderly run-off of its North American operations. The
retention bonus is paid to the eligible employees in cash in two or three equal installments in
amounts up to the equivalent of such employees base salary. The last installment becomes due on
January 31, 2006. The estimated cost of the program is approximately $31.5 million, which will be
expensed over the period October 1, 2004 through January 31, 2006. For the year ended December 31,
2004, $15.7 million has been expensed based on the terms of this plan. In addition, severance
amounts of $6.0 million will be required to be paid to certain CRNA employees in the event of a
change of control or certain other events. Long Term Incentive Plan (LTIP) The LTIP is designed to align the interests of management closely with those of shareholders, and
to encourage share ownership. LTIP awards are made to senior employees, and are awarded in a
combination of 50% Converium shares and 50% options to purchase Converium shares. Shares vest
ratably over three years. Options are issued with an exercise price equal to the market value of
the shares or ADSs on the grant date. 25% of the options vest immediately on the grant date, and
25% vest each year thereafter or upon retirement. The options expire 10.5 years after the date of
grant. Effective in 2005, CRNA has established a long-term incentive plan for its senior employees needed
for the run-off. The CRNA LTIP is based on CRNAs performance against target plan statutory
surplus levels over a 5-year period, 2005 through 2009. Awards are payable to participants in
cash, in early 2010, after performance can be determined. Executive IPO Option Plan In connection with the Transactions, Converium granted certain executives options to purchase
shares in Converium Holding 89




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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. Executive IPO Options are
now fully vested and expire 10.5 years after the date of grant. For further information on
our share-based incentive plans, see Note 15 to our 2004 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 the General Legal Counsel. The Nomination Committee The 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 Global Executive
Committee. 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 Converium
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 2004 the Nomination Committee held
four meetings. The Remuneration Committee The Remuneration Committee comprises at least three Board members and currently comprises four. It
sets the compensation levels for the Global Executive Committee (except the CEO) and the Head of
Internal Audit, and proposes to the Board of Directors the overall remuneration for the CEO, for
each of the members of the Board of Directors and the Managing Director, as well as the principles
of compensation, of incentive schemes, and bonus payments to employees. Standing invitees are the
CEO and the Chief Human Resources Officer. In 2004 the Remuneration Committee held five meetings. The Finance Committee The Finance Committee comprises at least three Board members and currently comprises three. It
approves external providers of asset management services and capital increases in subsidiaries
between $5 million and $20 million. It submits to the Board for its approval the accounting
standards framework for Converium, the annual budget and financial plans, investment and treasury
policy, solvency and liquidity planning, strategic asset allocation, tax planning, the allocation
of expenses to be charged to the Corporate Center, capital increases and the use of contingent or
authorized capital, year-end results and dividend policy, as well as exchange listings and
de-listings. Standing invitees are the CEO, the CFO and the Chief Investment Officer. In 2004 the
Finance Committee held four meetings. The Audit Committee The Audit Committee comprises the Chairman of the Board of Directors and the Chairmen of the
Finance, Nomination and Remuneration Committees. In connection with his appointment to the position
of Managing Director, Terry G. Clarke resigned from the Audit Committee and also resigned as the
Chairman of the Nomination Committee. The Audit Committee currently only comprises three members
because the Chairman of the Remuneration and Nomination Committee is the same person. 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. The Audit Committee reviews and approves the quarterly
financial statements, except year-end results; 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 Managing Director, the Head of Internal Audit and the external auditor. In 2004
the Audit Committee held seven meetings. 90




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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 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 processes 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 Converiums assets;
    
    to evaluate and promote efficient use of resources; and
    
    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 nine persons and covers all operations of
Converium worldwide. Internal Audit has unrestricted access to all relevant information and
documents. The areas of responsibility between the Board of Directors, the Managing Director and the Global
Executive Committee are defined in the Organizational By-laws of Converium Holding AG, which are
available on the internet at www.converium.com. 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. In addition, we have entered into agreements with each of our directors pursuant to which we have
agreed to indemnify each such director for legal expenses incurred in conjunction with his or her
professional liability to shareholders, bondholders, creditors or others caused by actions or
omissions by such person in his or her capacity as a director, except where such professional
liability was caused by the intent or negligence of such director and provided that (i) such
indemnification is in our best interest considering the facts and circumstances and (ii) such legal
expenses are not covered by our existing Directors and Officers Liability Insurance or are
otherwise reimbursable to such director by the plaintiff. D. EMPLOYEES As of December 31, 2004, Converium employed 771 people globally, including 369 at our offices in
Switzerland, 138 at our offices in the United States, 169 at our offices in Germany, 21 in other
European countries, 33 in the Asia-Pacific region and 41 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 May 31,
    
    
    As of December 31,2005*
    
    
    2004
    
    
    2003
    
    
    2002Number of employees
    
    
    676
    
    
    
    771
    
    
    
    847
    
    
    
    813Breakdown by geographic locationSwitzerland
    
    
    331
    
    
    
    369
    
    
    
    332
    
    
    
    274United States
    
    
    105
    
    
    
    138
    
    
    
    231
    
    
    
    237Germany
    
    
    165
    
    
    
    169
    
    
    
    160
    
    
    
    148Asia-Pacific region
    
    
    29
    
    
    
    33
    
    
    
    31
    
    
    
    29
 91




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##### Table of Contents



As of May 31,
    
    
    As of December 31,2005*
    
    
    2004
    
    
    2003
    
    
    2002Other regions
    
    
    46
    
    
    
    62
    
    
    
    59
    
    
    
    52Breakdown by main category of activityUnderwriting
    
    
    215
    
    
    
    257
    
    
    
    290
    
    
    
    274Finance
    
    
    180
    
    
    
    212
    
    
    
    200
    
    
    
    176Actuarial
    
    
    64
    
    
    
    67
    
    
    
    77
    
    
    
    69Other
    
    
    217
    
    
    
    235
    
    
    
    246
    
    
    
    221
 
 *
    
    As a result of ratings downgrades and the placement of CRNA into orderly run-off, during 2005
we are in the process of downsizing our organization to adjust our cost base to the reduced volume
of business. The reduction in headcount is reflected above. 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 May 31, 2005, 75,642,207 shares were registered in our share register. These shares were
owned by 8,104 shareholders, of which 7,429 were private individuals holding 11.27% of total
outstanding shares, 207 were foundations and pension funds holding 5.52% of total outstanding
shares and 468 were other legal entities holding 34.78% of total outstanding shares. As of May 31, 2005, 26 holders with registered addresses in the United States, including nominees
with registered addresses in the United States, held 15,153,604 of our registered shares and 3,907
holders with registered addresses in the United States, including nominees with registered
addresses in the United States, held 10,856,842 ADSs. These holdings represented 13.70% of the
total number of shares outstanding as of May 31, 2005. 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 US
beneficial holders or the number of registered shares or ADSs beneficially held by persons in the
United States. 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:  
    
    Odey Asset Management LLP, London, United Kingdom: 11.2% (date of
notification March 4, 2005). Odey Asset Management LLP acts as
the investment manager for
several funds.
    
    Dodge & Cox, San Francisco, California, United States: 5.04% (date
of notification June 22, 2005). Dodge & Cox provides
investment management to institutions and individuals through separately managed portfolios and mutual funds. Our major shareholders hold the same voting rights as all other shareholders. 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, 2004. GAUM In 2003, Converium finalized an agreement to acquire a 25% stake in GAUM, a leading international
commercial and general aviation underwriting agency, as a part of its strategy to strengthen its
long-term position in the aviation and space line of business. At that same time, 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 under which it became a member of the
aviation and aerospace pools run by GAUM and its subsidiary, Associated Aviation Underwriters Inc. 92




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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 GAUM, which increased its overall stake 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 pools capacity of the aviation risks managed
by GAUM, compared to 25% for the 2003 underwriting year. Gross premiums assumed through the pools
managed by GAUM were $289.0 million, $266.4 million and $64.4 million for 2004, 2003 and 2002,
respectively. See Item 3.  Key information  D. Risk factors  Ratings changes and Notes 3, 8 and 18 to our
2004 consolidated financial statements for additional information on GAUM. MDU Converium entered into a strategic alliance with the MDU that resulted in a 49.9% participation in
the Medical Defence Union Services Ltd (MDUSL). MDUSL distributes medical malpractice insurance
policies to the members of the MDU. 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 MDU beginning July 1, 2003. These insurance policies replaced policies formerly issued
in the United Kingdom by Zurich Financial Services entities, the majority of which were reinsured
by Converium. Gross premiums written from MDU were $170.9 million, $137.3 million and $140.0
million for 2004, 2003 and 2002, respectively. The MDU Shareholders Agreement provides that if Converiums credit rating is lowered by more than
seven points, from its initial A+ rating, by a recognized credit ratings agency, MDU may serve it
with a Termination Notice. Within sixty days after service of such termination notice, MDU has the
right to purchase Converiums 49.9% shareholding in MDU Services Ltd. at a price to be mutually
agreed upon by the parties, or to be determined by a valuation expert. The recent ratings
downgrades have not triggered the termination provisions of the MDU Shareholders Agreement. See
Notes 8 and 18 to our 2004 consolidated financial statements for additional information on MDU. SATEC Converium has a 48% participation in SATEC, a leading global space-underwriting agency based in
Venice, Italy. Additionally, in 2002 Converium entered into a usufruct agreement with each of the
two other owners of SATEC regarding some of their participation rights. Gross premiums assumed
through the pool managed by SATEC were $10.2 million, $5.9 million and $5.0 million for 2004, 2003
and 2002, respectively. Profit distributions paid from SATEC to Converium with regards to the
participation and the usufruct were $0.9 million, $0.8 million and nil for 2004, 2003 and 2002,
respectively. In 2004, we have recorded an impairment charge with regard to the usufruct agreement
in the amount of $2.4 million. RISC Ventures Until the end of 2004 Converium has retained The RISConsulting Group LLC for certain consulting
services, of which Derrell J. Hendrix, a member of the Converium AG Board of Directors, is Manager
and Chief Executive Officer. In addition, Derrell J. Hendrix is a manager and owner of
approximately 57% of the outstanding share capital of RISC Ventures LLC, a Delaware-based limited
liability company created to manage and operate companies engaged in commercializing technologies
and intellectual properties developed by The RISConsulting Group LLC and its affiliates. In April
2004, Converium AG invested $2.0 million in RISC Ventures LLC for an approximate 17.5% ownership
interest in the entity. For 2004, Converium paid total fees of $250,000 to The RISConsulting Group
LLC. Managing Director In order to enhance the effectiveness of strategic and operational decision-making and greater
collaboration between the Board of Directors and the Global Executive Committee, Converium
established the position of Managing Director. On September 10, 2004, Terry G. Clarke was appointed
as Converiums new Managing Director. The Managing Director serves on the Board and has oversight
over the day-to-day management of Converiums business. The Managing Director attends all meetings
of the Global Executive Committee and has veto power over decisions taken by the Global Executive
Committee. In addition to the Managing Directors regular compensation as a member of the Board of
Directors, Terry G. Clarke received a remuneration of GBP50,000 ($91,620) per month plus
reimbursement for customary expenses. For 2004, Converium paid Terry G. Clarke GBP190,909 ($349,822)
related to this role. In February 2005, Terry G. Clarke assumed the role of Chief Executive
Officer of Converium and at the same time the role of Managing Director was cancelled. C. INTERESTS OF EXPERTS AND COUNSEL 93




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Not applicable. 
 ITEM 8. FINANCIAL INFORMATION A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION Financial Statements See our 2004 consolidated financial statements beginning on page F-1. Legal Proceedings 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: Superior National Matters On January 6 and January 7, 2005, CRNA and CINA, respectively, entered into a Settlement Agreement
and Mutual Release (the Settlement Agreement) with the California Insurance Commissioner (the
Commissioner) relating to the January 16, 2002 complaint that the Commissioner filed against a
subsidiary of ZFS, Centre Insurance Company (CIC) and affiliates, as well as CRNA and CINA (see
Note 26 to our 2004 consolidated financial statements). The Commissioner had initiated this action
in Superior Court of the State of California, County of Los Angeles, on behalf of the Superior
National Insurance Companies in Liquidation (SNICL). The complaint alleged several counts, including voidable preferences and fraudulent transfers, the
recovery of transfers totaling $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 appeared to arise out of CIC transactions, not CRNA or CINA
transactions. As part of the transactions which effectively spun-off CRNA and CINA from ZFS, ZFS
agreed to indemnify CRNA and CINA for liabilities arising out of or related to the assets not
assumed by or transferred to CRNA and CINA in the separation from ZFS. The principal claim brought
against CRNA appeared to arise from CRNAs commutation of certain reinsurance obligations. In that
connection, however, while the complaint did in fact reference the commutation, the payment
involved was a commutation payment made by CRNA, not to CRNA. As best as could be discerned, the
liquidator was apparently claiming that the amount paid by CRNA was inadequate consideration for
the reinsurance obligations commuted and thus this commutation constituted a fraudulent transfer.
All the claims, though, were never well defined and no discovery was ever undertaken to better
elucidate them. Neither CRNA nor CINA shall pay any amounts whatsoever in exchange for the full and final discharge
of liabilities, as set forth in the Settlement Agreement, that the Commissioner has granted to both
companies. Instead, CIC shall be making the full payment that will provide the complete release to
CRNA and CINA, as well as all other parties in the complaint. At a hearing on February 17, 2005,
the Settlement Agreement was approved by the court presiding over the liquidation of the estates of
SNICL. On April 18, 2005 the settlement was deemed final and on or about May 18, 2005 payments
required of parties under the Settlement Agreement (which did not
include CRNA or CINA), were made. A dismissal of the case was entered by
the court on June 1, 2005. U.S. Life Insurance Company arbitration The arbitration initiated on November 29, 1999 by U.S. Life Insurance Company (U.S. Life) against
Superior National Insurance Company in Liquidation (SNICIL), CINA and CIC, which was previously
reported, has been settled as between U.S. Life and CINA. The settlement in January 2005 followed a
December 2004 decision of the arbitration panel to reject U.S. Lifes claim for rescission and to
instead reform the reinsurance treaty provided by U.S. Life to a 90% quota share as opposed to a
100% quota share. Life and CINA agreed to settle the matter with a full and final commutation of
the treaty in exchange for a commutation payment by U.S. Life (see Note 26 to our 2004 consolidated
financial statements). All American Life Insurance Company arbitration The arbitration initiated on December 23, 2002 by CRNA and CINA against All American Life Insurance
Company (All American), which was previously reported, has been settled. In May 2004, the parties to the
dispute, which concerned a 94




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reinsurance treaty provided by All American, agreed to settle the matter with a full and final commutation of the treaty in exchange for a commutation payment by All
American. Incurred losses of $9.2 million were recorded in 2004 to reflect this commutation. Continental Casualty Company arbitration In December 2002, Continental Casualty Company (Continental) and CRNA each demanded arbitration
from the other to resolve a dispute arising from a retrocessional contract pursuant to which
Continental reinsured CRNA for 50% of certain accident and health exposures CRNA assumed from a
third-party insurer. The dispute arose in October 2002 when Continental asserted that the
third-party insurer had violated the reinsurance agreement with CRNA in such a way that might give
rise to defenses under the reinsurance agreement. Effective June 2004, Continental and CRNA entered into an Assignment of Rights, Limited Indemnity
and Cooperation Agreement (the Assignment Agreement) pursuant to which the parties agreed to
withdraw their respective demands for arbitration with prejudice. The Assignment Agreement enables
Continental, with the cooperation of CRNA, to assert its defenses directly against the insurer and
indemnifies CRNA for monetary liability or expenses it incurs resulting from CRNAs cooperation or
Continentals assertion of its defenses. Following the signing of the Assignment Agreement,
Continental, CRNA and the third-party insurer have entered into a series of commutation agreements
related to the exposures. These commutations became effective in April 2005 following the approval
of the liquidation court governing the insurer. Great American Insurance Company arbitration The arbitration initiated on July 30, 2004 by Great American Insurance Company (GAIC) against
CRNA, challenging CRNAs right to invoke a special termination or settlement clause under certain
Automobile Residual Value Proportional Reinsurance Agreements (the Reinsurance Agreements) with
GAIC and seeking resolution of a billing dispute related to the Reinsurance Agreements, which was
previously reported, has been settled. In December 2004, the parties to the dispute agreed to
settle the matter with a full and final commutation of the Reinsurance Agreements in exchange for a
commutation payment by CRNA. Canada Life On December 21, 2001, The Canada Life Assurance Company, Toronto (Canada Life), brought an action
against Converium Rückversicherung (Deutschland) AG (Converium Germany) in the US District Court
of the Southern District of New York. Canada Life alleged that Converium Germany 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 Germany 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 US 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 US District Court of the Southern District of New York, Converium Germany sent Canada Life a
request to arbitrate. Following the organizational meeting of the arbitrators on October 8, 2003,
the discovery and deposition began. The hearing is expected to take place in the second quarter of
2005. Meanwhile, the arbitration panel ordered Converium Germany to post pre-award security in the
form of a Letter of Credit in the amount of $66.0 million, which Converium Germany has complied
with. Converium Germany has fully reserved this claim. However, arrangements entered into with Zurich
Financial Services provide for the claim to be covered by the agreed-to cap for September 11th
related losses provided to us by Zurich Financial Services in conjunction with Converiums Initial
Public Offering. Review of Certain of
our Reinsurance Transactions Ongoing investigations of the insurance and reinsurance industry and certain insurance and
reinsurance products are being conducted by U.S. regulators and governmental authorities, including
the Securities and Exchange Commission and the New York Attorney General. On March 8, 2005, MBIA Inc. (MBIA) issued a press release stating that MBIAs audit committee
undertook an investigation to determine whether there was an oral agreement with MBIA under which
MBIA would replace Axa Re Finance as a reinsurer to CRNA by no later than October 2005. The press
release stated that it appears likely that such an agreement or understanding with Axa Re Finance was made in 1998. Thereafter, on April 19,
2005, CRNA received subpoenas from the U.S. Securities and Exchange Commission and the Office of
the New York Attorney General seeking documents related to certain transactions between CRNA and
MBIA. In view of the industry investigations and the events relating to MBIA described above, we have
engaged counsel to assist us in a review and analysis of certain of our reinsurance transactions,
including the MBIA transactions. We are fully cooperating with the governmental authorities in
connection with their investigation. The impact of our ongoing review and analysis and the ongoing
regulatory investigations on us is uncertain, and there can be no assurance as to whether or not
the outcome of such investigations will have a material impact on
Converium. Class action lawsuits Commencing on October 4, 2004, seven securities class action lawsuits have been filed against
Converium and certain of its 95




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officers and directors. The complaints are as follows: Meyer v. Converium Holding AG, et al.,04 CV 07897, which names Converium Holding AG, Dirk Lohmann and
Martin Kauer as defendants, and is purportedly brought as a class action on behalf of persons who
purchased our securities between December 11, 2001 and July 20, 2004; Criden v. Converium Holding
AG, et al.,04 CV 8060, which names Converium Holding AG, Dirk Lohmann and Martin Kauer as
defendants, and is purportedly brought as a class action on behalf of persons who purchased our
securities between December 11, 2001 and July 20, 2004; Taylor v. Converium Holding AG, et al.,04
CV 8038, which names Converium Holding AG, Zurich Financial Services Group, Peter C. Colombo, Georg
Mehl, George G. C. Parker, Derrell J. Hendrix, Jürgen Förterer, Terry G. Clarke, Anton K. Schnyder,
Dirk Lohmann, Martin Kauer, Richard E. Smith and Frank Schaar as defendants, and is purportedly
brought as a class action on behalf of persons who purchased our securities between December 11,
2001 and August 30, 2004; Jakob v. Converium Holding AG, et al.,which names Converium Holding AG,
Zurich Financial Services Group, Peter C. Colombo, Georg Mehl, George G. C. Parker, Derrell J.
Hendrix, Jürgen Förterer, Terry G. Clarke, Anton K. Schnyder, Dirk Lohmann, Martin Kauer, Richard
E. Smith and Frank Schaar as defendants, and is purportedly brought as a class action on behalf of
persons who purchased our securities between December 11, 2001 and August 30, 2004; Maxfield v.
Converium Holding AG, et al.,04-CV-08994, which names Converium Holding AG, Peter C. Colombo,
Martin Kauer and Dirk Lohmann, and is purportedly brought as a class action on behalf of persons
who purchased our securities between December 11, 2001 and September 2, 2004; Bassin v. Converium
Holding AG, et al.,04 CV 08295, which names Converium Holding AG, Peter C. Colombo, Martin Kauer
and Dirk Lohmann as defendants, and is purportedly brought as a class action on behalf of
purchasers of our securities between December 11, 2001 and September 2, 2004 (see Note 26 to our
2004 consolidated financial statements); and Rubin v. Converium Holding AG, et al.,Index No.
04-117332, which names Converium Holding AG, Zurich Financial Services Group, Peter C. Colombo,
Georg Mehl, George G. C. Parker, Derrell J. Hendrix, Jürgen Förterer, Terry G. Clarke, Anton K.
Schnyder, Dirk Lohmann, and Martin Kauer as defendants, and is purportedly brought as a class
action on behalf of persons who purchased our securities between December 11, 2001 and August 30,
2004. On January 21, 2005, Bassin v. Converium Holding AG, et al., 04 CV 08295, was voluntarily
dismissed, without prejudice, by the plaintiff in that action. The first five complaints, each of which was filed in the Southern District of New York, assert
claims for violations of Section 10(b), Rule 10b-5 promulgated thereunder, and Section 20(a) of the
Securities Exchange Act of 1934, and allege, among other things, that, contrary to representations,
we did not establish adequate loss reserves to cover claims by policyholders; that our announced
reserve increases prior to July 20, 2004 were insufficient; and that, as a result of the foregoing,
our earnings and assets were materially overstated. Further, certain of the complaints allege
violations of Securities and Exchange Commission reporting obligations and generally accepted
accounting principles. Rubin v. Converium Holding AG, et al.,Index No. 04-117332, filed in New
York State Court, makes similar claims directed at the Companys Registration Statement and
Prospectus issued in connection with the IPO under sections 11, 12, and 15 of the Securities Act of
1933. Converium, among other defendants, removed Rubinto the Southern District of New York.
Plaintiffs have filed a motion to remand. In each one of these cases, plaintiffs are seeking
unspecified compensatory damages, attorneys fees and expert fees. It is possible that additional
suits alleging similar claims may be filed in the future. We intend to defend the remaining lawsuits vigorously. The actions are in the preliminary phases;
thus, the timing and outcome of these matters are not currently predictable. An unfavorable outcome
could have a material effect on our financial condition, results of operations and cash flows. US Securities and Exchange Commission Trading Inquiry In August 2004, CRNA received a request for voluntary production of documents and information from
the enforcement staff of the US Securities and Exchange Commission (the Commission). As a result
of that request, CRNA understands that the Commission is conducting an informal inquiry to
determine whether there have been violations of the US federal securities laws in connection with
transactions in Converiums securities by certain persons prior to Converiums announcement on July
20, 2004 that its second quarter 2004 earnings would fall short of expectations due to higher than
modeled US casualty loss emergence primarily related to the underwriting years 1997 to 2001. CRNA voluntarily responded to the Commissions request, and will continue to cooperate with the
Commission in the event of any follow-up requests for information. Investigation by the Swiss Federal Banking Commission In November 2004, the Federal Banking Commission requested certain information in conjunction with
the sequence of events in conjunction with Converiums announcement on July 20, 2004 that its
second quarter 2004 earnings would fall short of expectations due to higher than modeled US
casualty loss emergence primarily related to the underwriting years 1997 to 2001. Converium is
fully complying with the respective requests by providing all relevant information to the
Commission. Dividends and Dividend Policy 96




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The Ordinary General Meeting of shareholders held in Zug on April 12, 2005 approved the proposal of
the Board of Directors to allocate the net loss for the 2004 fiscal year in the amount of CHF
1,518,291,374 to the free reserves and not to pay out a dividend. 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. As a holding company, we are dependent on dividends, and interests 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 16 to our
2004 consolidated financial statements. In addition to the dividend restrictions stated in Note 16 to our 2004 consolidated financial
statements, CRNA is required to obtain approval from the Connecticut Department of Insurance prior
to making any dividend payments. 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. B. SIGNIFICANT CHANGES Except as otherwise disclosed in this annual report, there has been no significant change in our
financial position since December 31, 2004. 
 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 June 24, 2005,
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 10.35 per registered share. High
    
    
    LowCHF
    
    
    CHFCalendar Year 2001 (from December 11, 2001)
    
    
    82.10
    
    
    
    79.00Calendar Year 2002
    
    
    89.75
    
    
    
    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 (1)
    
    
    73.75
    
    
    
    7.42First Quarter
    
    
    73.75
    
    
    
    60.25Second Quarter
    
    
    68.95
    
    
    
    60.50Third Quarter
    
    
    65.05
    
    
    
    16.25Fourth Quarter (1)
    
    
    17.05
    
    
    
    7.42Calendar Year 2005 (until May 31, 2005)
    
    
    12.50
    
    
    
    9.00First Quarter
    
    
    12.20
    
    
    
    10.05Last 6 MonthsDecember 2004
    
    
    10.90
    
    
    
    9.77January 2005
    
    
    11.50
    
    
    
    10.05February 2005
    
    
    12.20
    
    
    
    10.60March 2005
    
    
    12.00
    
    
    
    10.20April 2005
    
    
    12.50
    
    
    
    10.30May 2005
    
    
    10.90
    
    
    
    9.00
 97




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(1)
    
    Includes the effect of the 2004 rights offering. 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 June 24, 2005, 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 $4.09
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
    
    
    29.57
    
    
    
    3.15First Quarter
    
    
    29.57
    
    
    
    23.55Second Quarter
    
    
    26.80
    
    
    
    23.70Third Quarter
    
    
    26.04
    
    
    
    6.76Fourth Quarter
    
    
    6.85
    
    
    
    3.15Calendar Year 2005 (until May 31, 2005)
    
    
    5.20
    
    
    
    3.59First Quarter
    
    
    5.18
    
    
    
    4.44Last 6 MonthsDecember 2004
    
    
    4.87
    
    
    
    4.29January 2005
    
    
    5.06
    
    
    
    4.44February 2005
    
    
    5.08
    
    
    
    4.50March 2005
    
    
    5.18
    
    
    
    4.50April 2005
    
    
    5.20
    
    
    
    4.37May 2005
    
    
    4.59
    
    
    
    3.59
 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 Not applicable. E. DILUTION Not applicable. F. EXPENSES OF THE ISSUE Not applicable. 
 ITEM 10. ADDITIONAL INFORMATION 98




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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. The
Articles of Incorporation were amended in 2004 to reflect the following changes to our issued,
authorized and conditional share capital. Issued Share Capital At the Extraordinary General Meeting on September 28, 2004 the shareholders resolved to reduce the
share capital of the company from CHF 400,062,170 by 200,031,085 to CHF 200,031,085 by reducing the
nominal value of CHF 10 per share by CHF 5 to CHF 5 per share and to increase the share capital by
CHF 533,416,225 through the issuance of 106,683,245 fully paid registered shares with a nominal
value of CHF 5 each at an issue price of CHF 5 per share Authorized Share Capital At the Annual General Meeting on April 27, 2004, the shareholders resolved to create authorized
share capital and amended the Articles of Incorporation, which provides that the Board of Directors
is authorized, on or before April 27, 2006, to increase the share capital by the issuance of up to
a maximum of four million fully paid-up registered shares each of CHF 10 nominal value amounting to
a maximum of CHF 40 million. Subsequent to the reduction of the nominal value of each of Converiums shares from CHF 10 to CHF 5
as a result of the resolution by the shareholders at the EGM of September 28, 2004, Converiums
authorized capital is now CHF 20,000,000 with the Board being authorized to issue up to four
million shares. Conditional Share Capital At the Annual General Meeting on April 27, 2004, Converium Holding AG amended its Articles of
Incorporation to state that the previously available conditional share capital for use in
conjunction with the employee participation plans has been replaced by a conditional share capital
for option rights and/or conversion rights for four million shares or CHF 40,000,000 in nominal
share capital. Subsequent to the reduction of the nominal value of each of Converiums shares as a result of the
resolution by the shareholders at the EGM of September 28, 2004, its conditional capital is now
four million shares of CHF 5 nominal value each, amounting to a maximum of CHF 20,000,000 pursuant
to which up to four million shares can be issued upon exercise of conversion or option rights
allotted in connection with bonds and other financial market instruments. 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 at www.converium.com 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 99




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
    
    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
    
    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 20 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 had to be registered in the share register was April 4,
2005 in order to be invited to the Annual General Meeting of April 12, 2005, 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 set out the overall principles and the rights and obligations of the parties
in connection with the Formation Transactions. It also addressed 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. 100




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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 agreed, following the completion of the
Formation Transactions:  
    
    to execute the agreements, and to cooperate and act in accordance with the arrangements
described below; 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. September 11th Coverage 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, 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
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 CRNA, 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 are exposed to the risk of
non-payment of Zurich Financial Services units and we are exposed to credit risk from these
subsidiaries of Zurich Financial Services. See  Note 8 to our 2004 consolidated financial statements, and Item 4. 
Information on the Company  B. Business Overview  Retrocessional Reinsurance. Acquisition of the Converium AG Business Historically, Converium AG was not a separate legal entity and underwrote substantially all of its
business pursuant to reinsurance policies issued by ZIC and 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, 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. 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 we 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 us 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. We receive interest on the
Funds Withheld Asset based on fixed interest rates. 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 101




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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. We will receive the surplus remaining with respect to the Funds Withheld Asset, if any, after all
liabilities have been discharged. Any surplus will be recorded in the financial statements in the
period when it occurs. Additionally, Zurich Financial Services has the right to prepay to us the
full amount or a portion thereof of the Funds Withheld Asset prior to termination of the agreement. We will continue to administer the transferred business on behalf of ZIC and ZIB, which remain
liable to the original cedents of the business. Additionally, we will manage third party
retrocessions related to the business transferred. 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 will bear
the credit risk for uncollectible reinsurance balances excluding those related to the September
11th terrorist attacks. We 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 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 our consent. 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 CRNA reinsurance business was acquired through the transfer by a subsidiary of Zurich Financial
Services of all of the voting securities of CRNA to CHNA, pursuant to a Stock Purchase Agreement
between ZRCH and us, dated November 20, 2001. Assumption of $200 Million Public Notes On October 20, 1993, ZRCH issued $200 million principal amount of 7.125% Senior Notes due October
15, 2023, (the Notes). In connection with the issuance of the Notes, ZRCH executed an Indenture.
As partial consideration for the transfer to CHNA of CRNA, CHNA 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 CHNA and rank on a parity with all other unsecured and
unsubordinated indebtedness of CHNA. CENY Arrangements Prior to the Formation Transactions, the CRNA balance sheet reflected business originally written
by Centre Reinsurance Company of New York, or CENY. CENY was originally part of the Zurich Centre
Group of companies, a business unit of Zurich Financial Services. Zurich Financial Services
historically operated and managed CENY separately from Converium. In 1997, the CENY legal entity
was merged into Zurich Reinsurance Centre, Inc., a predecessor of CRNA. As a result of this merger,
certain liabilities of CENY, referred to below as CENY Business, became direct obligations of
CRNA, 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 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,
dated as of October 21, 2001. Under this agreement, CRNA 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 Centre Insurance Company and Centre Solutions (U.S.) Limited on an indemnity
reinsurance basis and is reflected in our financial statements as 100% retroceded business for all
periods presented. 102




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CRNA historically obtained stop-loss reinsurance coverage on the CENY Business from members of the
Zurich Centre Group. In connection with the Formation Transactions, CRNA has commuted these
policies pursuant to various commutation agreements dated 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 CRNA and its wholly owned subsidiary, CINA, terminated certain existing affiliated tax group
allocation arrangements and settled balances due under certain such arrangements in preparation for
the transfer of CRNA to Converium pursuant to an agreement dated October 1, 2001. CRNA entered into a sublease with ZC Resource LLC, a subsidiary of Zurich Financial Services, in
July 2001. See  Lease arrangements. 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 Converium Rückversicherung (Deutschland) AG was historically known as Agrippina Rückversicherung
and subsequently known as ZRK. Historically, Zurich Re Zürich, 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 Zürich 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. 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 us. 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 CRNA 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 our
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
novated, commuted or retroceded to affiliates of Zurich Financial Services or third parties. Any
related rights and obligations of ours have been extinguished. Accordingly, all of this business is
excluded from our financial statements. Other Indemnity Matters Pursuant to the Master Agreement, we and Zurich Financial Services have indemnified 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 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 us) 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
US and non-US 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 us);
and
    
    losses suffered by Zurich Financial Services or any of its affiliates (other than us)
that relate to any reasonable action to 103




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avoid, resist or defend against liabilities assumed by or indemnified against by us. Zurich Financial Services 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 us 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 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 our 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 have indemnified 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. Also, we agreed to indemnify Zurich Financial Services and its subsidiaries for losses arising from
Zurich Financial Services involvement in the MDU strategic partnership 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 have indemnified each
other with respect to losses arising out of our lease arrangements at CRNA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 US Converium entities, which we refer to as the US Tax Sharing
Agreement; and
    
    Zurich Financial Services in respect of the non-US Converium entities, which we refer to
as the Non-US Tax Sharing Agreement. The tax allocation agreement in effect involving CRNA and CINA was terminated as to those parties.
CRNA and CINA paid the compensation due under the tax allocation agreement through the date of sale
of CRNA to CHNA. Under the US Tax Sharing Agreement, payments previously made may be adjusted based
on amendments to the tax returns or completion of IRS audits. The US Tax Sharing Agreement provides
we will generally be liable for taxes imposed on our US 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 US 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-US Tax Sharing Agreement provides, in general, that we will be liable for all taxes arising
from the business previously conducted by ZIC and Zurich 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 our initial public 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 US Tax Sharing Agreement are guaranteed by ZIC. 104




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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 offering of Converium shares to the
public in our initial public offering triggered retroactively 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. 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 loss development on ZRCs revenues as of December 31, 1992. As we described above
under CENY Arrangements, ZRC was a predecessor of CRNA, 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 CRNA has 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 CRNA 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 CRNA. In October 2001, the 1997 Aggregate Excess of Loss Agreement was
amended as follows:  
    
    CRNA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;
    
    CRNA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 also provided CRNA 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 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, has entailed 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. Lease Arrangements Converium AG leases office space from Zurich Financial Services. The lease term is fixed until
2011, with two renewal options for five-year terms each. The lease payments are fixed with annual rent escalations based
on a cost of living index. 105




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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. CRNA 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, CRNA 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 CRNAs default under the sublease that results in a
default under the prime lease; GAHL, in turn, will indemnify CRNA 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 CRNA enforcing the guaranty. See Note 25 to our 2004
consolidated financial statements for additional information on guarantees. As a result of the
transition to a run-off entity in North America, a decision was made in January 2005 to vacate our
primary office space in New York, New York and consolidate in our Stamford, Connecticut office
space. We expect the effective date of the transfer to be July 1, 2005. D. EXCHANGE CONTROLS AND OTHER LIMITATIONS Other than in connection with government sanctions imposed on Yugoslavia, Myanmar, Zimbabwe, Iraq,
Ivory Coast, Liberia, Sierra Leone and persons and organizations with connection to Osama bin
Laden, the al Qaeda group or the Taliban, there are currently no laws, decrees or regulations in
Switzerland that restrict the export or import of capital, including, but not limited to, Swiss
foreign exchange controls on payment of dividends, interest or liquidation proceeds, if any, to
non-Swiss resident holders of shares. In addition, there are no limitations imposed by Swiss law or
the Companys Articles of Incorporation on the rights of non-Swiss residents or non-Swiss citizens
to hold or vote the shares of the Company. 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 US Federal income tax and Swiss tax consequences to a
holder of shares or 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 US 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 US/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 US 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 US
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 US 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
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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 US Residents Article 10 of the US/Switzerland Treaty provides for a reduced 15% withholding tax rate for US
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 US/Switzerland Treaty is granted by way of a refund. Under the ADS program
in effect through The Bank of New York, a US holder of ADSs that qualifies for US/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 US holders of ADSs. The Bank
of New York will pay 85% or 95% of the dividend to the eligible US holders of ADSs, depending on
the applicable US/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
US/Switzerland Treaty is granted for holders of shares by way of a refund of the withholding tax. A
US 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. 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
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United States Federal Income Taxation This discussion applies only to beneficial owners of shares or ADSs that hold the shares or ADSs as
capital assets and are US holders. For purposes of this discussion, a US holder for US federal
income tax purposes is either (1) a citizen or resident of the United States, (2) a corporation, or
other entity treated as 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 US 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 US 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 US taxation
other than federal income taxation. Holders are urged to consult their tax advisors regarding the
US federal, state and local and other tax consequences of owning and disposing of shares or ADSs. US holders of ADSs will be treated as owners of the shares underlying the ADSs for US federal
income tax purposes. Accordingly, except as noted, the US federal income tax consequences discussed
below apply equally to US 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. Taxation of Dividends Subject to the passive foreign investment company, or PFIC, rules described below, US 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 US federal income tax
purposes) as foreign source ordinary income when the dividend is actually or constructively
received by the US holder. The dividend will not be eligible for the dividends-received deduction.
Dividends paid to a non-corporate US holder before January 1, 2009 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 121 day period beginning 60 days before the ex-dividend date and the holder meets other holding
period requirements. The amount of the dividend paid in Swiss francs will be the US dollar value of
the Swiss francs received, including the amount of any Swiss tax withheld, determined at the spot
Swiss franc/US dollar rate on the date such dividend is 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 US 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 US federal income tax
purposes, will be treated as a return of capital to the extent of the US 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 US/Switzerland Treaty
and paid over to Switzerland will be creditable against the US holders US 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 15 days during the 31 day period beginning on the date which is 15 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 US holder under the US/Switzerland Treaty, the amount of tax
withheld that is refundable will not be eligible for credit against the US holders US federal
income tax liability. See  Swiss Taxation  Obtaining a Refund of Swiss Withholding Tax for US
Residents above for the procedures for obtaining a refund of tax. The ability of a US holder to utilize foreign taxes as a credit to offset US 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. A US 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 US 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. US holders should consult their tax advisors to determine
whether and to what extent a foreign tax credit would be available to them. The US Treasury Department has expressed concern that parties to whom ADSs are pre-released may be
taking actions that are inconsistent with the claiming by US holders of ADSs of foreign tax credits
for US federal income tax purposes. Such actions would also be inconsistent with the claiming of
the reduced rate of tax applicable to dividends received by certain non-corporate US holders,
described above. Accordingly, the discussion of the creditability of foreign taxes and the
availability of
the reduced rate for dividends received by certain non-corporate US holders could be affected by
future actions that may be 108




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taken by the US Treasury Department. Sale or Exchange Subject to the PFIC rules described below, gain or loss recognized by a US holder on the sale,
exchange or other disposition of shares or ADSs will, be subject to US federal income taxation as
capital gain or loss in an amount equal to the difference between the US holders adjusted tax
basis in the shares or ADSs and the amount realized on the disposition. Capital gain or loss will
be long-term capital gain or loss where the shares or ADSs have been held for more than one year.
Any gain or loss recognized will generally be treated as US source gain or loss. US 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 US federal income tax purposes. PFIC Rules Converium believes that it was not a PFIC for US federal income tax purposes for 2004 and it does
not expect to be considered a PFIC in the foreseeable future. However, since PFIC status depends
upon the composition of a companys income and assets and the market value of its assets
(including, among others, less than 25 percent owned equity investments) from time to time, there
can be no assurance that Converium will not be considered a PFIC for any taxable year. If
Converium were treated as a PFIC for any taxable year during which a US holder held a share or ADS,
certain adverse consequences could apply to the US holder. If Converium were treated as a PFIC for any taxable year, gain recognized by such US holder on a
sale or other disposition of a share or ADS would be allocated ratably over the US holders holding
period for the share or ADS. The amounts allocated to the taxable year of the sale or other
exchange and to any year before Converium became a PFIC would be taxed as ordinary income. The
amount allocated to each other taxable year would be subject to tax at the highest rate in effect
for individuals or corporations, as appropriate, and an interest charge would be imposed on the
amount allocated to such taxable year. Further, any distribution in respect of ADSs or shares in
excess of 125 percent of the average of the annual distributions on ADSs or shares received by the
US holder during the preceding three years or the US holders holding period, whichever if shorter,
would be subject to taxation as described above. Certain elections may be available (including a
mark to market election) to US persons that may mitigate the adverse consequences resulting from
PFIC status. In addition, if Converium were to be treated as a PFIC in a taxable year in which Converium pays a
dividend or the prior taxable year, the 15% dividend rate discussed above with respect to dividends
paid to non-corporate US holders would not apply. Backup Withholding A US 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 US holders federal income tax liability, provided
appropriate information is furnished to the IRS. A US 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 You may 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: 109




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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 it 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 interest rate risks, 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 and the correlation between financial risks and
underwriting 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 and repayments
generated by our investment assets and to improve our understanding of the correlation between
financial risks and underwriting risks. 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 testing and stochastic modeling. To help manage our aggregate exposure to concentration and credit risks, we analyze and review the
concentration of our risk by entity, risk category (asset, underwriting, retrocession), industry
and credit rating on a periodic basis. Sensitivity Analyses for Invested Assets Approximately 85.5% 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, US 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 110




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and changing individual issuer credit spreads. Equity Market Risk We hold approximately 5.2% (including our participation in PSP Swiss Property AG) 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, 2004 would be an after-tax reduction in net assets of $34.8
million, which represents approximately 2.0% of our total shareholders equity as of December 31,
2004. 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 $121.7 million, which represents approximately 7.1% of
our total shareholders equity as of December 31, 2004. 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 3.4. Additionally, we
expanded our portfolio of held-to-maturity government bonds totaling $850.4 million (15.0% of our
fixed maturities portfolio, excluding the Funds Withheld Asset). The duration of the
held-to-maturity portfolio is 4.3. As of December 31, 2004, 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. 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 US dollar that may result in adverse
effects on our reported shareholders equity when expressed in US 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, 2004
against the US dollar. Adverse exchange rate movement
    
    
    Approximate decline inagainst the US dollar(1)
    
    
    shareholders equityEuro
    
    
    10
    %
    
    $66.7 millionSwiss franc
    
    
    10
    %
    
    $46.9 millionUK pound
    
    
    10
    %
    
    $  9.6 million
 111




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(1)
    
    A weakening of the respective currency against the US dollar As of December 31, 2004 and 2003, we had unrealized cumulative translation gains of $187.7 million
and $116.1 million, respectively. Our reported premiums, losses and expenses are also affected by exchange rate fluctuations.
Business written in currencies other than the US 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 US 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, 2004: US
    
    
    
    
    
    
    U.K
    
    
    Swiss
    
    
    JapaneseDollar
    
    
    Euro
    
    
    pound
    
    
    franc
    
    
    yen
    
    
    Other
    
    
    TotalIncome statementNet premiums written
    
    
    43
    %
    
    
    25
    %
    
    
    17
    %
    
    
    1
    %
    
    
    2
    %
    
    
    12
    %
    
    
    100
    %Net investment income
    
    
    57
    %
    
    
    19
    %
    
    
    20
    %
    
    
    1
    %
    
    
    
    
    
    
    3
    %
    
    
    100
    %Losses, loss adjustment expenses and life benefits
    
    
    58
    %
    
    
    20
    %
    
    
    13
    %
    

    
    2
    %
    
    
    
    
    
    
    7
    %
    
    
    100
    %Underwriting acquisition costs
    
    
    46
    %
    
    
    26
    %
    
    
    12
    %
    
    
    1
    %
    
    
    3
    %
    
    
    12
    %
    
    
    100
    %Other operating and administration expenses
    
    
    33
    %
    
    
    17
    %
    
    
    4
    %
    
    
    44
    %
    
    
    
    
    
    
    2
    %
    
    
    100
    %Interest expense
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    %Balance sheetTotal invested assets
    
    
    56
    %
    
    
    17
    %
    
    
    18
    %
    
    
    2
    %
    
    
    
    
    
    
    7
    %
    
    
    100
    %Reinsurance assets
    
    
    79
    %
    
    
    10
    %
    
    
    10
    %
    
    
    
    
    
    
    
    
    
    
    1
    %
    
    
    100
    %Losses and loss adjustment expenses, gross
    
    
    57
    %
    
    
    19
    %
    
    
    19
    %
    
    
    
    
    
    
    
    
    
    
    5
    %
    
    
    100
    %Unearned premiums, gross
    
    
    53
    %
    
    
    15
    %
    
    
    24
    %
    
    
    
    
    
    
    1
    %
    
    
    7
    %
    
    
    100
    %Future life benefits, gross
    
    
    42
    %
    
    
    54
    %
    
    
    1
    %
    
    
    1
    %
    
    
    
    
    
    
    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. 
 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 due to the material
weaknesses described below, as of such date our disclosure controls and procedures were ineffective
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. Material Weaknesses For purposes of Section 404 of the Sarbanes-Oxley Act, a material weakness is a significant
deficiency, or combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected. 112




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Two material weaknesses were identified within Converiums financial accounting and reporting
function. The first weakness identified was the need to train or recruit suitably qualified
individuals to fill the knowledge and experience gaps caused by the departure of various key
finance employees. The second weakness identified was the failure in the operation of key internal
controls over the initiation of reinsurance and financial accounting data. Converium is in the process of addressing these weaknesses by actively undertaking a recruitment
search to identify and hire additional suitably qualified staff and by providing further training
to existing staff in order to address the current knowledge and experience gaps within the financial
accounting and reporting function. In addition, Converium is actively addressing the key internal
control weakness identified over the initiation of reinsurance and financial accounting data by
committing both internal and third-party consulting resources to address this issue and to further
enhance our overall control environment. Under current rules, we will become subject to Section 404 of the Sarbanes-Oxley Act in respect of
our fiscal year ended December 31, 2006. We expect to successfully address these weaknesses before Converiums management is required to
provide an assessment of the Companys internal control over financial reporting pursuant in annual
reports to Section 404 of the Sarbanes-Oxley Act. 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 audit partners 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 financially 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 113




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mitigating the risks. Standing invitees are the CEO, the Head of Internal Audit and the external
auditor. In 2004 the Audit Committee held six 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: %($ thousands)
    
    2004
    
    
    Approved (1)
    
    
    2003Audit Fees
    
    $
    4,741
    
    
    
    100
    %
    
    $
    2,296Audit-Related Fees
    
    
    1,060
    
    
    
    100
    %
    
    
    374Tax Fees
    
    
    189
    
    
    
    100
    %
    
    
    161All Other Fees
    
    
    145
    
    
    
    100
    %
    
    
    7Total fees
    
    $
    6,135
    
    
    
    100
    %
    
    $
    2,838
 
 (1)
    
    Represents percentage of 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, US GAAP training,
pension and benefit plan audits and other accounting consultation. Tax Feesrepresent tax compliance and fees related to transfer pricing analysis. All Other Feesconsist of fees related to a PricewaterhouseCoopers Ltd accounting and reporting
database that Converium subscribes to, as well as advisory fees for CRNAs run-off. 
 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 
 PART III 
 ITEM 17. FINANCIAL STATEMENTS Not applicable. 
 ITEM 18. FINANCIAL STATEMENTS See the consolidated financial statements beginning on page F-1. 
 ITEM 19. EXHIBITS 114




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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 October 12, 2004. ^1.4
    
    Bylaws of Converium Holding AG, revised April 11, 2005.2.1
    
    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 filed 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.*
 115




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##### Table of Contents



Exhibit Number
    
    Description4.9
    
    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. *4.24
    
    Form of Converium Standard Stock Option Plan for Non-US Employees. *
 116




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##### Table of Contents



Exhibit Number
    
    Description4.25
    
    Form of Converium Standard Stock Purchase Plan for Non-US Employees. *4.26
    
    Omnibus Share Plan for US Employees. *4.27
    
    Converium Employee Stock Purchase Plan for US 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. #4.40
    
    Agreement dated November 29, 2004, USD 1,600,000,000 Credit Facility for Converium AG,
arranged by ABN AMRO Bank N.V., Barclays Capital, BNP Paribas, Commerzbank
Aktiengesellschaft, Credit Suisse First Boston and J.P. Morgan.4.41
    
    Deed of Pledge, dated December 15, 2004, Converium Rückversicherung (Deutschland) AG as the
Pledgor and ABN Amro Mellon Global Securities Services as the Account Bank and ABN Amro Bank
N.V. as the Pledgee.4.42
    
    Deed of Pledge, dated December 15, 2004, Converium AG, Zürich, as the Pledgor, and ABN Amro
Bank N.V. as the Pledgee and ABN Amro Mello Global Securities Services as the Account Bank.4.43
    
    Guarantee, dated October 21, 2004 between Converium AG, Zürich as the Guarantor, and
Converium Insurance (UK) Limited4.44
    
    Guarantee, dated October 21, 2004 between Converium AG, Zürich as the Guarantor, and
Converium Rückversicherung (Deutschland) AG.
 117




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##### Table of Contents



Exhibit Number
    
    Description4.45
    
    Fronting and Administration Agreement relating to the Global Aerospace Underwriters Pool,
dated January 7, 2005, between Global Aerospace Underwriting Managers Limited, Global
Aerospace, Inc., Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München,
National Indemnity Company and Converium AG.7.1
    
    Computation of ratio of earnings to fixed charges.8.1
    
    Subsidiaries of the Registrant.12.1
    
    302 Certification of Chief Executive Officer.12.2
    
    302 Certification of Chief Financial Officer.13.1
    
    906 Certification of Chief Executive Officer.13.2
    
    906 Certification of Chief Financial Officer.14.1
    
    Consent of PricewaterhouseCoopers Ltd, independent accountants.
 
 *
    
    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 .#
    
    Incorporated by reference to the Companys Annual Report on Form 20-F for the year ended
December 31, 2003, filed on April 5, 2003 . 118




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##### Table of Contents



CONVERIUM
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES PageReport of the independent Group Auditors on the Financial Statements
    
    
    F-2Consolidated Statements of (Loss) income for the years ended December 31, 2004, 2003 and 2002
    
    
    F-3Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    F-5Consolidated Statements of Changes in Equity for the years ended December 31, 2004, 2003 and 2002
    
    
    F-6Notes to the Consolidated 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, 2004 and 2003
    
    
    S-2II
  Condensed Financial Information of the RegistrantStatements of Income for the years ended December 31, 2004, 2003 and 2002
    
    
    S-3Balance Sheets as of December 31, 2004 and 2003
    
    
    S-4Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    S-5IV Reinsurance for the years ended December 31, 2004, 2003 and 2002
    
    
    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 SubsidiariesReport 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, 2004 and 2003 and the related consolidated statements of income, cash flows and changes in
equity for each of the three years in the period ended December 31, 2004, included on pages F-3
through F-53 all expressed in United States dollars. The consolidated financial statements are the responsibility of the Board of Directors. Our
responsibility is to express an opinion on these consolidated 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 the Standards of the Public Company Accounting Oversight Board (United States). Those
standards require that an audit be planned and performed to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used, significant
estimates made and the overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Converium Holding AG at December 31, 2004 and 2003,
and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally accepted in the United
States of America and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers Ltd A. Hill
    
    M. Frei
 Zurich,March 4, 2005,
except as to the subsequent events described in Note 27, as to
which the date is June 30, 2005. F-2




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##### Table of Contents



Converium Holding AG and SubsidiariesConsolidated statements of (loss) income (US$ million, except per share information)Year ended December 31
    
    Notes
    
    
    2004
    
    
    2003
    
    
    2002RevenuesGross premiums written
    
    
    
    
    
    
    3,840.9
    
    
    
    4,223.9
    
    
    
    3,535.8Less ceded premiums written
    
    
    
    
    
    
    287.9
    
    
    
    396.9
    
    
    
    213.6Net premiums written
    
    
    11
    
    
    
    3,553.0
    
    
    
    3,827.0
    
    
    
    3,322.2Net change in unearned premiums
    
    
    
    
    
    
    132.1
    
    
    
    150.5
    
    
    
    156.7Net premiums earned
    
    
    11
    
    
    
    3,685.1
    
    
    
    3,676.5
    
    
    
    3,165.5Net investment income
    
    
    7
    
    
    
    311.6
    
    
    
    233.0
    
    
    
    251.8Net realized capital gains (losses)
    
    
    7
    
    
    
    46.5
    
    
    
    18.4
    
    
    
    10.3Other (loss) income
    
    
    
    
    
    
    2.6
    
    
    
    2.7
    
    
    
    1.2Total revenues
    
    
    
    
    
    
    4,040.6
    
    
    
    3,930.6
    
    
    
    3,405.8Benefits, losses and expensesLosses, loss adjustment expenses and life benefits
    
    
    9,11
    
    
    
    3,263.1
    
    
    
    2,674.2
    
    
    
    2,492.0Underwriting acquisition costs
    
    
    11
    
    
    
    842.5
    
    
    
    803.2
    
    
    
    666.7Other operating and administration expenses
    
    
    
    
    
    
    217.9
    
    
    
    197.8
    
    
    
    173.3Interest expense
    
    
    12
    
    
    
    33.1
    
    
    
    31.0
    
    
    
    16.4Impairment of goodwill
    
    
    8
    
    
    
    94.0
    
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    8
    
    
    
    9.9
    
    
    
    
    
    
    
    Restructuring costs
    
    
    4
    
    
    
    2.7
    
    
    
    
    
    
    
    Total benefits, losses and expenses
    
    
    
    
    
    
    4,463.2
    
    
    
    3,706.2
    
    
    
    3,348.4(Loss) income before taxes
    
    
    
    
    
    
    422.6
    
    
    
    224.4
    
    
    
    57.4Income tax (expense) benefit
    
    
    13
    
    
    
    338.2
    
    
    
    39.3
    
    
    
    49.4Net (loss) income
    
    
    
    
    
    
    760.8
    
    
    
    185.1
    
    
    
    106.8Basic (loss) earnings per share
    
    
    24
    
    
    
    12.00
    
    
    
    2.33
    
    
    
    1.34Diluted (loss) earnings per share
    
    
    24
    
    
    
    12.00
    
    
    
    2.32
    
    
    
    1.33
 The notes to the consolidated financial statements are an integral part of these financial
statements. F-3




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##### Table of Contents



Converium Holding AG and SubsidiariesConsolidated balance sheets (US$ million, except share information)Year ended December 31
    
    Notes
    
    
    2004
    
    
    2003AssetsInvested assetsHeld-to-maturity securities:Fixed maturities
    
    
    7
    
    
    
    850.4
    
    
    
    500.4Available-for-sale securities:Fixed maturities
    
    
    7
    
    
    
    4,834.8
    
    
    
    4,428.2Equity securities
    
    
    7
    
    
    
    408.5
    
    
    
    840.2Other investments
    
    
    7
    
    
    
    272.3
    
    
    
    173.5Short-term investments
    
    
    
    
    
    
    133.3
    
    
    
    55.8Total investments
    
    
    
    
    
    
    6,499.3
    
    
    
    5,998.1Funds Withheld Asset
    
    
    7
    
    
    
    1,305.1
    
    
    
    1,530.6Total invested assets
    
    
    
    
    
    
    7,804.4
    
    
    
    7,528.7Other assetsCash and cash equivalents
    
    
    
    
    
    
    664.9
    
    
    
    280.8Premiums receivable:Current
    
    
    
    
    
    
    318.5
    
    
    
    182.8Accrued
    
    
    
    
    
    
    1,859.5
    
    
    
    1,825.5Reinsurance assets:Underwriting reserves
    
    
    11
    
    
    
    1,337.8
    
    
    
    1,718.6Insurance balances receivable, net
    
    
    
    
    
    
    233.5
    
    
    
    224.0Funds held by reinsureds
    
    
    
    
    
    
    1,721.3
    
    
    
    1,374.0Deferred policy acquisition costs
    
    
    
    
    
    
    484.7
    
    
    
    380.1Deferred income taxes
    
    
    13
    
    
    
    78.3
    
    
    
    345.1Other assets
    
    
    8
    
    
    
    439.7
    
    
    
    495.0Total assets
    
    
    
    
    
    
    14,942.6
    
    
    
    14,354.6Liabilities and equityLiabilitiesLosses and loss adjustment expenses, gross
    
    
    9
    
    
    
    8,776.9
    
    
    
    7,842.8Unearned premiums, gross
    
    
    11
    
    
    
    1,312.3
    
    
    
    1,467.4Future life benefits, gross
    
    
    11
    
    
    
    545.8
    
    
    
    483.5Other reinsurance liabilities
    
    
    
    
    
    
    1,375.3
    
    
    
    1,087.3Funds held under reinsurance contracts
    
    
    
    
    
    
    379.3
    
    
    
    529.8Deferred income taxes
    
    
    13
    
    
    
    157.2
    
    
    
    158.3Accrued expenses and other liabilities
    
    
    
    
    
    
    284.7
    
    
    
    311.6Debt
    
    
    12
    
    
    
    390.9
    
    
    
    390.6Total liabilities
    
    
    
    
    
    
    13,222.4
    
    
    
    12,271.3EquityCommon stock CHF 5 nominal value, 146,689,462 shares issued,
(146,272,886 shares outstanding), respectively, CHF 10 nominal value,
40,006,217 shares issued, (39,775,620 shares outstanding)
    
    
    16
    
    
    
    554.9
    
    
    
    253.0Additional paid-in capital
    
    
    
    
    
    
    1,430.6
    
    
    
    1,326.7Treasury stock, (416,576 and 230,597 shares, respectively)
    
    
    
    
    
    
    7.7
    
    
    
    10.0Unearned stock compensation
    
    
    15
    
    
    
    7.5
    
    
    
    6.1Accumulated other comprehensive income:Net unrealized gains on investments, net of taxes
    
    
    7
    
    
    
    116.7
    
    
    
    145.3Cumulative translation adjustments
    
    
    
    
    
    
    187.4
    
    
    
    116.1Total accumulated other comprehensive income
    
    
    
    
    
    
    304.1
    
    
    
    261.4Retained (deficit) earnings
    
    
    
    
    
    
    554.2
    
    
    
    258.3Total equity
    
    
    
    
    
    
    1,720.2
    
    
    
    2,083.3Total liabilities and equity
    
    
    
    
    
    
    14,942.6
    
    
    
    14,354.6
 The notes to the consolidated financial statements are an integral part of these financial
statements. F-4




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##### Table of Contents



Converium Holding AG and SubsidiariesConsolidated statements of cash flows (US$ million)Year ended December 31
    
    2004
    
    
    2003
    
    
    2002Cash flows from operating activitiesNet (loss) income
    
    
    760.8
    
    
    
    185.1
    
    
    
    106.8Adjustments forNet realized capital (gains) losses on investments
    
    
    46.5
    
    
    
    18.4
    
    
    
    10.3Amortization of premium/discount
    
    
    59.1
    
    
    
    43.9
    
    
    
    20.6Depreciation and amortization
    
    
    34.2
    
    
    
    30.5
    
    
    
    38.2Impairment of goodwill and deferred tax asset
    
    
    383.7
    
    
    
    
    
    
    
    Total adjustments
    
    
    430.5
    
    
    
    56.0
    
    
    
    69.1Changes in operational assets and liabilitiesDeferred policy acquisition costs
    
    
    82.0
    
    
    
    90.5
    
    
    
    47.0Reinsurance assets
    
    
    443.2
    
    
    
    13.6
    
    
    
    331.1Funds held by reinsureds
    
    
    237.4
    
    
    
    307.8
    
    
    
    311.2Funds Withheld Asset
    
    
    283.8
    
    
    
    230.6
    
    
    
    100.0Premiums receivable
    
    
    98.3
    
    
    
    162.2
    
    
    
    565.1Unearned premiums, gross
    
    
    212.2
    
    
    
    204.2
    
    
    
    139.0Losses and loss adjustment expenses, gross
    
    
    622.1
    
    
    
    603.7
    
    
    
    744.5Future life benefits, gross
    
    
    40.7
    
    
    
    85.0
    
    
    
    119.7Funds held under reinsurance contracts
    
    
    177.4
    
    
    
    72.7
    
    
    
    38.2Other reinsurance liabilities
    
    
    227.1
    
    
    
    329.0
    
    
    
    280.2Income taxes, net
    
    
    29.1
    
    
    
    40.3
    
    
    
    32.8Net changes in all other operational assets and liabilities
    
    
    283.9
    
    
    
    5.6
    
    
    
    25.7Total changes in operational assets and liabilities
    
    
    554.8
    
    
    
    1,024.2
    
    
    
    694.5Cash provided by operating activities
    
    
    224.5
    
    
    
    1,265.3
    
    
    
    870.4Cash flows from investing activitiesPurchases of fixed maturities held-to-maturity
    
    
    228.2
    
    
    
    192.4
    
    
    
    Proceeds from sales and maturities of fixed maturities available-for-sale
    
    
    4,116.0
    
    
    
    3,813.4
    
    
    
    4,573.3Purchases of fixed maturities available-for-sale
    
    
    4,420.2
    
    
    
    5,054.0
    
    
    
    5,375.3Cash flows from investing activities (fixed maturities)
    
    
    532.4
    
    
    
    1,433.0
    
    
    
    802.0Proceeds from sales of equity securities
    
    
    983.1
    
    
    
    94.3
    
    
    
    599.2Purchases of equity securities
    
    
    541.3
    
    
    
    244.2
    
    
    
    651.1Cash flows from investing activities (equity securities)
    
    
    441.8
    
    
    
    149.9
    
    
    
    51.9Net (increase) decrease in short-term investments
    
    
    71.2
    
    
    
    277.1
    
    
    
    228.5Proceeds from sales of other assets
    
    
    82.3
    
    
    
    47.4
    
    
    
    33.0Purchases of other assets
    
    
    115.8
    
    
    
    69.4
    
    
    
    43.9Cash flows from investing activities (other)
    
    
    104.7
    
    
    
    255.1
    
    
    
    239.4Net cash used in investing activities
    
    
    195.3
    
    
    
    1,327.8
    
    
    
    1,093.3Cash flows from financing activitiesIssuance of guaranteed subordinated notes
    
    
    
    
    
    
    
    
    
    
    193.7Net purchases of common shares
    
    
    6.0
    
    
    
    17.3
    
    
    
    14.7Dividends to shareholders
    
    
    47.8
    
    
    
    29.9
    
    
    
    Proceeds from Rights Offering
    
    
    428.4
    
    
    
    
    
    
    
    Rights Offering issuance costs
    
    
    25.1
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    349.5
    
    
    
    47.2
    
    
    
    179.0Effect of exchange rate changes on cash and cash equivalents
    
    
    5.4
    
    
    
    29.0
    
    
    
    15.1Change in cash and cash equivalents
    
    
    384.1
    
    
    
    80.7
    
    
    
    59.0Cash and cash equivalents as of January 1
    
    
    280.8
    
    
    
    361.5
    
    
    
    420.5Cash and cash equivalents as of December 31
    
    
    664.9
    
    
    
    280.8
    
    
    
    361.5
 The notes to the consolidated financial statements are an integral part of these financial
statements. F-5




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##### Table of Contents



Converium Holding AG and SubsidiariesConsolidated statements of changes in equity (US$ million) AccumulatedAdditional
    
    
    
    
    
    
    Unearned
    
    
    other
    
    
    RetainedCommon
    
    
    paid-in
    
    
    Treasury
    
    
    stock
    
    
    comprehensive
    
    
    earnings
    
    
    Totalstock
    
    
    capital
    
    
    stock
    
    
    compensation
    
    
    income
    
    
    (deficit)
    
    
    equityBalance, 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
    
    
    
    2,083.3Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760.8
    
    
    
    760.8Change in net unrealized gains (losses)
on investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.6
    
    
    
    
    
    
    
    28.6Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71.3
    
    
    
    
    
    
    
    71.3Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    718.1Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47.8
    
    
    
    47.8Transfer to general legal reserve
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.9
    
    
    
    Purchases of common shares
    
    
    
    
    
    
    
    
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.0Releases of common shares from treasury
    
    
    
    
    
    
    8.2
    
    
    
    8.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Net amortization of stock compensation
    
    
    
    
    
    
    11.0
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    9.6Increase in capital due to Rights Offering
    
    
    428.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    428.4Decrease of nominal value
    
    
    126.5
    
    
    
    126.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rights Offering issuance costs
    
    
    
    
    
    
    29.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.3Balance, December 31, 2004
    
    
    554.9
    
    
    
    1,430.6
    
    
    
    7.7
    
    
    
    7.5
    
    
    
    304.1
    
    
    
    554.2
    
    
    
    1,720.2
 The notes to the consolidated financial statements are an integral part of these financial
statements. F-6




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements Schedule of segment data
(US$ million) Standard Property &Casualty Reinsurance
    
    
    Specialty LinesYear ended December 31
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Gross premiums written
    
    
    1,617.6
    
    
    
    1,795.4
    
    
    
    1,542.3
    
    
    
    1,777.3
    
    
    
    2,022.0
    
    
    
    1,650.3Less ceded premiums written
    
    
    162.6
    
    
    
    149.8
    
    
    
    90.1
    
    
    
    119.2
    
    
    
    210.1
    
    
    
    95.0Net premiums written
    
    
    1,455.0
    
    
    
    1,645.6
    
    
    
    1,452.2
    
    
    
    1,658.1
    
    
    
    1,811.9
    
    
    
    1,555.3Net change in unearned premiums
    
    
    97.0
    
    
    
    15.7
    
    
    
    55.5
    
    
    
    41.1
    
    
    
    148.3
    
    
    
    97.3Net premiums earned
    
    
    1,552.0
    
    
    
    1,629.9
    
    
    
    1,396.7
    
    
    
    1,699.2
    
    
    
    1,663.6
    
    
    
    1,458.0Total investment results
    
    
    142.3
    
    
    
    101.5
    
    
    
    98.1
    
    
    
    186.1
    
    
    
    132.4
    
    
    
    125.3Revenues
    
    
    1,694.3
    
    
    
    1,731.4
    
    
    
    1,494.8
    
    
    
    1,885.3
    
    
    
    1,796.0
    
    
    
    1,583.3Losses, loss adjustment expenses and life benefits
    
    
    1,246.1
    
    
    
    1,113.6
    
    
    
    1,065.0
    
    
    
    1,689.6
    
    
    
    1,241.0
    
    
    
    1,166.9Underwriting acquisition costs
    
    
    376.8
    
    
    
    363.1
    
    
    
    310.4
    
    
    
    367.9
    
    
    
    360.1
    
    
    
    292.3Other operating and administration expenses
    
    
    83.9
    
    
    
    71.0
    
    
    
    63.6
    
    
    
    73.0
    
    
    
    79.7
    
    
    
    68.1Benefits, losses and expenses
    
    
    1,706.8
    
    
    
    1,547.7
    
    
    
    1,439.0
    
    
    
    2,130.5
    
    
    
    1,680.8
    
    
    
    1,527.3Segment (loss) income
    
    
    12.5
    
    
    
    183.7
    
    
    
    55.8
    
    
    
    245.2
    
    
    
    115.2
    
    
    
    56.0Other (loss) incomeInterest expenseImpairment of goodwillAmortization of intangible assetsRestructuring costs(Loss) income before taxesIncome tax
(expense) benefitNet (loss) incomeAt December 31Reinsurance assets  underwriting reserves
    
    
    435.9
    
    
    
    553.2
    
    
    
    622.8
    
    
    
    861.9
    
    
    
    989.9
    
    
    
    926.5Losses and loss adjustment expenses, gross
    
    
    3,602.2
    
    
    
    3,231.3
    
    
    
    2,774.7
    
    
    
    4,961.5
    
    
    
    4,427.2
    
    
    
    3,898.9Future life benefits, gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RatiosLoss ratio (Losses divided by net premiums earned)
    
    
    80.3
    %
    
    
    68.3
    %
    
    
    76.3
    %
    
    
    99.4
    %
    
    
    74.6
    %
    
    
    80.0
    %Underwriting expense ratio (Underwriting
acquisition
costs divided by net premiums earned)
    
    
    24.3
    %
    
    
    22.3
    %
    
    
    22.2
    %
    
    
    21.7
    %
    
    
    21.6
    %
    
    
    20.0
    %Administration expense ratio (Other operating and
administration expenses divided by net premiums
written)
    
    
    5.8
    %
    
    
    4.3
    %
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    4.4
    %Combined ratio (Sum of the loss, underwriting
expense
and administration expense ratios)
    
    
    110.4
    %
    
    
    94.9
    %
    
    
    102.9
    %
    
    
    125.5
    %
    
    
    100.6
    %
    
    
    104.4
    %
 F-7




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements  TotalNon-life consolidated
    
    
    Life & Health Reinsurance
    
    
    Corporate Center
    
    
    Total consolidated2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    20023,394.9
    
    
    
    3,817.4
    
    
    
    3,192.6
    
    
    
    446.0
    
    
    
    406.5
    
    
    
    343.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,840.9
    
    
    
    4,223.9
    
    
    
    3,535.8281.8
    
    
    
    359.9
    
    
    
    185.1
    
    
    
    6.1
    
    
    
    37.0
    
    
    
    28.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    287.9
    
    
    
    396.9
    
    
    
    213.63,113.1
    
    
    
    3,457.5
    
    
    
    3,007.5
    
    
    
    439.9
    
    
    
    369.5
    
    
    
    314.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,553.0
    
    
    
    3,827.0
    
    
    
    3,322.2138.1
    
    
    
    164.0
    
    
    
    152.8
    
    
    
    6.0
    
    
    
    13.5
    
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132.1
    
    
    
    150.5
    
    
    
    156.73,251.2
    
    
    
    3,293.5
    
    
    
    2,854.7
    
    
    
    433.9
    
    
    
    383.0
    
    
    
    310.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,685.1
    
    
    
    3,676.5
    
    
    
    3,165.5328.4
    
    
    
    233.9
    
    
    
    223.4
    
    
    
    29.7
    
    
    
    17.5
    
    
    
    18.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    358.1
    
    
    
    251.4
    
    
    
    241.53,579.6
    
    
    
    3,527.4
    
    
    
    3,078.1
    
    
    
    463.6
    
    
    
    400.5
    
    
    
    328.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,043.2
    
    
    
    3,927.9
    
    
    
    3,407.02,935.7
    
    
    
    2,354.6
    
    
    
    2,231.9
    
    
    
    327.4
    
    
    
    319.6
    
    
    
    260.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,263.1
    
    
    
    2,674.2
    
    
    
    2,492.0744.7
    
    
    
    723.2
    
    
    
    602.7
    
    
    
    97.8
    
    
    
    80.0
    
    
    
    64.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    842.5
    
    
    
    803.2
    
    
    
    666.7156.9
    
    
    
    150.7
    
    
    
    131.7
    
    
    
    23.0
    
    
    
    12.8
    
    
    
    11.3
    
    
    
    38.0
    
    
    
    34.3
    
    
    
    30.3
    
    
    
    217.9
    
    
    
    197.8
    
    
    
    173.33,837.3
    
    
    
    3,228.5
    
    
    
    2,966.3
    
    
    
    448.2
    
    
    
    412.4
    
    
    
    335.4
    
    
    
    38.0
    
    
    
    34.3
    
    
    
    30.3
    
    
    
    4,323.5
    
    
    
    3,675.2
    
    
    
    3,332.0257.7
    
    
    
    298.9
    
    
    
    111.8
    
    
    
    15.4
    
    
    
    11.9
    
    
    
    6.5
    
    
    
    38.0
    
    
    
    34.3
    
    
    
    30.3
    
    
    
    280.3
    
    
    
    252.7
    
    
    
    75.02.6
    
    
    
    2.7
    
    
    
    1.233.1
    
    
    
    31.0
    
    
    
    16.494.0
    
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    422.6
    
    
    
    224.4
    
    
    
    57.4338.2
    
    
    
    39.3
    
    
    
    49.4760.8
    
    
    
    185.1
    
    
    
    106.81,297.8
    
    
    
    1,543.1
    
    
    
    1,549.3
    
    
    
    40.0
    
    
    
    175.5
    
    
    
    78.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,337.8
    
    
    
    1,718.6
    
    
    
    1,627.78,563.7
    
    
    
    7,658.5
    
    
    
    6,673.6
    
    
    
    213.2
    
    
    
    184.3
    
    
    
    147.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,776.9
    
    
    
    7,842.8
    
    
    
    6,821.3
    
    
    
    
    
    
    
    
    
    
    
    545.8
    
    
    
    483.5
    
    
    
    371.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545.8
    
    
    
    483.5
    
    
    
    371.790.3
    %
    
    
    71.5
    %
    
    
    78.2
    %22.9
    %
    
    
    22.0
    %
    
    
    21.1
    %
    
    
    22.5
    %
    
    
    20.9
    %
    
    
    20.6
    %5.0
    %
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    5.2
    %
    
    
    3.5
    %
    
    
    3.6
    %118.2
    %
    
    
    97.9
    %
    
    
    103.7
    %
 F-8




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 1. Organization and nature of operations Converium Holding AG and subsidiaries (Converium) is an international reinsurer whose
business operations are recognized for innovation, professionalism and service. We believe we are
accepted as a professional reinsurer for all major lines of non-life and life reinsurance in
Europe, Asia-Pacific and Latin America. We actively seek to create innovative and efficient
reinsurance solutions to complement our target clients business plans and needs. We focus on core
underwriting skills and on developing close client relationships while honoring our and our
clients relationships with intermediaries. Converium offers a broad range of traditional non-life and life reinsurance products as well as
non-traditional solutions to help its target clients efficiently manage capital and risks. In
non-life reinsurance, its lines of business are General Third Party Liability, Motor, Personal
Accident (assumed from non-life insurers), Property, Agribusiness, Aviation & Space, Credit &
Surety, Engineering, Marine & Energy, Professional Liability and other Special Liability and
Workers Compensation. In Life & Health Reinsurance, its lines of business are 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 (the 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 (the 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 11 and 17). Due to the reserving actions and subsequent lowering of Converiums ratings during 2004, it placed
its US reinsurance operations into run-off, which resulted in the discontinuation of writing reinsurance from
offices located in North America. Converium, however, offers reinsurance for attractive
US-originated business to a limited number of select accounts. This business will be underwritten
and managed through Converium AG, Zurich. Converium Reinsurance (North America) Inc. (CRNA) was
placed into orderly run-off and Converium is seeking to commute CRNAs liabilities wherever
appropriate. 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, 2004 and 2003
and the related statements of income, cash flows and changes in equity for each of the three years
in the period ended December 31, 2004. The financial statements include all companies which Converium, directly or indirectly controls
(more than 50% of voting rights). Special purpose entities, irrespective of their legal structure,
are consolidated in instances where Converium has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. Investments in associated
companies (investments of between 20% and 50% in a companys voting rights) and joint ventures are
accounted for by using the equity method with Converium recording its share of the associated
companys net income and equity. (b) Foreign currency translation and transactions Foreign 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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Converium Holding AG and SubsidiariesNotes to the consolidated 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 reinsurance Premiums: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. 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. During the course of 2004
Converium implemented enhanced procedures for establishing written premium estimates. The new
process derives the accrued written and earned premium from our ultimate premium estimates for a
period of two years after the expiration of the underlying direct policy. Following this, the
cedents actual reported premiums are used. 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 (the 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. F-10




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) (d) Life reinsurance Recognition 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. 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 retro-cessional 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 amortized 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 (i) exceed 20% over a period of six months,
that (ii) exceed 50% regardless of the period of decline or (iii) 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. F-11




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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. Investments in hedge funds are recorded at fair value
with changes in net asset value flowing through other comprehensive income as a separate component
in shareholders equity. 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 7 and
17 for further description. (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. Converium utilizes foreign exchange swaps as part of its overall currency risk management. The
objective is to manage the liquidity situation of Converiums entities in various currencies. There
were no foreign exchange swaps outstanding at December 31, 2004 or 2003. (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 straight-line 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 and intangible assets SFAS No. 142,
Goodwill and Other Intangible Assets, 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. SFAS No. 142 requires that goodwill be tested 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. Upon application of SFAS No. 142, Converium ceased amortizing goodwill on January 1, 2002. F-12




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) (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 carryforwards. A valuation allowance is
recorded to reduce a deferred tax asset to that amount that is expected to be realized. (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) Restructuring costs Restructuring costs relating to employee service termination are measured initially at the
communication date based on the fair value of the liability as of the termination date. Converium
recognizes the liability ratably over the future service period of employees. Restructuring costs
associated with changing the provisions of an existing lease are recognized and measured at fair
value in the period in which the liability occurs. (p) New accounting pronouncements The following new standards have been or will be required to be adopted by Converium in the future: SFAS 123 (revised 2004), Share-Based Payment In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This
Statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees. This Statement establishes
standards for the accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the entitys equity instruments
or that may be settled by the issuance of those equity instruments. This Statement focuses
primarily on accounting for transactions in which an entity obtains employee services in
share-based payment transactions. For public entities, this Statement is effective as of the
beginning of the first interim or annual reporting period that begins after June 15, 2005. As
Converium has already adopted the standards of SFAS No.123, this statement is not expected to have
a material impact on the financial condition or results of operations. SFAS 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits 
an amendment of FASB Statements No. 87, 88, and 106 In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers Disclosures about
Pensions and Other Postre-tirement Benefits  an amendment of FASB Statements No. 87, 88 and 106.
This Statement retains the disclosures required by SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88, and 106,
which standardized the disclosure requirements for pensions and other postretirement benefits to
the extent practicable and requires additional information on changes in the benefit obligations
and fair values of plan assets. Additional disclosures have been added in response to concerns
expressed by users of financial statements; those disclosures include information describing the
types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and
components of net periodic benefit cost recognized during interim periods. This statement is
effective for financial statements with fiscal years ending after December 15, 2003, with
interim-period disclosures effective for interim periods beginning after December 15, 2003. This
statement has been adopted for all of Converiums plans. See Note 14 for additional information. F-13




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) In December 2003, the Medicare Prescription Drug, Improvements and Modernization Act of 2003
(The Medicare Act)was approved in the United States. The Medicare Act expands prescription drug
coverage under Medicare. As CRNAs retiree medical coverage is very limited, the Medicare Act did
not have a material impact on the financial condition or results of operations. FASB Interpretation 46, Consolidation of Variable Interest Entities  an interpretation of ARB No.
51  In December 2003, the
FASB issued a revised version of FIN 46 (FIN 46(R)), which incorporates a
number of modifications and changes made to the original version. FIN 46(R) replaces the previously
issued FIN 46 and, subject to certain special provisions, is effective no later than the end of the
first reporting period that ends after December 15, 2003 for entities considered to be
special-purpose entities and no later than the end of the first reporting period that ends after
March 15, 2004 for all other VIEs. Early adoption is permitted. Converium adopted FIN 46(R) at
December 31, 2003. The adoption of FIN 46(R) did not result in the consolidation of any VIEs. Converium has performed an evaluation of the catastrophic protection counter-party agreement with
Helix 04 Limited, issued in the second quarter of 2004, to establish whether Converium is the
primary beneficiary of the VIE which issued the securities. Management has concluded that Converium
is not the primary beneficiary of the VIE (see Note 11). EITF Issue 03-1, The Meaning of Other-than-temporary Impairment and Its Application to Certain
Investments (EITF 03-1).  (q) 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. 3. Run-off of North American operations Converium has ceased the writing of substantially all business generated by Converium
Reinsurance (North America), Inc. (CRNA) in North America and has decided to take the following
additional steps with respect to its North American business:  
    CRNA has been placed into run-off and will seek to commute its liabilities wherever appropriate.
In addition, CRNA has hired an experienced run-off professional as its new President and CEO and
has restructured its senior level staffing to function as an entity in run-off;
    Converium implemented a fronting arrangement to enable it to continue to participate in the
Global Aerospace Underwriting Managers Limited (GAUM) pool;
    Converium Insurance (North America) Inc. (CINA) is now a limited writer, offering continuing
coverage for only two discrete primary programs, one of which is mandated by state law. The plan is
for CINA to maintain this status until such time as it becomes a wider accepted carrier for its
clients; and
    Converium will offer reinsurance for US-origin business to select US-based clients. This business
will be underwritten and managed through Converium AG, Zurich. The recent ratings downgrades, as well as Converiums decision to place CRNA into run-off, have
triggered special funding clauses in CRNAs and CINAs reinsurance and insurance contracts. These
clauses require CRNA and CINA to provide collateral for their payment obligations under those
contracts. In addition, state insurance regulators may request that CRNA and CINA make special
deposits in their states or provide collateral for contracts issued to residents of their states
(see Note 22). F-14




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) The following table shows the results for CRNA for the years ended December 31, 2004, 2003 and
2002: (US$ million)
    
    2004
    
    
    2003
    
    
    2002Gross premiums written
    
    
    572.9
    
    
    
    1,401.2
    
    
    
    1,206.9Loss before income taxes
    
    
    459.0
    
    
    
    44.6
    
    
    
    67.3Net loss
    
    
    714.6
    
    
    
    64.5
    
    
    
    36.8
 4. Restructuring costs In September 2004, as a result of the announced run-off of CRNA operations, Converium notified
certain of its employees that their employment would be terminated between two to six months after
such notification. For the year ended December 31, 2004, US$ 2.7 million has been expensed
primarily due to the costs associated with these severance plans. CRNA is currently evaluating
certain of its office leases, and a plan for reduced office space is expected to be approved in
2005 resulting in additional restructuring costs (see Note 26). Additionally, Converium is
currently evaluating the cost base of its non-US operations, and a plan for cost reductions is
expected to be approved in early 2005 resulting in additional restructuring costs. Converium did
not incur any restructuring cost during 2003 or 2002. 5. Foreign currency translation and transactions Table 5.1 summarizes the principal exchange rates, which have been used for translation
purposes (US dollar per foreign currency unit). Net realized (losses) gains on foreign currency
transactions were US$ (5.8) million, US$ (1.8) million and US$ 1.4 million for the years ended
December 31, 2004, 2003 and 2002, respectively. Table 5.1
    
    
    
    
    
    
    
    
    
    
    Statements of (loss)Balance sheets
    
    
    
    income and cash flowsExchange rates against US$
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2002UK pound
    
    
    1.9199
    
    
    
    1.7804
    
    
    
    1.8324
    
    
    
    1.6349
    
    
    
    1.5031Euro
    
    
    1.3593
    
    
    
    1.2531
    
    
    
    1.2439
    
    
    
    1.1317
    
    
    
    0.9453100 Japanese yen
    
    
    0.9759
    
    
    
    0.9352
    
    
    
    0.9254
    
    
    
    0.8637
    
    
    
    0.7998Swiss franc
    
    
    0.8794
    
    
    
    0.8033
    
    
    
    0.8059
    
    
    
    0.7441
    
    
    
    0.6446
 6. Segment information The primary measure of segment information, as reflected in the Schedule of Segment Data, is
segment (loss) income, defined as (loss) income before other (loss) income, interest expense,
impairment of goodwill, amortization of intangible assets, restructuring costs and income taxes. Converiums segment structure centers on global lines of business. The three global business
segments by which Converium sets strategy and measures results are 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. F-15




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Table 6.1 below shows net premiums written by line of business. Table 6.1
Net premiums written by line of business (US$ million)
Year ended December 31
    
    2004
    
    
    2003
    
    
    2002Standard Property & Casualty Reinsurance:General Third Party Liability
    
    
    361.4
    
    
    
    335.0
    
    
    
    337.7Motor
    
    
    484.8
    
    
    
    488.5
    
    
    
    453.5Personal Accident (assumed from non-life insurers)
    
    
    27.1
    
    
    
    35.1
    
    
    
    35.0Property
    
    
    581.7
    
    
    
    787.0
    
    
    
    626.0Total Standard Property & Casualty Reinsurance
    
    
    1,455.0
    
    
    
    1,645.6
    
    
    
    1,452.2Specialty Lines:Agribusiness
    
    
    126.9
    
    
    
    90.0
    
    
    
    22.0Aviation & Space
    
    
    404.5
    
    
    
    341.8
    
    
    
    365.3Credit & Surety
    
    
    171.1
    
    
    
    236.0
    
    
    
    200.1Engineering
    
    
    111.9
    
    
    
    139.9
    
    
    
    116.1Marine & Energy
    
    
    86.2
    
    
    
    95.3
    
    
    
    94.3Professional Liability and other Special Liability
    
    
    531.7
    
    
    
    598.0
    
    
    
    536.9Workers Compensation
    
    
    225.8
    
    
    
    310.9
    
    
    
    220.6Total Specialty Lines
    
    
    1,658.1
    
    
    
    1,811.9
    
    
    
    1,555.3Total non-life reinsurance
    
    
    3,113.1
    
    
    
    3,457.5
    
    
    
    3,007.5Life & Health Reinsurance:Life and Disability
    
    
    243.4
    
    
    
    162.1
    
    
    
    154.7Accident and Health
    
    
    196.5
    
    
    
    207.4
    
    
    
    160.0Total Life & Health Reinsurance
    
    
    439.9
    
    
    
    369.5
    
    
    
    314.7Total
    
    
    3,553.0
    
    
    
    3,827.0
    
    
    
    3,322.2
 Table 6.2 below shows gross premiums written by geographic area of ceding company. Gross premiums
written reflect the markets where the business is originally produced. Table 6.2
Gross premiums written by geographic area of ceding company (US$ million)
Year ended December 31
    
    2004
    
    
    2003
    
    
    2002United Kingdom*
    
    
    1,005.9
    
    
    
    1,083.0
    
    
    
    910.4Germany
    
    
    389.6
    
    
    
    286.9
    
    
    
    176.1France
    
    
    158.2
    
    
    
    160.5
    
    
    
    106.9Italy
    
    
    162.2
    
    
    
    131.2
    
    
    
    84.0Rest of Europe
    
    
    379.9
    
    
    
    338.8
    
    
    
    224.0Far East
    
    
    238.5
    
    
    
    266.4
    
    
    
    191.9Near and Middle East
    
    
    124.3
    
    
    
    134.3
    
    
    
    124.3North America
    
    
    1,252.3
    
    
    
    1,671.1
    
    
    
    1,553.2Latin America
    
    
    130.0
    
    
    
    151.7
    
    
    
    165.0Total
    
    
    3,840.9
    
    
    
    4,223.9
    
    
    
    3,535.8
   *
    
    Premiums from the United Kingdom include business assumed through GAUM and Lloyds 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 2004, two reinsurance intermediaries produced approximately 12% and 9% 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 12% and 11% in 2003,
and 13% each in 2002, 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,
2004. F-16




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 7. Invested assets and investment income Table 7.1
Investment income
(US$ million) Year ended December 31
    
    2004
    
    
    2003
    
    
    2002Investment income:Fixed maturities
    
    
    201.3
    
    
    
    121.0
    
    
    
    132.7Equity securities
    
    
    11.5
    
    
    
    11.4
    
    
    
    14.5Short-term investments and cash and cash equivalents
    
    
    8.0
    
    
    
    7.5
    
    
    
    12.9Real estate
    
    
    9.4
    
    
    
    11.5
    
    
    
    11.5Other
    
    
    19.6
    
    
    
    7.0
    
    
    
    11.0Funds Withheld Asset
    
    
    75.1
    
    
    
    85.6
    
    
    
    81.1Total investment income
    
    
    324.9
    
    
    
    244.0
    
    
    
    263.7Investment expenses
    
    
    11.6
    
    
    
    8.0
    
    
    
    6.1Real estate expenses
    
    
    1.7
    
    
    
    3.0
    
    
    
    5.8Net investment income
    
    
    311.6
    
    
    
    233.0
    
    
    
    251.8
 The Funds Withheld Asset (see Note 17) was US$ 1,305.1 million and US$ 1,530.6 million as of
December 31, 2004 and 2003, 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 7.2
Net realized capital gains and losses
(US$ million) Year ended December 31
    
    2004
    
    
    2003
    
    
    2002Fixed maturities:Realized capital gains
    
    
    23.9
    
    
    
    46.1
    
    
    
    145.9Realized capital losses
    
    
    18.2
    
    
    
    11.3
    
    
    
    57.9Equity securities:Realized capital gains
    
    
    61.2
    
    
    
    9.1
    
    
    
    37.5Realized capital losses
    
    
    10.0
    
    
    
    1.7
    
    
    
    90.4Write-down of impaired investments
    
    
    6.2
    
    
    
    27.4
    
    
    
    48.3Other
    
    
    4.2
    
    
    
    3.6
    
    
    
    2.9Net realized capital gains (losses)
    
    
    46.5
    
    
    
    18.4
    
    
    
    10.3
 In 2004, Converiums realized capital gains increased by US$ 28.1 million to US$ 46.5 million,
primarily resulting from sales of equity securities to adjust its asset allocation to reduce
investment portfolio risks. In 2003, realized capital gains on sales of fixed income investments in order to reduce the
duration of Converiums bond portfolio were mostly offset by realized losses and impairment
charges. 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. 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. F-17




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##### Table of Contents



Converium Holding AG and Subsidiaries  Table 7.3
Unrealized investment gains and losses
(included in other comprehensive income) Net change for the
    
    
    Total asyear ended December 31
    
    
    of December 31(US$ million)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003Fixed maturities held-to-maturity
    
    
    4.3
    
    
    
    14.1
    
    
    
    
    
    
    
    9.8
    
    
    
    14.1Fixed maturities available-for-sale
    
    
    0.9
    
    
    
    8.0
    
    
    
    11.2
    
    
    
    26.7
    
    
    
    25.8Equity securities available-for-sale
    
    
    24.2
    
    
    
    148.1
    
    
    
    75.7
    
    
    
    70.3
    
    
    
    94.5Hedge funds
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    Less amounts of net unrealized
investment gains (losses) attributable to: Net deferred income taxes
    
    
    3.5
    
    
    
    5.9
    
    
    
    31.2
    
    
    
    7.4
    
    
    
    10.9Foreign currency effect
    
    
    
    
    
    
    50.3
    
    
    
    50.3
    
    
    
    
    
    
    
    Total
    
    
    28.6
    
    
    
    198.6
    
    
    
    83.6
    
    
    
    116.7
    
    
    
    145.3
 Table 7.4
Investments in fixed maturities
and equity securities Cost or
    
    
    Gross
    
    
    Gross
    
    
    Estimated(US$ million)
    
    amortized cost
    
    
    unrealized gains
    
    
    unrealized losses
    
    
    fair valueAs of December 31
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Held-to-maturityFixed maturities:Transferred in:US government
    
    
    414.2
    
    
    
    294.0
    
    
    
    
    
    
    
    6.2
    
    
    
    11.3
    
    
    
    
    
    
    
    402.9
    
    
    
    300.2Other governments
    
    
    15.3
    
    
    
    14.0
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    15.8
    
    
    
    14.1Newly invested:US government
    
    
    170.1
    
    
    
    169.8
    
    
    
    0.9
    
    
    
    1.8
    
    
    
    0.2
    
    
    
    
    
    
    
    170.8
    
    
    
    171.6Other governments
    
    
    250.8
    
    
    
    22.6
    
    
    
    3.7
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    254.5
    
    
    
    21.8Total held-to-maturity
    
    
    850.4
    
    
    
    500.4
    
    
    
    5.1
    
    
    
    8.1
    
    
    
    11.5
    
    
    
    0.8
    
    
    
    844.0
    
    
    
    507.7Available-for-saleFixed maturities:US government
    
    
    1,765.6
    
    
    
    1,728.0
    
    
    
    9.1
    
    
    
    13.6
    
    
    
    11.6
    
    
    
    8.0
    
    
    
    1,763.1
    
    
    
    1,733.6Other governments
    
    
    1,769.3
    
    
    
    1,163.4
    
    
    
    15.7
    
    
    
    3.8
    
    
    
    2.0
    
    
    
    2.6
    
    
    
    1,783.0
    
    
    
    1,164.6Corporate and other debt securities
    
    
    661.1
    
    
    
    671.6
    
    
    
    13.4
    
    
    
    12.7
    
    
    
    2.4
    
    
    
    3.4
    
    
    
    672.1
    
    
    
    680.9Mortgage and asset-backed securities
    
    
    612.2
    
    
    
    839.4
    
    
    
    5.7
    
    
    
    11.5
    
    
    
    1.3
    
    
    
    1.8
    
    
    
    616.6
    
    
    
    849.1Total
    
    
    4,808.2
    
    
    
    4,402.4
    
    
    
    43.9
    
    
    
    41.6
    
    
    
    17.3
    
    
    
    15.8
    
    
    
    4,834.8
    
    
    
    4,428.2Equity securities
    
    
    338.0
    
    
    
    745.7
    
    
    
    73.0
    
    
    
    96.2
    
    
    
    2.5
    
    
    
    1.7
    
    
    
    408.5
    
    
    
    840.2Total available-for-sale
    
    
    5,146.2
    
    
    
    5,148.1
    
    
    
    116.9
    
    
    
    137.8
    
    
    
    19.8
    
    
    
    17.5
    
    
    
    5,243.3
    
    
    
    5,268.4
 In 2003, a reclassification within accumulated other comprehensive income of US$ 18.7 million
was made between net unrealized gains (losses) on investments and cumulative translation adjustments;
this reclassification had no impact on accumulated other comprehensive income or total equity. The following table presents the continuous periods during which investment positions were carried
at an unrealized loss as of December 31, 2004: Table 7.5
Maturities of unrealized investment losses on
fixed maturities and equity securities Gross unrealized lossesTotal gross(US$ million)
    
    Estimated fair
    
    
    Less than
    
    
    Greater
    
    
    unrealizedAs of December 31, 2004
    
    value
    
    
    one year
    
    
    than one year
    
    
    lossesHeld-to-maturityFixed maturities
    
    
    91.6
    
    
    
    11.2
    
    
    
    0.3
    
    
    
    11.5Available-for-saleFixed maturities
    
    
    1,989.2
    
    
    
    15.8
    
    
    
    1.5
    
    
    
    17.3Equity securities
    
    
    31.9
    
    
    
    2.5
    
    
    
    
    
    
    
    2.5Total available-for-sale
    
    
    2,021.1
    
    
    
    18.3
    
    
    
    1.5
    
    
    
    19.8
 F-18




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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 7.6
Fixed maturity schedule by maturity (US$ million)
    
    Estimated fair value
    
    
    % of total
    
    
    Carrying value
    
    
    % of totalAs of December 31, 2004
    
    Available-for-sale (AFS)
    
    
    AFS
    
    
    Held-to-maturity (HTM)
    
    
    HTMLess than one year
    
    
    182.5
    
    
    
    3.8
    
    
    
    15.9
    
    
    
    1.9One year through five years
    
    
    2,871.8
    
    
    
    59.4
    
    
    
    450.8
    
    
    
    53.0Five years through ten years
    
    
    923.2
    
    
    
    19.1
    
    
    
    353.5
    
    
    
    41.6Over ten years
    
    
    91.8
    
    
    
    1.9
    
    
    
    30.2
    
    
    
    3.5Subtotal
    
    
    4,069.3
    
    
    
    84.2
    
    
    
    850.4
    
    
    
    100.0Mortgage and asset-backed securities
    
    
    616.6
    
    
    
    12.7
    
    
    
    
    
    
    
    Unit trust bonds
    
    
    148.9
    
    
    
    3.1
    
    
    
    
    
    
    
    Total
    
    
    4,834.8
    
    
    
    100.0
    
    
    
    850.4
    
    
    
    100.0
 At December 31, 2004 and 2003, real estate held for investment of US$ 138.8 million and US$ 130.2
million, respectively, net of accumulated depreciation of US$ 9.5 million and US$ 5.8 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$
237.5 million and US$ 222.7 million at December 31, 2004 and 2003, respectively. There are no investments in any entity in excess of 10% of equity at December 31, 2004 and 2003,
other than investments issued or guaranteed by the US or sovereign governments or their agencies.
Cash and investments with a carrying value of US$ 282.1 million and US$ 234.6 million were
deposited in trust or with regulatory authorities as of December 31, 2004 and 2003, respectively. Converium utilizes foreign exchange swaps as part of its overall currency risk management. The
objective is to manage the liquidity situation of Converiums entities in various currencies. There
were no foreign exchange swaps outstanding at December 31, 2004 or 2003. As  of December 31,
2004, Converium reported total investments including cash and cash
equivalents of US$ 7,164.2 million, of which
(i) US$ 1,060.8 million were pledged as collateral
relating to outstanding letters of credit of
US$ 955.7 million of the US$ 1.6 billion
Syndicated Letter of Credit Facility,
(ii) US$ 704.7 million were pledged as collateral
relating to other irrevocable letters of credit,
(iii) US$ 109.3 million were pledged primarily as
deposits with French cedents, and
(iv) US$ 562.1 million were pledged to support
Converium-internal reinsurance transactions. 8. Goodwill and other intangible assets Goodwill was US$ 49.2 million and US$ 140.2 million, at December 31, 2004 and 2003,
respectively. The carried value of other intangible assets was US$ 20.6 million and US$ 24.7
million at December 31, 2004 and 2003, respectively. Goodwill and other intangible assets are
included in the balance sheet under the caption Other assets. During August 1997, Zurich Financial Services acquired all the remaining equity interests in CRNA
then not owned by Zurich Financial Services. The acquisition of the minority interest in CRNA 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 of
US$ 94.0 million was recorded as goodwill. SFAS 142, Goodwill and Other Intangible Assets, requires impairment testing of goodwill
annually or more regularly if any event or change in business circumstances occurs which would
indicate that the carrying value of goodwill may be impaired. SFAS 142 also requires that useful
lives for intangible assets other than goodwill be reassessed and the remaining amortization
periods be adjusted accordingly. Due to the reserving actions in 2004 in respect of prior year development in the Specialty Lines
segments business written in North America, and a subsequent decision to take a full valuation
allowance against the net deferred tax asset at CRNA, a goodwill impairment test was conducted to
assess the fair value of the reporting unit. As a result of this assessment, an impairment charge
of US$ 94.0 million was recorded as at June 30, 2004, representing all goodwill relating to CRNA.
There were no intangible assets recorded on the CRNA balance sheet; therefore there was no
requirement to perform impairment testing on intangible assets at CRNA as of June 30, 2004. 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 commercial and general aviation-underwriting agency, as a part of its strategy to
strengthen its long-term position in the aviation and space line of 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 F-19




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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).
Converium as a shareholder also provided a loan to GAUM in the amount of GBP 12.6 million (US$ 19.8
million). 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 GAUM, which increased its overall stake in GAUM 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 GBP 2.5 million (US$ 4.5 million). At December 31, 2004, the current value of the amortizable intangible asset associated with the
30.1% stake in GAUM is GBP 11.2 million (US$ 20.6 million). The intangible asset relates to
established customer relationships of GAUM and was initially intended to be amortized over a useful
life of ten years. At December 31, 2003 the value of the intangible asset associated with the 25%
stake in GAUM was GBP 13.9 million (US$ 24.7 million). In the light of changing business circumstances associated with Converiums S & P rating downgrade,
Converium entered into fronting agreements with Munich Re and National Indemnity in order to
support and sustain the aviation business from GAUM. The fronting agreements currently extend to
September 30, 2005 with no contractual guarantee that they will be extended beyond this date. In
view of this fact Converium management have reassessed the remaining useful life of the intangible
asset to be less than one year so that the intangible asset will be amortized until September 30,
2005, the date of cessation of the existing fronting agreement. As a result of this change, we
recorded an additional amortization charge of GBP 3.7 million
(US$ 6.8 million) in the fourth
quarter of 2004, resulting in a charge of US$9.9 million for the
year. At December 31, 2004, the current carried value of goodwill associated with the 30.1% stake in GAUM
is GBP 13.1 million (US$ 25.2 million). At December 31, 2003, the current carried value of goodwill
associated with the 25.0% stake in GAUM was GBP 11.4 million (US$ 18.4 million). An annual goodwill
impairment test was carried out at December 31, 2004 in respect of the 30.1% investment in GAUM and
it is considered that no impairment is warranted as of December 31, 2004. Converium will reassess
whether any impairment is warranted as and when there is a change in current business circumstances
including a final decision as to whether the fronting arrangements with Munich Re and National
Indemnity will be extended beyond the current ending date of September 30, 2005. The remaining balance of goodwill as of December 31, 2004 relates to Converium AGs 49.9% strategic
investment in the Medical Defence Union Services Ltd (MDUSL) executed during 2000. Upon
application of SFAS No. 142, Converium ceased amortizing goodwill in respect of MDUSL effective
January 1, 2002. Converium has conducted its normal impairment test in respect of MDUSL in the
fourth quarter of 2004. This business continues to perform in line with managements expectations
and accordingly no impairment is considered appropriate as of December 31, 2004. See Notes 3 and 18 for
additional information on GAUM. See Note 18 for additional
information on the Medical Defence Union (the MDU) and
MDUSL. 9. 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. F-20




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Table 9.1
Reserves for losses and loss adjustment expenses (US$ million)
    
    2004
    
    
    2003
    
    
    2002As of January 1Gross reserves for losses and loss adjustment expenses
    
    
    7,842.8
    
    
    
    6,821.3
    
    
    
    5,710.5Less reinsurance recoverable
    
    
    1,385.4
    
    
    
    1,459.8
    
    
    
    1,545.0Net reserves for losses and loss adjustment expenses
    
    
    6,457.4
    
    
    
    5,361.5
    
    
    
    4,165.5Loss and loss adjustment expenses incurredCurrent year
    
    
    2,865.4
    
    
    
    2,527.9
    
    
    
    2,186.8Prior years
    
    
    342.5
    
    
    
    31.3
    
    
    
    148.5Total
    
    
    3,207.9
    
    
    
    2,496.6
    
    
    
    2,335.3Losses and loss adjustment expenses paidCurrent year
    
    
    498.1
    
    
    
    324.7
    
    
    
    299.4Prior years
    
    
    1,766.4
    
    
    
    1,464.7
    
    
    
    1,095.5Total
    
    
    2,265.4
    
    
    
    1,789.4
    
    
    
    1,394.9Foreign currency translation effects
    
    
    240.7
    
    
    
    388.7
    
    
    
    255.6As of December 31Net reserves for losses and loss adjustment expenses
    
    
    7,641.5
    
    
    
    6,457.4
    
    
    
    5,361.5Reinsurance recoverable
    
    
    1,135.4
    
    
    
    1,385.4
    
    
    
    1,459.8Gross reserves for losses and loss adjustment expenses
    
    
    8,776.9
    
    
    
    7,842.8
    
    
    
    6,821.3
 Prior years loss and loss adjustment expenses incurred in 2004 of US$ (342.5) million net were
primarily driven by reserve strengthening of (US$ 562.0 million) and the impacts on losses and loss
adjustment expenses incurred of (i) adjustments of ultimate premium estimates (US$
206.4 million) (see Note 11), (ii) the commutation of the stop-loss protection regarding underwriting year 2001
of the professional liability business generated through our joint venture with MDU (US$ (10.5)
million), and (iii) the reduction of reinsurance recoverables of
(US$ (12.0) million), which is offset by the effect of commutations. Converium has experienced significant adverse development predominantly in its US casualty
reinsurance lines for the last several years. Since 2000, Converium has recorded a total of US$
868.2 million of additional net provisions on prior years non-life business (2000: US$ 65.4
million; 2001: US$ 123.6 million; 2002: US$ 148.5 million; 2003: US$ (31.3) million; and 2004: US$
562.0 million). During early 2004, Converium announced that reported losses from prior years US casualty business
had exceeded expected loss emergence and that the volatility of longer-tail risks was likely to
persist for some time. This adverse loss-reporting trend continued and accelerated into mid-2004
and prompted Converium to initiate additional reviews of its US business from an integrated
underwriting, claims and actuarial perspective in order to examine the adequacy of prior years
provisions. In addition, in order to obtain an external review of our overall reserve position,
Converium commissioned the actuarial consulting firm Tillinghast-Towers Perrin to perform an
independent actuarial review of our non-life loss and allocated loss adjustment expense reserves as
of June 30, 2004 in respect of the Zurich and New York originated businesses. The outcome of these
in-depth internal and external reviews resulted in an aggregate strengthening of prior years
non-life loss reserves by US$ 562.0 million for the year ended December 31, 2004. This action was
taken in response to the continued adverse loss emergence due to increased claims reporting
activity from clients relating to US casualty business written from 1997 to 2001 as well as
deterioration from European non-proportional motor business written in recent years. While
Converium believes that it has fully addressed this issue through our reserving actions, volatility
is expected to persist for some time. In the Standard Property & Casualty Reinsurance segment, the development of prior years reserves
of US$ 73.5 million primarily related to adverse developments of General Third Party Liability (US$
116.3 million), motor liability outside the United States (US$ 91.7 million) and Personal Accident
(non-life) (US$ 8.1 million), which was partially offset by positive developments related to
property (US$ 82.1 million) and miscellaneous liability (US$ 60.5 million) that also included the
impact of whole account retrocessions. In the Specialty Lines segment, the development of prior
years reserves of US$ 488.5 million primarily related to adverse developments of the Professional
Liability and other Special Liability lines (US$ 449.3 million), particularly excess & surplus
lines and umbrella, Workers Compensation (US$ 55.3 million), and Engineering (US$ 12.9 million).
These adverse developments in the Specialty Lines were partially offset by positive developments
related to Aviation & Space (US$ 24.5 million), Agribusiness (US$ 0.7 million), and Credit & Surety
(US$ 3.8 million). F-21




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) In 2003, the positive development of US$ 31.3 million consisted of positive development on the
property (US$ 113.5 million) and aviation and space (US$ 102.2 million) lines of business, offset
by adverse development on workers compensation and professional liability and other special
liability lines (US$ 120.3 million) and the motor and general third party liability lines (US$ 64.1
million). The reserve releases in 2003 were primarily from the 2002 underwriting year, while the US
business written in 1997 to 2001 mostly saw continued strengthening. 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, which resulted in 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 liability, motor and property lines. In the Specialty Lines segment, there were
additional provisions of US$ 86.3 million, primarily related to the commercial umbrella and medical
errors and omissions liability lines of business. 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$
618.6 million and US$ 594.4 million have been discounted using an average interest rates of 3.5% in
2004 and 2003, respectively. This has reduced reserves by US$ 69.6 million and US$ 65.3 million as
of December 31, 2004 and 2003, respectively. In addition, deferred charges relating to
retrospective reinsurance and structured settlements totaling US$ 75.9 million and US$ 64.3 million
as of December 31, 2004 and 2003, 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 CRNA. Additionally, CRNA 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, 2004 and 2003, Converium Rückversicherung
(Deutschland) AG had reserves for environmental impairment liability and asbestos-related claims of
US$ 49.2 million and US$ 45.8 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 for each year. Impact of recent hurricanes, typhoons, and the tsunami:In 2004, Converium recorded losses from
Hurricanes Charley, Frances, Ivan and Jeanne in the United States and the Caribbean, the typhoons
in Japan, and the tsunami in the Indian Ocean of US$ 154.5 million. September 11th terrorist attacks As of December 31, 2004, Converium recorded gross and net incurred losses and loss adjustment
expenses related to the September 11th terrorist attacks as follows: Segment
    
    
    
    
    
    Retrocessional(US$ million)
    
    
    
    
    
    reinsuranceGross losses
    
    
    recoveries
    
    
    Net lossesStandard Property & Casualty Reinsurance
    
    
    263.7
    
    
    
    155.2
    
    
    
    108.5Specialty Lines
    
    
    380.0
    
    
    
    211.3
    
    
    
    168.7Life & Health Reinsurance
    
    
    20.0
    
    
    
    8.0
    
    
    
    12.0Total
    
    
    663.7
    
    
    
    374.5
    
    
    
    289.2
 Included in the reinsurance recoveries above are US$ 133.3 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 CRNA above the initial loss amounts recorded of US$
289.2 million, net of retrocessional reinsurance recoveries. In December 2004, a federal jury in New York concluded that the two planes that crashed into the
World Trade Center during the attacks of September 11th, for insurance purposes, represented two
separate attacks. This ruling increased Converiums gross losses and loss adjustment expenses by
US$ 8.7 million, but as Converiums losses are capped at US$ 289.2 million by Zurich Financial
Services, this ruling did not have an effect on Converiums net loss position. In 2004, 2003 and
2002, there was no additional development in net reserves for the September 11th terrorist attacks. Converium AGs exposure under the Quota Share Retrocession Agreement (see Note 17) 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 F-22




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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. CRNA 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 CRNA against loss development in excess of the
available limits under the ZIC 1997 Aggregate Excess of Loss Agreement. See Note 17 for further
information. 10. Guaranteed Minimum Death Benefit (GMDB) Converium assumed certain retrocession liability with regard to Guaranteed Minimum Death
Benefit (GMDB) features attached to variable annuity policies written in the United States. These
treaties are all in run-off and cover in total 1.5 million policies that were issued mainly in the
late 1990s and that incorporate various benefit types originating from different primary insurers.
Claims occur in the event of death if a policy is in-the-money, which means that the GMDB exceeds
the account balance. Under these circumstances, the difference between the GMDB and the account
balance or the GMDB and the cash surrender value becomes due, depending on the definition of the
underlying reinsurance agreements. The following types of Guaranteed Minimum Death Benefits are covered:  
    Return of premium: The GMDB is the amount of total deposits adjusted for partial withdrawals, if
any.
    Ratchet: After a given number of years, the GMDB is adjusted to the current account balance, if
greater. Most common is a one-year ratchet, meaning that the GMDB is adjusted annually on the
policys anniversary date.
    Rollup: The GMDB increases each year from the initial premium adjusted for later deposits and
partial withdrawals by a fixed percentage. Rollup guarantees reinsured under Converiums agreements
grant an annual accumulation percentage between 3% and 7%. In many products, especially for higher
rollup percentages, an upper limit applies (e.g. 200% of the paid policy- holder premium adjusted
for later deposits and partial withdrawals).
    Reset: After a given number of years, the GMDB is adjusted to the current account balance. This
means that the GMDB can be reduced but often not below the paid-up premium (adjusted for later
deposits and partial withdrawals).
    Combinations of the above. Guarantees that increase over the time are, for a majority of the assumed business, only applied up
to a certain age (e.g. 85). For the majority of the portfolio, a maximum death benefit age exists
and, as a consequence, Converium will be off the risk afterwards. Converium does not hold any contract holder funds. These assets remain with the originating ceding
companies. The GMDB liability is determined each period based on the information provided by Converiums
ceding companies. The current account value, the guaranteed death benefit and details of the
covered benefit types are taken into consideration for the evaluation of the net amount at risk
(NAR) and the expected future liability. The liability according to SOP 03-1 is estimated at the
end of the reporting period. For the evaluation of the liabilities, Converium uses an actuarial model that considers 1,000
stochastically generated investment performance scenarios. The mean performance assumed for
equities is 9.6% and the mean performance for other investment types such as bonds and cash
deposits varies between 4.8% and 5.7%. The corresponding volatility assumptions are 18.3% and 1.5%
to 2.2%, respectively. The discount rate used in the model is stochastically generated in line with
the other investment scenarios and takes into consideration the current yield level. It is assumed
to be an average of 5.7% over the long run. The mortality assumption is 100% of the Annuity 2000
table. Lapse rates vary by duration and range from 6.5% to 20%. Partial withdrawals, either applied
pro rata or on a dollar-for-dollar basis according to the policy conditions, are also considered in
the modeling. The corresponding parameter, reflecting the on average withdrawn amount of the
account value, varies by duration and is assumed to range from 2.4% to 7.5% per annum. F-23




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) As of December 31, 2004, the following values were estimated as described above: Table 10.1 (US$ million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GrossAverage
    
    
    
    
    
    
    Account
    
    
    
    
    
    
    SOP 03-1Guarantee type
    
    age
    
    
    GMDB
    
    
    value
    
    
    NAR
    
    
    reserveRatchet
    
    
    65.4
    
    
    
    2,110.4
    
    
    
    1,771.9
    
    
    
    407.4
    
    
    
    24.7Rollup
    
    
    70.1
    
    
    
    585.0
    
    
    
    405.5
    
    
    
    188.7
    
    
    
    21.7Rollup & ratchet
    
    
    66.7
    
    
    
    21.6
    
    
    
    18.2
    
    
    
    4.9
    
    
    
    0.2Return of premium
    
    
    63.3
    
    
    
    21.5
    
    
    
    21.2
    
    
    
    2.6
    
    
    
    0.1Reset
    
    
    58.3
    
    
    
    288.4
    
    
    
    296.9
    
    
    
    23.3
    
    
    
    1.1Reset & return of premium
    
    
    59.8
    
    
    
    131.1
    
    
    
    131.0
    
    
    
    8.6
    
    
    
    0.4Total
    
    
    66.5
    
    
    
    3,158.0
    
    
    
    2,644.7
    
    
    
    635.5
    
    
    
    48.2
 The table below shows the cash flow and claim reserves balances for the periods shown: Table 10.2
(US$ million) Year ended December 31
    
    2004
    
    
    2003
    
    
    2002Received reinsurance premium, net of commission and brokerage
    
    
    5.1
    
    
    
    4.5
    
    
    
    5.4Paid losses
    
    
    13.3
    
    
    
    20.4
    
    
    
    12.5
 As of December 31
    
    2004
    
    
    2003Claim reserves (including case reserves and IBNR)
    
    
    4.9
    
    
    
    7.7
 For the year ended December 31, 2004 there were no exceptional reserving actions required for the
GMDB book of business. In 2003 and 2002, the Life & Health Reinsurance segment strengthened
reserves for this closed block of variable annuity business by US$ 20.5 million (to net US$ 56.0
million) and US$ 15.6 million, respectively. As a result of the strong performance of the US stock
markets, the GMDBs net amount at risk further decreased to US$ 635.5 million at December 31, 2004
from US$ 809.7 million at December 31, 2003. In late 2004, Converium entered into an agreement to terminate its US$ 75.0 million GMDB
reinsurance protection purchased at the end of 2003, for an amount of US$ 9.7 million giving rise
to a net cost of the cover for 2004 of US$ 0.1 million. The primary purpose of this cover was to
address the volatility in the United States equity markets and potential adverse deviations to
other key assumptions such as mortality risks, lapse rate risks and surrenders. Although Converium feels that its current carried reserves for its GMDB exposure are adequate, the
company will continue to monitor and review other reinsurance and financial product solutions to
address the risks associated with this business. 11. 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, 2004 and 2003, Converium held US$ 559.4 million and
US$ 635.3 million, respectively, 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, 2004, recoverables from subsidiaries of Zurich Financial Services total 19.7% of
equity. There were no recoverables from any other retrocessionaire that exceeded 10% of equity at
December 31, 2004. Allowances of US$ 40.6 million and US$ 35.4 million have been recorded for
estimated uncollectible receivables and reinsurance recoverables at December 31, 2004 and 2003,
respectively. National Indemnity Cover In order to provide additional comfort as regards to Converiums reserve position, Converium has
acquired a retroactive stop-loss retrocession cover from National Indemnity Company, a Standard &
Poors AAA-rated member of the Berkshire Hathaway F-24




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) group of insurance companies. The stop-loss provides an additional US$ 150.0 million of cover
against potential adverse reserve development on the underwriting years 1987 through 2003 for
Converium AG, CRNA and CINA. The cover of US$ 150.0 million attaches at US$ 100.0 million in excess
of the ultimate third-party net non-life reserves; which are defined
as non-life carried losses and allocated loss adjustment expense
reserves as of June 30, 2004 plus the expected losses and
allocated loss adjustment expenses emanating out of the unearned
premium reserves as of June 30, 2004 of the portfolio subject to
cover, carried by these legal entities for these
underwriting years as of June 30, 2004 and therefore excludes inter-group reinsurance arrangements.
The reinsurance charge for this retrocession is US$ 20.0 million and has been recorded in the
income statement under the caption Other (loss) income. There are additional consideration features
associated with this layer of coverage, which may result in additional consideration of up to US$
60.0 million being paid in the event that the cover is fully utilized. No losses have been ceded as
of December 31, 2004. In addition, this contract has another layer of coverage of US$ 235.0 million for which a
consideration of US$ 135.0 million has been paid. This layer attaches at US$ 235.0 million below
the ultimate third-party net non-life reserves on the same underwriting years. The economics of
this layer of coverage are such that the reinsurance risk transfer requirements of US GAAP are not
met. Accordingly, this protection is accounted for under deposit accounting rules. As a result,
there is no material income statement impact for 2004 in respect of this layer of coverage. Converium has retained the right to commute the whole transaction on July 1, 2009, or thereafter at
mutually agreeable terms. Master Retrocession Agreement The Life & Health Reinsurance segments Master Retrocession Agreement for its financing contracts
was terminated, resulting in a repayment of the non-amortized financing of US$ 36.9 million. The
provisions for this termination led to a realization of a profit of US$ 3.4 million in 2004. Table 11.1 (US$ million)
    
    Gross
    
    
    Reinsurance assets
    
    
    Net of reinsuranceYear ended December 31
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Reserves for losses and loss
adjustment expenses
    
    
    8,776.9
    
    
    
    7,842.8
    
    
    
    1,135.4
    
    
    
    1,385.4
    
    
    
    7,641.5
    
    
    
    6,457.4Reserves for unearned premiums
    
    
    1,312.3
    
    
    
    1,467.4
    
    
    
    111.7
    
    
    
    177.0
    
    
    
    1,200.6
    
    
    
    1,290.4Future life benefits
    
    
    545.8
    
    
    
    483.5
    
    
    
    90.7
    
    
    
    156.2
    
    
    
    455.1
    
    
    
    327.3Total underwriting reserves
    
    
    10,635.0
    
    
    
    9,793.7
    
    
    
    1,337.8
    
    
    
    1,718.6
    
    
    
    9,297.2
    
    
    
    8,075.1
 Table 11.2
Premiums written and earned (US$ million)
    
    Premiums written
    
    
    Premiums earnedFor the years ended December 31
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Direct premiums
    
    
    490.9
    
    
    
    561.4
    
    
    
    88.0
    
    
    
    574.1
    
    
    
    326.0
    
    
    
    77.1Assumed premiums
    
    
    3,350.0
    
    
    
    3,662.5
    
    
    
    3,447.8
    
    
    
    3,465.8
    
    
    
    3,668.3
    
    
    
    3,289.0Ceded premiums
    
    
    282.3
    
    
    
    387.5
    
    
    
    204.2
    
    
    
    349.2
    
    
    
    308.4
    
    
    
    191.2Catastrophe Agreement
    
    
    5.6
    
    
    
    9.4
    
    
    
    9.4
    
    
    
    5.6
    
    
    
    9.4
    
    
    
    9.4Total
    
    
    3,553.0
    
    
    
    3,827.0
    
    
    
    3,322.2
    
    
    
    3,685.1
    
    
    
    3,676.5
    
    
    
    3,165.5
 Adjustments of ultimate premium estimates:During the course of 2004 Converium implemented enhanced
procedures for establishing written premium estimates. Our processes require underwriters and
others to assess the realization of premium estimates on a quarterly basis. This was supplemented
at year-end by a detailed review using actuarial techniques, primarily for European non-life
business, which compare estimates with actuarially derived amounts using ceding companies actual
reported premium information. These analyses resulted in a decrease in net premiums written and
earned in the Standard Property & Casualty Reinsurance and Specialty Lines segments in the amount
of US$ 219.8 million; after reflecting the impact on accrued underwriting expenses of US$ 16.5
million and losses of US$ 206.4 million, the impact of these adjustments on the technical result
was an increase of US$ 3.0 million. F-25




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Table 11.3
Benefits, losses and expenses
(US$ million) For the years ended December 31
    
    2004
    
    
    2003
    
    
    2002Losses, loss adjustment expenses and life benefitsDirect
    
    
    481.4
    
    
    
    238.5
    
    
    
    124.5Assumed
    
    
    2,891.3
    
    
    
    2,633.2
    
    
    
    2,587.7Ceded
    
    
    109.6
    
    
    
    197.5
    
    
    
    220.2Total
    
    
    3,263.1
    
    
    
    2,674.2
    
    
    
    2,492.0Underwriting acquisition costsDirect
    
    
    64.9
    
    
    
    39.6
    
    
    
    24.6Assumed
    
    
    821.1
    
    
    
    798.5
    
    
    
    681.3Ceded
    
    
    43.5
    
    
    
    34.9
    
    
    
    39.2Total
    
    
    842.5
    
    
    
    803.2
    
    
    
    666.7
 Catastrophe protection On June 15, 2004, Converium AG announced the successful private placement of US$ 100.0 million of
floating rate notes issued by Helix 04 Limited (Helix 04), a Bermuda special purpose exempted
company. By means of a counter-party contract with the issuer, the transaction provides Converium
with fully collateralized second and subsequent event protection for North Atlantic hurricane, US
earthquake, Japanese earthquake and European windstorm property catastrophe exposures. The notes
are triggered only by second and subsequent events in any of the four peril regions during the
five-year term of the transaction. Payments from Helix 04 to Converium AG are based on modeled reinsurance losses on a notional
portfolio. 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. The Helix 04 contract is first triggered when notional losses reach US$ 150.0 million. The second
trigger is hit when notional losses reach US$ 175.0 million. It then pays out according to a
sliding scale of notional losses up to US$ 275.0 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. Converium estimates its gross loss for each of the recent hurricanes and typhoons to be less than
the Helix 04 activation threshold of US$ 150.0 million for each such event and therefore Converium
will not file a trigger event request in respect of these losses. The expected annual cost of Helix 04 to Converium AG is approximately US$ 5.6 million. The annual
charge to Converium is not impacted by the occurrence of a loss event that is protected by Helix
04, unlike the prior contract in respect of Trinom, where Converium was required to pay higher
amounts for the remainder of the term of the contract. The Helix 04 counter-party contract is not
treated as reinsurance and accordingly the charge is reflected
through other (loss) income although the
cost of the counter-party contract is amortized over the term of the contract in a manner similar
to reinsurance. 12. Debt Converium Holdings (North America) Inc. (CHNA) 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 2004, the interest payments regarding the 7.125% non-convertible,
unsecured, unsubordinated Senior Notes of CHNA were funded (i) by corresponding dividends of CHNA
with regards to the coupon payment of April 15, 2004; and (ii) by Converium AG with regards to the
coupon payment of October 15, 2004, due to the dividend
restrictions of CHNA (see Note 22). 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. F-26




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Debt issuance costs and discounts were US$ 9.1 million and US$ 9.4 million at December 31, 2004
and 2003, respectively. Such costs are being amortized over the term of the related debt. 13. Income taxes Table 13.1 below illustrates an overview of the current and deferred tax expense (benefit) for
each tax jurisdiction of Converium. Table 13.1
Income tax expense (benefit)
(US$ million) For the years ended December 31
    
    2004
    
    
    2003
    
    
    2002CurrentSwitzerland
    
    
    18.2
    
    
    
    10.0
    
    
    
    23.9United States
    
    
    59.3
    
    
    
    48.4
    
    
    
    Germany
    
    
    2.9
    
    
    
    2.3
    
    
    
    0.2Total current
    
    
    80.4
    
    
    
    40.7
    
    
    
    24.1DeferredSwitzerland
    
    
    32.5
    
    
    
    26.5
    
    
    
    22.2United States
    
    
    207.9
    
    
    
    63.9
    
    
    
    34.4Germany
    
    
    17.4
    
    
    
    10.4
    
    
    
    16.9Total deferred
    
    
    257.8
    
    
    
    80.0
    
    
    
    73.5Total income tax expense (benefit)
    
    
    338.2
    
    
    
    39.3
    
    
    
    49.4
 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 (loss) income generated in the various territories in which Converium
operates. Based on the expected income tax expense (benefit), reconciliation is made to the actual
income tax expense (benefit). Table 13.2 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 13.2
Expected and actual income tax expense (benefit)
(US$ million) Year ended December 31
    
    2004
    
    
    2003
    
    
    2002(Loss) income before tax
    
    
    422.6
    
    
    
    224.4
    
    
    
    57.4Statutory average tax rate
    
    
    69.6%
    
    
    
    7.0%
    
    
    
    24.9%Expected income tax (benefit) expense
    
    
    294.0
    
    
    
    15.7
    
    
    
    14.3Increase (reduction) in taxes resulting from:Dividends received deduction
    
    
    1.5
    
    
    
    3.8
    
    
    
    2.9Non-taxable reinsurance contract
    
    
    
    
    
    
    
    
    
    
    4.9Branch tax
    
    
    
    
    
    
    2.1
    
    
    
    0.7Non-deductible expenses
    
    
    1.9
    
    
    
    3.3
    
    
    
    9.1Tax losses not realizable
    
    
    
    
    
    
    37.9
    
    
    
    Tax loss carryforward
    
    
    614.2
    
    
    
    13.6
    
    
    
    21.3Changes in applicable tax rates
    
    
    1.2
    
    
    
    2.8
    
    
    
    5.5Deferred acquisition costs
    
    
    
    
    
    
    
    
    
    
    4.7Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    6.7Hedge Agreement with Converium Finance S.A., Luxembourg
    
    
    2.3
    
    
    
    
    
    
    
    Prior year adjustments
    
    
    7.8
    
    
    
    
    
    
    
    Goodwill take-down
    
    
    32.9
    
    
    
    
    
    
    
    Other
    
    
    2.6
    
    
    
    0.5
    
    
    
    1.1Actual income tax expense (benefit)
    
    
    338.2
    
    
    
    39.3
    
    
    
    49.4Effective tax rate
    
    
    80.0%
    
    
    
    17.5%
    
    
    
    86.1%
 F-27




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) The statutory average tax rate of 69.6% is affected by the difference between statutory results
relevant for tax calculations and the US GAAP pre-tax results. The primary difference is the
handling of the impairment charges recorded in the fourth quarter related to investments in
subsidiaries. The charges are reflected in the statutory results for tax calculations, however on a
US GAAP basis these charges are eliminated during the consolidation process and are therefore
excluded for tax calculation purposes. Converiums consolidated income tax expense for the year ended December 31, 2004 reflects an
additional expense of US$ 269.8 million related to the establishment of a full valuation allowance
against the net deferred income tax balances previously carried at CRNA. Converium has not
established any additional deferred tax asset related to the losses sustained by CRNA.
Additionally, Converiums consolidated income tax expense for 2004 includes an expense of US$ 19.9
million related to the establishment of a valuation allowance against the net operating losses
carried forward at Converium AG. 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 a result of a
ruling Converium AG received from the Swiss tax authorities regarding a tax loss carried forward. As required under SFAS 109, Accounting for Income Taxes, Converium is required to assess if it
is more likely than not that some or all of the net deferred tax assets will not be realized. In
making this assessment, reference is made to, among other things, historical losses. Therefore, a
full valuation allowance was established against CRNAs net deferred tax assets to reflect the
continued net loss position of CRNA. CRNA may offset future taxable income against the existing net
operating losses carried forward, resulting in no US federal tax expense on such income until such
time as the net operating losses are utilized or expire. In addition, Converium AG presents
deferred taxes for timing differences only. Future positive income will offset against net
operating losses carried forward and will not cause any income taxes except changes in timing
differences. For CRNA and Converium AG positive income will offset against net operating losses
carried forward until the net operating losses will expire. As of December 31, 2004, Converiums valuation allowance on deferred tax assets was US$ 711.9
million, comprising net operating losses carried forward (US$ 571.7 million), loss reserve discount
(US$ 110.2 million) and other temporary differences, net (US$ 30.0 million). As of December 31,
2003, the valuation allowance was US$ 47.9 million, all of which related to net operating losses
carried forward. As of December 31, 2004, Converium had total net operating losses carried forward
of US$ 2,512.5 million available to offset future taxable income of certain branches and
subsidiaries. The majority of these net operating losses carried forward relate to CRNA and
Converium AG and expire in the years 2020 through 2024 and 2010 through 2011, respectively. Converium will continue to monitor its tax position and reassess the need for a full valuation
allowance on its net deferred tax assets on a periodic basis. Realization of the deferred tax asset
related to net operating losses carried forward is dependent upon generating sufficient taxable
income within specified future periods. The decision to place CRNA into run-off may limit the
ability to generate taxable income to fully utilize its net operating loss carryforwards. 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. F-28




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Converiums deferred income tax assets and liabilities are reflected in table 13.3 below. Table 13.3
Deferred income taxes (US$ million)
    
    2004
    
    
    2003Deferred income tax assetsLoss reserve discount
    
    
    110.2
    
    
    
    110.0Unearned premium reserve deduction
    
    
    17.6
    
    
    
    36.3Accruals not currently deductible
    
    
    20.5
    
    
    
    18.4Partnership loss
    
    
    2.6
    
    
    
    5.5Net operating loss carryforwards
    
    
    590.6
    
    
    
    175.4Goodwill
    
    
    8.1
    
    
    
    11.0Unrealized currency losses
    
    
    21.4
    
    
    
    Other
    
    
    19.2
    
    
    
    36.4Total deferred income tax assets
    
    
    790.2
    
    
    
    393.0Valuation allowance
    
    
    711.9
    
    
    
    47.9Net deferred income tax assets
    
    
    78.3
    
    
    
    345.1Deferred income tax liabilitiesLoss and benefit reserves
    
    
    25.4
    
    
    
    31.9Deferred policy acquisition costs
    
    
    75.8
    
    
    
    71.0Unrealized appreciation of investments
    
    
    22.4
    
    
    
    9.3Investments
    
    
    10.2
    
    
    
    12.0Reinsurance contracts
    
    
    19.3
    
    
    
    17.6Other
    
    
    4.1
    
    
    
    16.5Total deferred income tax liabilities
    
    
    157.2
    
    
    
    158.3Net deferred income tax assets
    
    
    78.3
    
    
    
    345.1Net deferred income taxes as of December 31
    
    
    78.9
    
    
    
    186.8
 The current net income tax payable as of December 31, 2004 was US$ 16.4 million as compared to a
current net income tax receivable of US$ 44.1 million at December 31, 2003. In 2003, Converium
claimed a refund request for special estimated tax payments made for former years. Respectively,
Converium shifted approximately US$ 58.0 million from deferred tax asset into current income tax
receivable. In 2004, the Internal Revenue Service denied the refund and consequently, Converium
decreased the current income tax receivable accordingly. Converiums net operating loss carryforwards by expiration date are as follows: Table 13.4
Net operating loss carryforwards Deferred
    
    
    
    
    
    
    Net deferredNet operating loss
    
    
    income
    
    
    Valuation
    
    
    income(US$ million)
    
    carryforward
    
    
    tax asset
    
    
    allowance
    
    
    tax assetOne year through five years
    
    
    100.1
    
    
    
    15.1
    
    
    
    15.1
    
    
    
    0.0Over five years
    
    
    2,412.4
    
    
    
    575.5
    
    
    
    556.6
    
    
    
    18.9Total as of December 31, 2004
    
    
    2,512.5
    
    
    
    590.6
    
    
    
    571.7
    
    
    
    18.9
 14. 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. Personnel costs incurred for 2004, 2003 and 2002 were US$ 131.1 million, US$ 123.9 million and US$
110.7 million, respectively. The 2004 amount includes US$ 15.7 million of costs related to the
retention plans rolled out in September 2004 (see Note 15). F-29




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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 8.1 million in
2004 and CHF 5.2 million in 2003. Participants may purchase pension benefits at their own cost at any time within certain limits
defined by the plan rules or pre-finance their pension benefits reductions in case of early
retirement. The principal actuarial weighted average assumptions used for calculating defined benefit plans are
as follows: Table 14.1Weighted average 2004
    
    
    2003
    
    
    2002Discount rate
    
    
    3.46
    %
    
    
    3.99
    %
    
    
    3.85
    %Expected long-term rate of return on assets
    
    
    5.50
    %
    
    
    6.00
    %
    
    
    6.00
    %Future salary increases
    
    
    2.00
    %
    
    
    2.00
    %
    
    
    2.16
    %Future pension increases
    
    
    0.89
    %
    
    
    0.90
    %
    
    
    0.91
    %
 Table 14.2 (US$ million)
    
    2004
    
    
    2003
    
    
    2002Projected benefit obligationProjected benefit obligation as of January 1
    
    
    80.3
    
    
    
    64.9
    
    
    
    43.6Service cost
    
    
    7.4
    
    
    
    7.6
    
    
    
    5.0Interest cost
    
    
    3.2
    
    
    
    2.6
    
    
    
    2.1Actuarial losses (gains)
    
    
    10.1
    
    
    
    3.8
    
    
    
    4.5Foreign currency translation effects
    
    
    9.3
    
    
    
    8.8
    
    
    
    9.8Benefits paid
    
    
    0.9
    
    
    
    0.2
    
    
    
    0.1Projected benefit obligation as of December 31
    
    
    109.4
    
    
    
    80.3
    
    
    
    64.9Fair value of plan assetsFair value of plan assets as of January 1
    
    
    50.6
    
    
    
    35.6
    
    
    
    23.6Actual return on plan assets
    
    
    2.5
    
    
    
    2.9
    
    
    
    0.9Employee contributions
    
    
    3.1
    
    
    
    2.6
    
    
    
    1.8Employer contributions
    
    
    7.1
    
    
    
    4.4
    
    
    
    5.9Foreign currency translation effects
    
    
    5.8
    
    
    
    4.9
    
    
    
    5.3Benefits paid
    
    
    0.9
    
    
    
    0.2
    
    
    
    0.1Fair value of plan assets as of December 31
    
    
    68.2
    
    
    
    50.6
    
    
    
    35.6Funded statusFunded status
    
    
    41.2
    
    
    
    29.7
    
    
    
    29.3Unrecognized transition obligation
    
    
    
    
    
    
    
    
    
    
    2.8Unrecognized net actuarial losses (gains)
    
    
    18.9
    
    
    
    6.6
    
    
    
    8.2Unrecognized prior service cost
    
    
    1.7
    
    
    
    1.7
    
    
    
    1.7Additional plan liabilities
    
    
    7.7
    
    
    
    
    
    
    
    1.1Accrued benefit liability
    
    
    31.7
    
    
    
    24.8
    
    
    
    21.1Amounts recognized in the balance sheetAccrued benefit liability
    
    
    31.7
    
    
    
    24.8
    
    
    
    21.1
 F-30




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) The net periodic benefit expense in the income statement consists of the following components: Table 14.3
Net periodic benefit expense (US$ million)For the years ended December 31
    
    2004
    
    
    2003
    
    
    2002Service cost
    
    
    7.4
    
    
    
    7.6
    
    
    
    5.0Interest cost
    
    
    3.2
    
    
    
    2.6
    
    
    
    2.1Expected return on plan assets
    
    
    3.1
    
    
    
    2.4
    
    
    
    1.7Employee contributions
    
    
    3.1
    
    
    
    2.6
    
    
    
    1.8Amortization of transition obligation
    
    
    
    
    
    
    0.6
    
    
    
    0.5Amortization of actuarial (gains) losses
    
    
    
    
    
    
    0.4
    
    
    
    Amortization of past service cost
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Net periodic benefit expense
    
    
    4.2
    
    
    
    6.0
    
    
    
    3.9
 The movement in the accrued benefit liability was as follows: Table 14.4
Accrued benefit liability (US$ million)Year ended December 31
    
    2004
    
    
    2003
    
    
    2002Balance at January 1
    
    
    24.8
    
    
    
    21.1
    
    
    
    18.6Current year expense
    
    
    4.2
    
    
    
    6.0
    
    
    
    3.9Contributions paid
    
    
    7.1
    
    
    
    4.4
    
    
    
    5.9Foreign currency translation effects
    
    
    2.1
    
    
    
    2.1
    
    
    
    3.4Additional plan liabilities
    
    
    7.7
    
    
    
    
    
    
    
    1.1Balance at December 31
    
    
    31.7
    
    
    
    24.8
    
    
    
    21.1
 The expected future cash flows to be paid by Converium in respect of pension plans at December 31,
2004 were as follows: Table 14.5
Expected future cash flows (US$ million)Employer contributions2005 (estimate)
    
    
    5.9Expected future benefit payments2005
    
    
    3.12006
    
    
    3.32007
    
    
    3.52008
    
    
    3.62009
    
    
    3.820102014
    
    
    21.5
 The weighted average assets allocation of funded defined benefit plans at December 31, 2004 were as
follows: Table 14.6
Weighted average assets allocation of defined benefit plans Year ended December 31
    
    Long-term target
    
    
    2004
    
    
    2003Debt securities
    
    
    46%70
    %
    
    
    50
    %
    
    
    51
    %Equity securities
    
    
    19%33
    %
    
    
    31
    %
    
    
    27
    %Real estate
    
    
    14%20
    %
    
    
    17
    %
    
    
    17
    %Cash and other investments
    
    
    0% 8
    %
    
    
    2
    %
    
    
    5
    %Total
    
    
    
    
    
    
    100
    %
    
    
    100
    %
 CRNA sponsors various qualified defined contribution plans. Substantially all employees of CRNA 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 F-31




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) addition, various supplemental, non-qualified deferred compensation plans allow members of
management to defer certain amounts of compensation and receive specified contributions. CRNAs
contributions under these plans amounted to US$ 2.5 million, US$ 2.5 million and US$ 2.8 million in
2004, 2003 and 2002, respectively. 15. 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 Converium operates a short-term incentive program (Annual Incentive Plan or AIP) for
executives, management and certain employees. Awards are made in cash based on the accomplishment
of both organizational and individual performance objectives. The compensation expense incurred in
2004, 2003 and 2002 in connection with these plans was US$ 2.0 million, US$ 11.7 million and US$
7.4 million, respectively. Employee retention plan In September 2004, Converium adopted a retention plan for certain of its key employees in order to
ensure the successful continuation of business operations at Converium AG and Converium
Rückversicherung (Deutschland) AG and the orderly run-off of its North American operations. The
retention bonus is paid to the eligible employees in cash in two or three equal installments in
amounts up to the equivalent of such employees base salary. The last installment becomes due on
January 31, 2006. The estimated cost of the program is approximately US$ 31.5 million, which will
be expensed over the period October 1, 2004 through January 31, 2006. For the year ended December
31, 2004, US$ 15.7 million has been expensed based on the terms of this plan. In addition,
severance amounts of US$ 6.0 million will be required to be paid to certain CRNA employees in the
event of a change of control or certain other events. (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. 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. Annual Incentive Share Plan Certain executives receive a minimum of 25% of their Annual Incentive Plan in the form of Converium
shares. All employees may elect to receive up to 50% of their AIP in Converium shares. If these AIP
shares are held for a three-year period, employees receive an additional share award equal to 25%
of their AIP shares. Table 15.1 summarizes the status of Converiums share plans for 2004, 2003 and 2002. Table 15.1
    
    2004
    
    
    2003
    
    
    2002Unvested shares at beginning of year
    
    
    160,859
    
    
    
    363,278
    
    
    
    706,451Shares granted
    
    
    438,795
    
    
    
    133,930
    
    
    
    29,732Shares vested
    
    
    30,288
    
    
    
    311,587
    
    
    
    299,214Shares forfeited
    
    
    112,185
    
    
    
    24,762
    
    
    
    73,691Unvested shares at end of year
    
    
    457,181
    
    
    
    160,859
    
    
    
    363,278
 Long-Term Incentive Plan (LTIP) The LTIP is designed to align the interests of management closely with those of shareholders, and
to encourage share ownership. LTIP awards are made to senior employees, and are awarded in a
combination of 50% Converium shares and 50% options to purchase shares in Converium Holding AG.
Shares vest ratably over three years. Options are issued with an exercise price equal to the market
value of the shares or ADSs on the grant date. 25% of the options vest immediately on the grant
date, and 25% vest each year thereafter or upon retirement. The options expire 10.5 years after the
date of grant. F-32




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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. Executive IPO Options are
now fully vested and expire 10.5 years after the date of grant. Table 15.2 summarizes the status of Converiums outstanding stock options for 2004, 2003 and 2002. Table 15.2
    
    2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exercise
    
    
    
    
    
    
    exerciseOptions
    
    
    price
    
    
    Options
    
    
    price
    
    
    Options
    
    
    priceOutstanding at beginning of year
    
    
    1,728,744
    
    
    CHF 71.17
    
    
    
    1,115,424
    
    
    CHF 79.28
    
    
    
    732,329
    
    
    CHF 82.00Granted
    
    
    1,238,640
    
    
    
    17.75
    
    
    
    699,555
    
    
    
    58.14
    
    
    
    442,514
    
    
    
    74.66Exercised
    
    
    39,806
    
    
    
    68.64
    
    
    
    23,450
    
    
    
    60.10
    
    
    
    3,574
    
    
    
    78.85Forfeited
    
    
    567,624
    
    
    
    59.90
    
    
    
    62,785
    
    
    
    74.31
    
    
    
    55,845
    
    
    
    80.40Outstanding at end of year
    
    
    2,359,954
    
    
    
    45.88
    
    
    
    1,728,744
    
    
    
    71.17
    
    
    
    1,115,424
    
    
    
    79.28Options exercisable at end of year
    
    
    1,311,491
    
    
    
    61.38
    
    
    
    901,933
    
    
    
    75.74
    
    
    
    423,509
    
    
    
    80.47
 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 15.3Weighted average
    
    2004
    
    
    2003
    
    
    2002Risk-free rate
    
    
    2.11%
    
    
    
    1.51%
    
    
    
    1.87%Expected life
    
    3 years
    
    
    3 years
    
    
    3 yearsExpected volatility
    
    
    31.74%
    
    
    
    27.24%
    
    
    
    31.27%Dividend yield
    
    
    2.00%
    
    
    
    1.78%
    
    
    
    0.80%Fair value of options granted
    
    US$
    3.38
    
    
    US$
    7.43
    
    
    US$
    11.11
 Table 15.4 summarizes information about stock options outstanding at December 31, 2004: Table 15.4
    
    Options outstanding
    
    
    Options exercisableWeightedRange of
    
    Number
    
    
    average remaining
    
    
    Weighted average
    
    
    Number
    
    
    Weighted averageexercise prices
    
    outstanding
    
    
    contractual life
    
    
    exercise price
    
    
    exercisable
    
    
    exercise priceCHF   8.64  25.56
    
    
    958,765
    
    
    
    10.4
    
    
    CHF 9.72
    
    
    
    252,494
    
    
    CHF 9.96CHF 56.05  62.50
    
    
    734,017
    
    
    
    9.0
    
    
    
    59.44
    
    
    
    413,604
    
    
    
    59.30CHF 82.00  89.10
    
    
    667,172
    
    
    
    7.4
    
    
    
    82.93
    
    
    
    645,393
    
    
    
    82.83CHF   8.64  89.10
    
    
    2,359,954
    
    
    
    9.1
    
    
    
    45.88
    
    
    
    1,311,491
    
    
    
    61.38
 (c) Compensation expense The compensation expense charged to income under the share-based incentive plans was US$ 9.6
million, US$ 10.0 million and US$ 24.4 million in 2004, 2003 and 2002, respectively. (d) Re-pricing of options An adjustment to the exercise price of all options outstanding prior to the Rights Offering will be
made in early 2005 in order to account for the dilution of the value of the options as a result of
the Rights Offering. The reduction in exercise price maintains the same Black-Scholes value of the
option before and after the Rights Offering and does not reflect any other decrease in the share
price. The re-pricing of options will not have a material impact on the financial condition or
results of operations. F-33




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 16. 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, 2004, the Extraordinary General Meeting of the
shareholders passed two resolutions to increase the 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 were
entitled to receive dividends. In addition Converiums shareholders resolved, at the Extraordinary General Meeting held on
September 28, 2004, to:  
    Reduce the share capital of the company from CHF 400,062,170 by 200,031,085 to CHF 200,031,085 by
reducing the nom- inal value of CHF 10 per share by CHF 5 to CHF 5 per share;
    Increase the share capital by CHF 533,416,225 through the issuance of 106,683,245 fully paid
registered shares with a nominal value of CHF 5 each at an issue price of CHF 5 per share; and
    Amend the Articles of Incorporation as a consequence of the reduction of the nominal value. In October 2004, Converiums share capital was increased by CHF 533,416,225 by issuing 106,683,245
shares at CHF 5 each. The additional shares were issued, and Converiums corresponding capital
increase (and reduction of the nominal value) were recorded, in the Commercial Register of the
Canton of Zug, Switzerland on October 12, 2004. After the registration of the shares in the
Commercial Register of the Canton of Zug, Converiums issued, outstanding share capital was CHF
733,447,310, divided into 146,689,462 shares with a nominal value of CHF 5. (b) Authorized share capital At the Annual General Meeting on April 27, 2004, the shareholders resolved to create authorized
share capital and amended the Articles of Incorporation, which provides that the Board of Directors
is authorized, on or before April 27, 2006, to increase the share capital by the issuance of up to
a maximum of four million fully paid-up registered shares each of CHF 10 nominal value amounting to
a maximum of CHF 40 million. Subsequent to the reduction of the nominal value of each of Converiums shares from CHF 10 to CHF 5
as a result of the resolution by the shareholders at the EGM of September 28, 2004, Converiums
authorized capital is now CHF 20,000,000 with the Board being authorized to issue up to four
million shares. (c) Conditional share capital At the Annual General Meeting on April 27, 2004, Converium Holding AG amended its Articles of
Incorporation to state that the previously available conditional share capital for use in
conjunction with the employee participation plans has been replaced by a conditional share capital
for option rights and/or conversion rights for a number of four million shares or CHF 40,000,000 in
nominal share capital. Subsequent to the reduction of the nominal value of each of Converiums shares in October 2004, its
conditional capital is now for a number of four million shares of CHF 5 nominal value each,
amounting to a maximum of CHF 20,000,000 pursuant to which up to four million shares can be issued
upon exercise of conversion or option rights allotted in connection with bonds and other financial
market instruments. At December 31, 2004, none of the conditional share capital or registered shares have been
exercised. (d) Dividend restrictions, reductions in the registered shares nominal value, 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. As of December 31, 2004, Converium Holding AG had 146,689,462 registered shares with a nominal
value of CHF 5 each issued. Based on Swiss company law, Converium Holding AG is entitled to reduce
the nominal value of its registered shares down to CHF 0.01 by a respective payment per share to
its shareholders. 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 F-34




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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 CRNA, 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 has the authority to reclassify up to 100% of the current year
surplus to retained earnings, thereby not allowing dividends to be
paid (see Note 22). 17. 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 continues to administer the transferred business on behalf of ZIC and ZIB, which
remain liable to the original cedents of the business. Additionally, Converium AG manages
third-party retrocessions related to the business transferred. Converium bears the credit risk for
uncollectible reinsurance balances excluding those related to the September 11th terrorist attacks.
Converium AG has 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. CRNA had an intra-Converium aggregate excess of loss reinsurance agreement in place since July 1,
1997 (the 1997 Aggregate Excess of Loss Agreement). This agreement provided protection to CRNA
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 CRNA. In October 2001, the 1997 Aggregate Excess of Loss
Agreement was amended as follows:  
    CRNA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; F-35




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued)  
    CRNA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 7, 9, 11, 15, 18 and 21 for other transactions with Zurich Financial Services. 18. Related party transactions GAUM In 2003, Converium finalized an agreement to acquire a 25% stake in GAUM, a leading international
commercial and general aviation underwriting agency, as a part of its strategy to strengthen its
long-term position in the aviation and space line of business. At that same time, 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 under which it became a member of the
aviation and aerospace pools run by GAUM and its subsidiary, Associated Aviation Underwriters Inc. 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 GAUM, which increased its overall stake 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 GBP 2.5 million (US$ 4.5 million). For the 2004
underwriting year, Converium has committed 27.25% of the overall pools capacity of the aviation
risks managed by GAUM, compared to 25% for the 2003 underwriting year. Gross premiums assumed
through the pools managed by GAUM were US$ 289.0 million, US$ 266.4 million and US$ 64.4 million
for 2004, 2003 and 2002, respectively. The pool members agreement with respect to GAUM provides that if a member of the pool has its
financial strength rating downgraded below BBB+ by Standard & Poors Rating Service it may be
served with a notice terminating its membership in the pool upon approval by the committee of
representatives of the pool. Converium believes that no formal action
was taken by the pool
membership committee to serve a notice terminating its membership of Converium. However, the
committee has discussed Converiums downgrade and sought to take action to limit its rights to
dispute the validity of any notice served on Converium. The
continuation of Converiums membership at its current rating was likely to be conditional upon its entering fronting
arrangements acceptable to other pool members in a timely fashion and thereafter maintaining such
arrangements. Converium entered into formal written fronting
arrangements, preventing the termination of its membership in the
pool. The fronting arrangements require Converium to post collateral to secure its reinsurance obligations under the fronting
arrangements. If Converiums membership were to be reduced to less than a 5% share, it would not be
permitted to participate in future pool business and would have to collateralize by way of a letter
of credit its obligations under the business written by the pool in its name prior to its
termination. If Converiums membership were terminated, it also may be required to sell its shares
in GAUM at an amount less than its carrying value. See Notes 3 and 8 for additional information on
GAUM. MDU Converium entered into a strategic alliance with the MDU that resulted in a 49.9% participation in
MDUSL. MDUSL distributes medical malpractice insurance policies to the members of the MDU. 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 MDU beginning July 1,
2003. These insurance policies replaced policies formerly issued in the United Kingdom by Zurich
Financial Services entities, the majority of which were reinsured by Converium. Gross premiums
written from MDU were US$ 170.9 million, US$ 137.3 million and US$ 140.0 million for 2004, 2003 and
2002, respectively. The MDU Shareholders Agreement provides that if Converiums credit rating is lowered by more than
seven points, from its initial A+ rating, by a recognized credit ratings agency, the MDU may
serve it with a Termination Notice. Within sixty days after service of such termination notice, MDU
has the right to purchase Converium's 49.9% shareholding in MDU Services Ltd. at a price to be mutually
agreed upon by the parties, or to be determined by a valuation
expert. The recent ratings
downgrades have not triggered the termination provisions of the MDU Shareholders Agreement. See
Note 8 for additional information on MDU. SATEC Converium has a 48% participation in SATEC, a leading global space-underwriting agency based in
Venice, Italy. Additionally, in 2002 Converium entered into a usufruct agreement with the two other
owners of SATEC regarding some of their participation rights. Gross premiums assumed through the
pool managed by SATEC were US$ 10.2 million, US$ 5.9 million and US$ 5.0 million for 2004, 2003 and
2002, respectively. Profit distributions paid from SATEC to Converium with regards to the
participation and the usufruct were US$ 0.9 million, US$ 0.8 million and nil for 2004, 2003 and
2002, respectively. In 2004, we have recorded an impairment charge with regard to the usufruct
agreement in the amount of US$ 2.4 million. F-36




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) RISC Ventures Converium has retained The RISConsulting Group LLC for certain consulting services, of which
Derrell J. Hendrix, a member of the Converium AG Board of Directors, is Manager and Chief Executive
Officer. In addition, Derrell J. Hendrix is a manager and owner of approximately 57% of the
outstanding share capital of RISC Ventures LLC, a Delaware-based limited liability company created
to manage and operate companies engaged in commercializing technologies and intellectual properties
developed by The RISConsulting Group LLC and its affiliates. In April 2004, Converium AG invested
US$ 2.0 million in RISC Ventures LLC for an approximate 17.5% ownership interest in the entity. For
2004, Converium paid total fees of US$ 250,000 to The RISConsulting Group LLC. Managing Director In order to enhance the effectiveness of strategic and operational decision-making and greater
collaboration between the Board of Directors and the Global Executive Committee (GEC), Converium
established the position of Managing Director. On September 10, 2004, Terry G. Clarke was appointed
as Converiums new Managing Director. The Managing Director serves on the Board and has oversight
over the day-to-day management of Converiums business. The Managing Director attends all meetings
of the GEC and has veto power over decisions taken by the GEC. In addition to the Managing
Directors regular compensation as a member of the Board of Directors, Terry G. Clarke receives a
remuneration of GBP 50,000 (US$ 91,620) per month plus reimbursement for customary expenses. For
2004, Converium paid Terry G. Clarke GBP 190,909 (US$ 349,822) related to this role. In February
2005, Terry G. Clarke assumed the role of Chief Executive Officer of Converium (see Note 26). 19. Supplemental cash flow disclosures Table 19.1
Supplemental cash flow disclosures (US$ million)
    
    2004
    
    
    2003
    
    
    2002Income taxes paid
    
    
    10.2
    
    
    
    2.7
    
    
    
    2.3Interest expense paid
    
    
    33.1
    
    
    
    31.6
    
    
    
    16.4
 20. 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 20.1 lists the estimated fair values and carrying values of Converiums financial instruments
as of December 31, 2004 and 2003. Table 20.1
Fair value of financial instruments Total
    
    
    Total
    
    
    Total
    
    
    Totalfair
    
    
    carrying
    
    
    fair
    
    
    carrying(US$ million)
    
    value
    
    
    value
    
    
    value
    
    
    valueAs of December 31
    
    2004
    
    
    2004
    
    
    2003
    
    
    2003Fixed maturities
    
    
    5,678.7
    
    
    
    5,685.2
    
    
    
    4,935.9
    
    
    
    4,928.6Equity securities
    
    
    408.5
    
    
    
    408.5
    
    
    
    840.2
    
    
    
    840.2Other investments (excluding real estate)
    
    
    133.5
    
    
    
    133.5
    
    
    
    43.3
    
    
    
    43.3Short-term investments
    
    
    133.3
    
    
    
    133.3
    
    
    
    55.8
    
    
    
    55.8Funds Withheld Asset
    
    
    1,305.1
    
    
    
    1,305.1
    
    
    
    1,530.6
    
    
    
    1,530.6Cash and cash equivalents
    
    
    664.9
    
    
    
    664.9
    
    
    
    280.8
    
    
    
    280.8Debt
    
    
    330.6
    
    
    
    390.9
    
    
    
    428.6
    
    
    
    390.6
 F-37




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 21. Commitments and contingencies Letter of credit facility In November 2004, Converium AG obtained a US$ 1.6 billion, three-year syndicated letter of credit
facility (the Syndicated Letter of Credit Facility) from various banks. The facility provides
Converiums non-US operating companies with a US$ 1.5 billion capacity for issuing letters of
credit and a US$ 100.0 million liquidity reserve. It replaces the existing US$ 900.0 million letter
of credit facility that was signed in July 2003. As of December 31, 2004, Converium had outstanding
letters of credit of US$ 955.7 million under the facility. Investments of US$ 1,060.8 million are
pledged as collateral related to the Syndicated Letter of Credit Facility. Converium must maintain
the following financial covenants in order to avoid default under the agreement: (i) consolidated
total borrowings do not at any time exceed 35% of consolidated tangible net worth, which is defined
as total shareholders equity less goodwill; and (ii) consolidated tangible net worth must remain
greater than US$ 1,237.5 million at all times. Converium pays commission fees on outstanding
letters of credit, which are distributed to the facility banks and can only be impacted by a change
in the companys credit rating. The maximum amount of this fee is .50%. In addition to the Syndicated Letter of Credit Facility, other irrevocable letters of credit of US$
639.1 million were outstanding at December 31, 2004 to secure certain assumed reinsurance
contracts. Investments of US$ 704.7 million are pledged as collateral related to certain of these
letters of credit. As of December 31, 2004, Converium Rückversicherung (Deutschland) AG, Germany had an outstanding
commitment of Euro 30.0 million (US$ 40.8 million) to fund an investment in a Morgan Stanley Real
Estate Fund (the Eurozone Office Fund), a Fonds Commun de Placement under Luxembourg law. The
manager can call this commitment at any time during the commitment period to fund working capital
needs or the purchase of new investments. As of December 31, 2004 the capital called totaled Euro
6.7 million (US$ 9.1 million). 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$ 15.9 million and
US$ 14.8 million for the years ended December 31, 2004, 2003 and 2002, respectively. Table 21.1 lists minimum future payments under operating leases with terms in excess of one year. Table 21.1 Minimum future payments under operating leases
    
    Rental(US$ million)
    
    payments2005
    
    
    13.32006
    
    
    13.32007
    
    
    13.22008
    
    
    13.12009
    
    
    11.82010 and thereafter
    
    
    20.9Total
    
    
    85.6
 Converium AG leases office space from Zurich Financial Services. The lease term is fixed until
2011, with two renewal options for five-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. CRNA 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, CRNA 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 CRNAs default under the sublease that results in a
default under the prime lease; GAHL, in turn, will indemnify CRNA 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 CRNA enforcing the guaranty. See Note 25 for additional
information on guarantees. As a result of the announced run-off of CRNA, Converium is currently
evaluating certain of its office leases in North America, and a plan for reduced office space is
expected to be approved in 2005 (see Note 26). F-38




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 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: Superior National Matters On January 6 and January 7, 2005, CRNA and CINA, respectively, entered into a Settlement Agreement
and Mutual Release (the Settlement Agreement) with the California Insurance Commissioner (the
Commissioner) relating to the January 16, 2002 complaint that the Commissioner filed against a
subsidiary of ZFS, Centre Insurance Company (CIC) and affiliates, as well as CRNA and CINA (see
Note 26). The Commissioner had initiated this action in Superior Court of the State of California,
County of Los Angeles, on behalf of the Superior National Insurance Companies in Liquidation
(SNICL). The complaint alleged several counts, including voidable preferences and fraudulent transfers, 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 appeared to arise out of CIC transactions, not CRNA or CINA
transactions. As part of the transactions which effectively spunoff CRNA and CINA from ZFS, ZFS
agreed to indemnify CRNA and CINA for liabilities arising out of or related to the assets not
assumed by or transferred to CRNA and CINA in the separation from ZFS. The principal claim brought
against CRNA appeared to arise from CRNAs commutation of certain reinsurance obligations. In that
connection, however, while the complaint did in fact reference the commutation, the payment
involved was a commutation payment made by CRNA, not to CRNA. As best as could be discerned, the
liquidator was apparently claiming that the amount paid by CRNA was inadequate consideration for
the reinsurance obligations commuted and thus this commutation constituted a fraudulent transfer.
All the claims, though, were never well defined and no discovery was ever undertaken to better
elucidate them. Neither CRNA nor CINA shall pay any amounts whatsoever in exchange for the full and final discharge
of liabilities, as set forth in the Settlement Agreement, that the Commissioner has granted to both
companies. Instead, CIC shall be making the full payment that will provide the complete release to
CRNA and CINA, as well as all other parties in the complaint. At a hearing on February 17, 2005,
the Settlement Agreement was approved by the court presiding over the liquidation of the estates of
SNICL. As a result, CICs main performance under the settlement is now due 90 days from entry of
the approval order. After that period has expired and CIC has performed, dismissals of the case are
expected to be entered. U.S. Life Insurance Company arbitration The arbitration initiated on November 29, 1999 by U.S. Life Insurance Company (U.S. Life) against
Superior National Insurance Company in Liquidation (SNICIL), CINA and CIC, which was previously
reported, has been settled as between U.S. Life and CINA. The settlement in January 2005 followed a
December 2004 decision of the arbitration panel to reject U.S. Lifes claim for rescission and to
instead reform the reinsurance treaty provided by U.S. Life to a 90% quota share as opposed to a
100% quota share. Life and CINA agreed to settle the matter with a full and final commutation of
the treaty in exchange for a commutation payment by U.S. Life (see Note 26). All American Life Insurance Company arbitration The arbitration initiated on December 23, 2002 by CRNA and CINA against All American Life Insurance
Company (All Ameri-can), which was previously reported, has been settled. In May 2004, the
parties to the dispute, which concerned a reinsurance treaty provided by All American, agreed to
settle the matter with a full and final commutation of the treaty in exchange for a commutation
payment by All American. Incurred losses of US$ 9.2 million were recorded in 2004 to reflect this
commutation. Continental Casualty Company arbitration In December 2002, Continental Casualty Company (Continental) and CRNA each demanded arbitration
from the other to resolve a dispute arising from a retrocessional contract pursuant to which
Continental reinsured CRNA for 50% of certain accident & health exposures CRNA assumed from a
third-party insurer. The dispute arose in October 2002 when Continental asserted that the
third-party insurer had violated the reinsurance agreement with CRNA in such a way that might give
rise to defenses under the reinsurance agreement. Effective June 2004, Continental and CRNA entered into an Assignment of Rights, Limited Indemnity
and Cooperation Agreement (the Assignment Agreement) pursuant to which the parties agreed to
withdraw their respective demands for arbitration with prejudice. The Assignment Agreement enables
Continental, with the cooperation of CRNA, to assert its defenses directly against the insurer and
indemnifies CRNA for monetary liability or expenses it incurs resulting from CRNAs cooperation or
Continentals assertion of its defenses. Following the signing of the Assignment Agreement,
Continental, CRNA and the third-party insurer have entered into a series of commutation agreements
related to the exposures. These commutations are subject to the approval of the liquidation court
governing the insurer, which is currently pending. F-39




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Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Great American Insurance Company arbitration The arbitration initiated on July 30, 2004 by Great American Insurance Company (GAIC) against
CRNA, challenging CRNAs right to invoke a special termination or settlement clause under certain
Automobile Residual Value Proportional Reinsurance Agreements (the Reinsurance Agreements) with
GAIC and seeking resolution of a billing dispute related to the Reinsurance Agreements, which was
previously reported, has been settled. In December 2004, the parties to the dispute agreed to
settle the matter with a full and final commutation of the Reinsurance Agreements in exchange for a
commutation payment by CRNA. Canada Life On December 21, 2001, The Canada Life Assurance Company, Toronto (Canada Life), brought an action
against Converium Rückversicherung (Deutschland) AG (Converium Germany) in the US District Court
of the Southern District of New York. Canada Life alleged that Converium Germany 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 Germany 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 US 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 US District Court of the Southern District of New York, Converium Germany sent Canada Life a
request to arbitrate. Following the organizational meeting of the arbitrators on October 8, 2003,
the discovery and deposition began. The hearing is expected to take place in the first quarter of
2005. Meanwhile, the arbitration panel ordered Converium Germany to post pre-award security in the
form of a Letter of Credit in the amount of US$ 66.0 million, which Converium Germany has complied
with. Converium Germany has fully reserved this claim. However, arrangements entered into with Zurich
Financial Services provide for the claim to be covered by the agreed-to cap for September 11th
related losses provided to us by Zurich Financial Services in conjunction with Converiums Initial
Public Offering. Current industry issues To date, Converium is neither a defendant in the lawsuit that New York State Attorney General,
Elliott Spitzer, filed against a leading US insurance broker on October 14, 2004, nor has Converium
been contacted with respect to the lawsuit or any related investigation. There has been widespread
speculation in the media regarding the potential impact and scope of the Spitzer investigation on
the insurance industry. As the investigation appears to be in the preliminary phases it is
difficult to predict whether it will be expanded to include other
industry participants. However, CRNA has received subpoenas from each
of the Securities and Exchange Commission and the New York Attorney
Generals Office regarding a transaction with MBIA  for
further information see Note 27  Review of Certain of our
Reinsurance Transactions. Class action lawsuits Commencing on October 4, 2004, seven securities class action lawsuits have been filed against
Converium and certain of its officers and directors. The complaints are as follows: Meyer v.
Converium Holding AG, et al.,04 CV 07897, which names Converium Holding AG, Dirk Lohmann and
Martin Kauer as defendants, and is purportedly brought as a class action on behalf of persons who
purchased our securities between December 11, 2001 and July 20, 2004; Criden v. Converium Holding
AG, et al.,04 CV 8060, which names Converium Holding AG, Dirk Lohmann and Martin Kauer as defendants, and is
purportedly brought as a class action on behalf of persons who purchased our securities between
December 11, 2001 and July 20, 2004; Taylor v. Converium Holding AG, et al.,04 CV 8038, which
names Converium Holding AG, Zurich Financial Services Group, Peter C. Colombo, Georg Mehl, George
G. C. Parker, Derrell J. Hendrix, Jürgen Förterer, Terry G. Clarke, Anton K. Schnyder, Dirk
Lohmann, Martin Kauer, Richard E. Smith and Frank Schaar as defendants, and is purportedly brought
as a class action on behalf of persons who purchased our securities between December 11, 2001 and
August 30, 2004; Jakob v. Converium Holding AG, et al.,which names Converium Holding AG, Zurich
Financial Services Group, Peter C. Colombo, Georg Mehl, George G. C. Parker, Derrell J. Hendrix,
Jürgen Förterer, Terry G. Clarke, Anton K. Schnyder, Dirk Lohmann, Martin Kauer, Richard E. Smith
and Frank Schaar as defendants, and is purportedly brought as a class action on behalf of persons
who purchased our securities between December 11, 2001 and August 30, 2004; Maxfield v. Converium
Holding AG, et al.,04-CV-08994, which names Converium Holding AG, Peter C. Colombo, Martin Kauer
and Dirk Lohmann, and is purportedly brought as a class action on behalf of persons who purchased
our securities between December 11, 2001 and September 2, 2004; Bassin v. Converium Holding AG, et
al.,04 CV 08295, which names Converium Holding AG, Peter C. Colombo, Martin Kauer and Dirk Lohmann
as defendants, and is purportedly brought as a class action on behalf of purchasers of our
securities between December 11, 2001 and September 2, 2004 (see Note 26); and Rubin v. Converium
Holding AG, et al.,Index No. 04-117332, which names Converium Holding AG, Zurich Financial
Services Group, Peter C. Colombo, Georg Mehl, George G. C. Parker, Derrell J. Hendrix, Jürgen
Förterer, Terry G. Clarke, Anton K. Schnyder, Dirk Lohmann, and Martin Kauer as defendants, and is
purportedly brought as a class action on behalf of persons who purchased our securities between
December 11, 2001 and August 30, 2004. F-40




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) The first five complaints, each of which was filed in the Southern District of New York, assert
claims for violations of Section 10(b), Rule 10b-5 promulgated thereunder, and Section 20(a) of the
Securities Exchange Act of 1934, and allege, among other things, that, contrary to representations,
we did not establish adequate loss reserves to cover claims by policyholders; that our announced
reserve increases prior to July 20, 2004 were insufficient; and that, as a result of the foregoing,
our earnings and assets were materially overstated. Rubin v. Converium Holding AG, et al.,Index
No. 04-117332, was filed in New York State Court, and makes similar allegations directed at the
Companys Registration Statement and Prospectus issued in connection with the IPO under sections
11, 12, and 15 of the Securities Act of 1933. Further, certain of the complaints allege violations
of Securities and Exchange Commission reporting obligations and generally accepted accounting
principles. In each case, plaintiffs are seeking unspecified compensatory damages, attorneys fees
and expert fees. It is possible that additional suits alleging similar claims may be filed in the
future. We intend to defend the remaining lawsuits vigorously. The actions are in the preliminary phases;
thus, the timing and outcome of these matters are not currently predictable. An unfavorable outcome
could have a material effect on our financial condition, results of operations and cash flows. U.S. Securities and Exchange Commission investigation In August 2004, CRNA received a request for voluntary production of documents and information from
the enforcement staff of the U.S. Securities and Exchange Commission (the Commission). As a
result of that request, Converium understands that the Commission is conducting an investigation to
determine whether there have been violations of the US federal securities laws in connection with
transactions in Converiums securities by certain persons, including certain of its insiders, prior
to Converiums announcement on July 20, 2004 that its second quarter 2004 earnings would fall short
of expectations due to higher than modeled US casualty loss emergence primarily related to the
underwriting years 1997 to 2001. CRNA has voluntarily responded to the Commissions request, and intends to continue to cooperate
with the Commission. Investigation by the Swiss Federal Banking Commission In November 2004, the Federal Banking Commission requested certain information in conjunction with
the sequence of events in conjunction with Converiums announcement on July 20, 2004 that its
second quarter 2004 earnings would fall short of expectations due to higher than modeled US
casualty loss emergence primarily related to the underwriting years 1997 to 2001. Converium fully
complied with the respective request by providing all relevant information to the Commission. 22. Regulation As a result of the developments in the latter part of 2004, various regulatory actions have
occurred, the most significant of which are set forth below: United States As a result of the reserve strengthening Converium recorded in 2004 and the subsequent placement of
its North American business into run-off, the Connecticut Insurance Department (the Department)
has implemented additional financial monitoring of CRNA. CRNA has entered into a letter of
understanding with the Department pursuant to which CRNA will be prevented from taking a number of
actions without first obtaining the Departments approval, including:  
    Making any material change in its management or operations;  
    Making any withdrawal of monies from its bank accounts, disbursements or payments outside the ordinary course of the business run-off;  
    Incurring any debt, obligation or liability for borrowed money not related directly to the ordinary course of the business run-off;  
    Writing, assuming or issuing any new insurance policies;  
    Making any dividend payment or other payment or distribution to or engaging in any transaction,
or entering into any agreement directly or indirectly with its parent company, or any affiliated
company;  
    Entering into any new material reinsurance agreement; and  
    Entering into any sales, purchases, exchanges, loans, extensions of credit or investments not in the ordinary course of its run-off business. In addition, CRNA will be required to provide to the Department written reports on a monthly basis
containing detailed information on all commutations of reinsurance treaties and related activities,
including specific impact on CRNAs statutory financial statements, as well as any additional
reports that the Department reasonably determines are necessary to ascertain the financial
condition of the Company. The letter of understanding does not preclude the Department from
initiating any further actions that it deems in its discretion to be necessary for the protection
of CRNAs policyholders, reinsureds and the public. The foregoing requirements will continue until March 15, 2005, at which time the Department will
reassess the financial condition of CRNA. F-41




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) The recent ratings downgrades as well as our decision to place CRNA into run-off have triggered
special funding clauses in CRNAs and CINAs reinsurance and insurance contracts. These clauses
require CRNA and CINA to provide collateral for their payment obligations under those contracts. In
addition, state insurance regulators may request that CRNA and CINA make special deposits in their
states or provide collateral for contracts issued to residents of their states. The approval of the
Department is required before we provide such collateral. If the Department withholds its approval,
we would be in default under contracts that have special funding clauses unless the other party to
the contract has waived the requirement. In addition, state insurance regulators that requested
special deposits or collateral could seek to revoke CRNAs or CINAs licenses or initiate
proceedings to take possession of the property, business and affairs of CRNA or CINA in their
respective states. Switzerland By letter dated September 27, 2004 the Federal Office of Private Insurance (FOPI), the insurance
and reinsurance regulator in Switzerland, has requested that Converium AG provide notice on certain
inter-group transactions between Converium AG and its subsidiaries including loans, guarantees,
cost-sharing agreements, capital injections, and investments in subsidiaries. Furthermore the FOPI
requested by letter dated October 14, 2004 certain additional information including Converiums
business strategy, planning, reserves, solvency and collateral issues. Converium is cooperating
with the FOPI and is providing all required information and documentation. In December 2004, per the FOPIs request, Converium AG agreed to submit for approval the following
inter-group transactions: inter-group loans and capital increases to subsidiaries exceeding US$
100.0 million; guarantees exceeding US$ 10.0 million; transfer of portfolios or novations involving
changes in reserves exceeding US$ 25.0 million, dividends to Converium Holding AG and all
inter-group reinsurance transactions that are not at arms length. Absent consent of the FOPI, the
inter-group transactions exceeding the thresholds could not be executed, which may in turn have an
impact on the funding in conjunction with inter-group transactions. Accounting impact of reserve strengthening and related impairment of goodwill and deferred taxes For accounting purposes, Converium Holding AG and Converium AG are both required to perform an
annual assessment of the carrying value of investments in affiliates as part of the annual
statutory financial statement process. This annual impairment assessment is conducted in the fourth
quarter of each calendar year when it is considered that the best financial information is
available to perform this test. In order to assess the fair value of each investment, management
utilizes a number of internationally recognized valuation techniques taking into account the fair
value of the existing balance sheet, current projected business plans and credit rating and foreign
exchange rate assumptions. Swiss law allows companies to value assets below their economic value in
their local statutory accounts. As a result of the reserve strengthening and related impairment of goodwill and deferred taxes,
CHNA recorded an impairment charge of US$ 571.5 million
in its US GAAP accounts with regards to its participation in CRNA. This impairment did not have a
material impact on the consolidated financial position or results of operations. As of December 31,
2004 CHNA reported a value of US$ 331.0 million for its investment in CRNA in its US GAAP accounts. In respect of Converium AGs investment in CHNA, Converium AG recorded an impairment charge of US$
802.4 million in its US GAAP accounts and of CHF 1,332.4 million in its local statutory accounts in
the fourth quarter of 2004. These impairment charges did not have a material impact on the
consolidated financial position or results of operations. As of December 31, 2004 Converium AG
reported a value of US$ 133.7 million for its investment in CHNA
in its US GAAP accounts. Similarly, Converium Holding AG performed an annual impairment test on its investment in Converium
AG as well as on the note receivable from CRNA as part of its Swiss annual statutory financial
statement process, adopting the valuation principles outlined above. In the fourth quarter of 2004,
Converium Holding AG recorded an impairment charge of CHF 1,332.4 million in its local statutory
accounts with regards to its participation in Converium AG,
respectively of CHF 170.6 million with
regards to the note receivable from CRNA. Germany Solvency requirements In late 2004, in order to meet newly established solvency requirements for reinsurance companies in
Germany, Converium Rückversicherung (Deutschland) AG increased its capital on a local statutory
basis by Euro 100.0 million (US$ 135.9 million). This was accomplished by means of a capital
contribution from Converium AG in the amount of Euro 80.0 million (US$ 108.7 million). In addition,
Converium AG granted Converium Rückversicherung (Deutschland) AG a subordinated loan in the amount
of Euro 20.0 million (US$ 27.2 million) for a term of twenty years. F-42




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Establishment of branch office In November 2004, Converium AG established a branch office in Cologne, Germany. This move was made
in response to the favorable legal regulatory environment in Germany as the rules regarding
establishment of branch offices were slated to change as of January 1, 2005. 23. 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
    
    
    
    
    
    
    Shareincorporation
    
    shares held
    
    
    Currency
    
    
    capitalConverium Rückversicherung (Deutschland) AG
    
    Germany
    
    
    100
    
    
    EUR
    
    
    4,601,627Converium Finance S.A.
    
    Luxembourg
    
    
    100
    
    
    EUR
    
    
    31,000Converium Holding AG
    
    Switzerland
    
    
    100
    
    
    CHF
    
    
    733,447,310Converium 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
    
    
    2Converium IP Management Ltd*
    
    Bermuda
    
    
    100
    
    
    US$
    
    
    12,000Converium Finance (Bermuda) Ltd*
    
    Bermuda
    
    
    100
    
    
    US$
    
    
    12,000
   *
    
    Converium has incorporated two new companies effective as of December 17, 2004. The scope of
these companies is to effectively manage Converiums brand. 24. (Loss) earnings per share Converium Holding AG purchased 368,463 shares and 377,650 shares during 2004 and 2003,
respectively, related to share-based compensation plans. The following table shows the average shares outstanding: (in US$ million, except per share information)For the years ended December 31
    
    2004
    
    
    2003
    
    
    2002Net (loss) income
    
    
    760.8
    
    
    
    185.1
    
    
    
    106.8Average shares outstanding (millions)
    
    
    63.4
    
    
    
    39.8
    
    
    
    39.9Average diluted shares outstanding (millions)
    
    
    64.1
    
    
    
    40.3
    
    
    
    40.5Basic (loss) earnings per share
    
    
    12.00
    
    
    
    2.33
    
    
    
    1.34Diluted (loss) earnings per share
    
    
    12.00
    
    
    
    2.32
    
    
    
    1.33
 (Loss) earnings per share and average shares outstanding for 2004 reflect the addition of the
106,683,245 new shares issued in the Rights Offering that occurred in October 2004 (see Note 16).
The (loss) earnings per share calculation is based on an adjusted number of average shares
outstanding and the 2003 and 2002 amounts have been restated accordingly. Diluted (loss) earnings per share is computed similar to basic earnings per share 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. F-43




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) 25. 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, 2004 and 2003, 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, 2004. 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 consolidatingstatements of incomeNon-(US$ million)
    
    Converium
    
    
    Converium
    
    
    Converium
    
    
    Guarantor
    
    
    ConsolidatingYear ended December 31, 2004
    
    Holding AG
    
    
    AG
    
    
    Finance S.A.
    
    
    Entities
    
    
    Adjustments
    
    
    ConsolidatedRevenuesNet premiums written
    
    
    
    
    
    
    2,629.8
    
    
    
    
    
    
    
    923.2
    
    
    
    
    
    
    
    3,553.0Net premiums earned
    
    
    
    
    
    
    2,534.2
    
    
    
    
    
    
    
    1,150.9
    
    
    
    
    
    
    
    3,685.1Net investment income
    
    
    13.4
    
    
    
    189.4
    
    
    
    13.4
    
    
    
    122.1
    
    
    
    26.7
    
    
    
    311.6Net realized capital gains (losses)
    
    
    
    
    
    
    12.6
    
    
    
    
    
    
    
    33.9
    
    
    
    
    
    
    
    46.5Other income (loss)
    
    
    23.5
    
    
    
    41.1
    
    
    
    19.0
    
    
    
    4.0
    
    
    
    
    
    
    
    2.6Total revenues
    
    
    36.9
    
    
    
    2,695.1
    
    
    
    32.4
    
    
    
    1,302.9
    
    
    
    26.7
    
    
    
    4,040.6Benefits, losses and expensesLosses, loss adjustment
expenses and life benefits
    
    
    
    
    
    
    1,968.3
    
    
    
    
    
    
    
    1,294.8
    
    
    
    
    
    
    
    3,263.1Underwriting acquisition costs
    
    
    
    
    
    
    655.9
    
    
    
    
    
    
    
    186.6
    
    
    
    
    
    
    
    842.5Other operating and
administration expenses
    
    
    11.6
    
    
    
    103.2
    
    
    
    0.1
    
    
    
    103.0
    
    
    
    
    
    
    
    217.9Interest expense
    
    
    10.6
    
    
    
    0.4
    
    
    
    16.5
    
    
    
    32.3
    
    
    
    26.7
    
    
    
    33.1Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94.0
    
    
    
    
    
    
    
    94.0Amortization of intangible assets
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.9Restructuring costs
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    2.7Total benefits, losses and expenses
    
    
    22.2
    
    
    
    2,737.9
    
    
    
    16.6
    
    
    
    1,713.2
    
    
    
    26.7
    
    
    
    4,463.2Income (loss) before taxes
    
    
    14.7
    
    
    
    42.8
    
    
    
    15.8
    
    
    
    410.3
    
    
    
    
    
    
    
    422.6Income tax benefit (expense)
    
    
    2.5
    
    
    
    50.4
    
    
    
    0.1
    
    
    
    290.2
    
    
    
    
    
    
    
    338.2Income (loss) before equity
in (loss) income of subsidiaries
    
    
    17.2
    
    
    
    93.2
    
    
    
    15.7
    
    
    
    700.5
    
    
    
    
    
    
    
    760.8Equity in (loss) income of
subsidiaries
    
    
    778.0
    
    
    
    684.8
    
    
    
    
    
    
    
    
    
    
    
    1,462.8
    
    
    
    Net (loss) income
    
    
    760.8
    
    
    
    778.0
    
    
    
    15.7
    
    
    
    700.5
    
    
    
    1,462.8
    
    
    
    760.8
 F-44




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Consolidating balance sheetsNon-(US$ million)
    
    Converium
    
    
    Converium
    
    
    Converium
    
    
    Guarantor
    
    
    ConsolidatingDecember 31, 2004
    
    Holding AG
    
    
    AG
    
    
    Finance S.A.
    
    
    Entities
    
    
    Adjustments
    
    
    ConsolidatedAssetsInvested assetsFixed maturities
    
    
    
    
    
    
    2,956.6
    
    
    
    14.8
    
    
    
    2,713.8
    
    
    
    
    
    
    
    5,685.2Equity securities
    
    
    
    
    
    
    255.8
    
    
    
    
    
    
    
    152.7
    
    
    
    
    
    
    
    408.5Investment in subsidiaries
    
    
    1,661.5
    
    
    
    559.4
    
    
    
    
    
    
    
    
    
    
    
    2,220.9
    
    
    
    Notes receivable
    
    
    196.7
    
    
    
    49.2
    
    
    
    175.0
    
    
    
    135.9
    
    
    
    556.8
    
    
    
    Short-term and other investments
    
    
    
    
    
    
    306.3
    
    
    
    
    
    
    
    99.3
    
    
    
    
    
    
    
    405.6Total investments
    
    
    1,858.2
    
    
    
    4,127.3
    
    
    
    189.8
    
    
    
    3,101.7
    
    
    
    2,777.7
    
    
    
    6,499.3Funds Withheld Asset
    
    
    
    
    
    
    1,305.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,305.1Total invested assets
    
    
    1,858.2
    
    
    
    5,432.4
    
    
    
    189.8
    
    
    
    3,101.7
    
    
    
    2,777.7
    
    
    
    7,804.4Other assetsCash and cash equivalents
    
    
    2.1
    
    
    
    329.2
    
    
    
    4.2
    
    
    
    329.4
    
    
    
    
    
    
    
    664.9Premiums receivable
    
    
    
    
    
    
    1,890.4
    
    
    
    
    
    
    
    285.3
    
    
    
    2.3
    
    
    
    2,178.0Reinsurance assets
    
    
    
    
    
    
    917.6
    
    
    
    
    
    
    
    2,267.3
    
    
    
    1,613.6
    
    
    
    1,571.3Funds held by reinsureds
    
    
    
    
    
    
    1,418.1
    
    
    
    
    
    
    
    717.9
    
    
    
    414.7
    
    
    
    1,721.3Deferred policy acquisition costs
    
    
    
    
    
    
    418.2
    
    
    
    
    
    
    
    66.5
    
    
    
    
    
    
    
    484.7Deferred income taxes
    
    
    
    
    
    
    13.0
    
    
    
    
    
    
    
    65.3
    
    
    
    
    
    
    
    78.3Other assets
    
    
    32.5
    
    
    
    333.8
    
    
    
    65.8
    
    
    
    100.6
    
    
    
    93.0
    
    
    
    439.7Total assets
    
    
    1,892.8
    
    
    
    10,752.7
    
    
    
    259.8
    
    
    
    6,934.0
    
    
    
    4,896.7
    
    
    
    14,942.6Liabilities and equityLiabilitiesLosses and loss adjustment
expenses, gross
    
    
    
    
    
    
    5,870.6
    
    
    
    
    
    
    
    4,038.1
    
    
    
    1,131.8
    
    
    
    8,776.9Unearned premiums, gross
    
    
    
    
    
    
    1,058.9
    
    
    
    
    
    
    
    533.6
    
    
    
    280.2
    
    
    
    1,312.3Future life benefits, gross
    
    
    
    
    
    
    87.7
    
    
    
    
    
    
    
    549.6
    
    
    
    91.5
    
    
    
    545.8Other reinsurance liabilities
    
    
    
    
    
    
    1,382.6
    
    
    
    
    
    
    
    105.4
    
    
    
    112.7
    
    
    
    1,375.3Funds held under reinsurance
contracts
    
    
    
    
    
    
    226.7
    
    
    
    
    
    
    
    567.4
    
    
    
    414.8
    
    
    
    379.3Deferred income taxes
    
    
    
    
    
    
    90.6
    
    
    
    
    
    
    
    66.6
    
    
    
    
    
    
    
    157.2Accrued expenses and other
liabilities
    
    
    0.6
    
    
    
    374.1
    
    
    
    1.4
    
    
    
    179.2
    
    
    
    270.6
    
    
    
    284.7Notes payable
    
    
    172.0
    
    
    
    
    
    
    
    
    
    
    
    202.2
    
    
    
    374.2
    
    
    
    Debt
    
    
    
    
    
    
    
    
    
    
    193.6
    
    
    
    197.3
    
    
    
    
    
    
    
    390.9Total liabilities
    
    
    172.6
    
    
    
    9,091.2
    
    
    
    195.0
    
    
    
    6,439.4
    
    
    
    2,675.8
    
    
    
    13,222.4EquityCommon stock and
additional paid-in capital
    
    
    1,977.8
    
    
    
    1,941.2
    
    
    
    
    
    
    
    1,286.9
    
    
    
    3,228.1
    
    
    
    1,977.8Unearned stock compensation
    
    
    7.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.5Total
accumulatedcomprehensive income (loss)
    
    
    304.1
    
    
    
    277.7
    
    
    
    9.4
    
    
    
    56.0
    
    
    
    343.1
    
    
    
    304.1Retained (deficit) earnings
    
    
    554.2
    
    
    
    557.4
    
    
    
    55.4
    
    
    
    848.3
    
    
    
    1,350.3
    
    
    
    554.2Total equity
    
    
    1,720.2
    
    
    
    1,661.5
    
    
    
    64.8
    
    
    
    494.6
    
    
    
    2,220.9
    
    
    
    1,720.2Total liabilities and equity
    
    
    1,892.8
    
    
    
    10,752.7
    
    
    
    259.8
    
    
    
    6,934.0
    
    
    
    4,896.7
    
    
    
    14,942.6
 F-45




---



##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Condensed consolidatingstatements of cash flowsNon-(US$ million)
    
    Converium
    
    
    Converium
    
    
    Converium
    
    
    Guarantor
    
    
    ConsolidatingYear ended December 31, 2004
    
    Holding AG
    
    
    AG
    
    
    Finance S.A.
    
    
    Entities
    
    
    Adjustments
    
    
    ConsolidatedCash provided by (used in)
operating activities
    
    
    41.6
    
    
    
    634.4
    
    
    
    2.1
    
    
    
    453.6
    
    
    
    
    
    
    
    224.5Cash flows from investing activitiesPurchases of fixed maturities
held-to-maturity
    
    
    
    
    
    
    214.9
    
    
    
    
    
    
    
    13.3
    
    
    
    
    
    
    
    228.2Proceeds from sales and maturities
of fixed maturities
    
    
    
    
    
    
    936.3
    
    
    
    
    
    
    
    3,179.7
    
    
    
    
    
    
    
    4,116.0Purchases of fixed maturities
available-for-sale
    
    
    
    
    
    
    1,663.5
    
    
    
    
    
    
    
    2,756.7
    
    
    
    
    
    
    
    4,420.2Proceeds from sales of equity
securities
    
    
    
    
    
    
    279.6
    
    
    
    
    
    
    
    703.5
    
    
    
    
    
    
    
    983.1Purchases of equity securities
    
    
    
    
    
    
    61.6
    
    
    
    
    
    
    
    479.7
    
    
    
    
    
    
    
    541.3Net increase in short-term
investments
    
    
    
    
    
    
    20.4
    
    
    
    
    
    
    
    50.8
    
    
    
    
    
    
    
    71.2Proceeds from sales of other assets
    
    
    
    
    
    
    54.2
    
    
    
    
    
    
    
    28.1
    
    
    
    
    
    
    
    82.3Purchase of other assets
    
    
    
    
    
    
    128.4
    
    
    
    
    
    
    
    12.6
    
    
    
    
    
    
    
    115.8Notes receivable
    
    
    46.7
    
    
    
    49.2
    
    
    
    
    
    
    
    135.9
    
    
    
    231.8
    
    
    
    Investment in subsidiaries
    
    
    355.1
    
    
    
    108.7
    
    
    
    
    
    
    
    
    
    
    
    463.8
    
    
    
    Net cash provided by (used in)
investing activities
    
    
    401.8
    
    
    
    976.6
    
    
    
    
    
    
    
    487.5
    
    
    
    695.6
    
    
    
    195.3Cash flows from financing activitiesCapital contribution
    
    
    
    
    
    
    402.9
    
    
    
    
    
    
    
    108.7
    
    
    
    511.6
    
    
    
    Notes payable
    
    
    22.0
    
    
    
    182.6
    
    
    
    
    
    
    
    27.2
    
    
    
    231.8
    
    
    
    Net purchases of common shares
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.0Dividends to shareholders
    
    
    47.8
    
    
    
    47.8
    
    
    
    
    
    
    
    
    
    
    
    47.8
    
    
    
    47.8Proceeds from Rights Offering
    
    
    428.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    428.4Rights Offering issuance costs
    
    
    25.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25.1Net cash provided by (used in)
financing activities
    
    
    371.5
    
    
    
    537.7
    
    
    
    
    
    
    
    135.9
    
    
    
    695.6
    
    
    
    349.5Effect of exchange rate changes
on cash and cash equivalents
    
    
    10.4
    
    
    
    11.8
    
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    5.4Change in cash and cash equivalents
    
    
    0.9
    
    
    
    207.3
    
    
    
    2.1
    
    
    
    173.8
    
    
    
    
    
    
    
    384.1Cash and cash equivalents
as of January 1
    
    
    1.2
    
    
    
    121.9
    
    
    
    2.1
    
    
    
    155.6
    
    
    
    
    
    
    
    280.8Cash and cash equivalents
as of December 31
    
    
    2.1
    
    
    
    329.2
    
    
    
    4.2
    
    
    
    329.4
    
    
    
    
    
    
    
    664.9
 F-46




---



##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Condensed consolidatingstatements 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, loss adjustment
expenses and life benefits
    
    
    
    
    
    
    1,588.9
    
    
    
    
    
    
    
    1,085.3
    
    
    
    
    
    
    
    2,674.2Underwriting acquisition costs
    
    
    
    
    
    
    522.1
    
    
    
    
    
    
    
    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-47




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated 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
    
    
    
    
    
    
    1,925.5
    
    
    
    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 (deficit)
    
    
    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-48




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Condensed consolidatingstatements 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 notes 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-49




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Condensed consolidatingstatements 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-50




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##### Table of Contents



Converium Holding AG and SubsidiariesNotes to the consolidated financial statements (continued) Condensed consolidatingstatements 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
    
    
    
    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-51




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##### Table of Contents



26. Subsequent events Restructuring costs As a result of the transition to a run-off entity in North America, a decision was made in January
2005 to vacate our primary office space in New York, New York and consolidate in our Stamford,
Connecticut office space. We expect the effective date of the transfer to be July 1, 2005.
Associated costs will be recorded as restructuring costs. Settlement of Superior National Matters On January 6 and January 7, 2005, CRNA and CINA, respectively, entered into the Settlement
Agreement with the Commissioner relating to the January 16, 2002 complaint that the Commissioner
filed against a subsidiary of ZFS, CIC and affiliates, as well as CRNA and CINA. The Commissioner
had initiated this action in the Superior Court of the State of California, County of Los Angeles,
on behalf of the SNICL. Neither CRNA nor CINA shall pay any amounts whatsoever in exchange for the full and final discharge
of liabilities, as set forth in the Settlement Agreement, that the Commissioner has granted to both
companies. Instead, CIC shall be making the full payment that will provide the complete release to
CRNA and CINA, as well as all other parties in the complaint. At a hearing on February 17, 2005,
the Settlement Agreement was approved by the court presiding over the liquidation of the estates of
SNICL. As a result, CICs main performance under the settlement is now due 90 days from entry of
the approval order. After that period has expired and CIC has performed, dismissals of the case are
expected to be entered (see Note 21). Settlement of U.S. Life Insurance Company arbitration The arbitration initiated on November 29, 1999 by U.S. Life against SNICIL, CINA and CIC, has been
settled as between U.S. Life and CINA. The settlement in January 2005 followed a December 2004
decision of the arbitration panel to reject U.S. Lifes claim for rescission and to instead reform
the reinsurance treaty provided by U.S. Life to a 90% quota share as opposed to a 100% quota share.
U.S. Life and CINA agreed to settle the matter with a full and final commutation of the treaty in
exchange for a commutation payment by U.S. Life (see Note 21). Class action lawsuits On January 21, 2005, Bassin v. Converium Holding AG, et al.,04 CV 08295, a class action lawsuit
against Converium and certain officers and directors was voluntarily dismissed, without prejudice,
by the plaintiff in that action (see Note 21). Appointment of Chief Executive Officer On February 23, 2005, the Board of Directors appointed Terry G. Clarke to the position of Chief
Executive Officer of Converium. Terry G. Clarke will continue to be a member of the Board of
Directors (see Note 18). F-52




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##### Table of Contents



27. Subsequent Events (unaudited) Winter Storm Erwin Winter storm Erwin, which swept across Northern Europe in January 2005, resulted in net pre-tax
losses for Converium in the amount of US$ 32.5 million, net of US$ 3.0 million in reinstatement
premium. Review of Certain of
our Reinsurance Transactions Ongoing investigations of the insurance and reinsurance industry and certain insurance and
reinsurance products are being conducted by U.S. regulators and governmental authorities, including
the Securities and Exchange Commission and the New York Attorney General. On March 8, 2005, MBIA Inc. (MBIA) issued a press release stating that MBIAs audit committee
undertook an investigation to determine whether there was an oral agreement with MBIA under which
MBIA would replace Axa Re Finance as a reinsurer to CRNA by no later than October 2005. The press
release stated that it appears likely that such an agreement or understanding with Axa Re Finance was made in 1998. Thereafter, on April 19,
2005, CRNA received subpoenas from the U.S. Securities and Exchange Commission and the Office of
the New York Attorney General seeking documents related to certain transactions between CRNA and
MBIA. In view of the industry investigations and the events relating to MBIA described above, we have
engaged counsel to assist us in a review and analysis of certain of our reinsurance transactions,
including the MBIA transactions. We are fully cooperating with the governmental authorities in
connection with their investigation. The impact of our ongoing review and analysis and the ongoing
regulatory investigations on us is uncertain, and there can be no assurance as to whether or not
the outcome of such investigations will have a material impact on
Converium. Retrocessional Risk Management As a result of its risk management monitoring process, Converium reached a decision in the first
quarter of 2005 to commute the obligations of one of its retrocessionaires due to deterioration in
that companys rating and concerns about the future ownership and prospects of the company. As a
result Converium commuted certain retrocession contracts with reinsurance recoverables in the
amount of US$ 100.1 million for a commutation settlement of US$ 60.1 million, which generated a
negative impact of US$ 40.0 million on the net results in the first quarter of 2005, US$ 38.7
million of which is in losses. This negative impact reflects the long-tail nature of the expected
future claims payment patterns in respect of the line of business concerned. Long-Term Incentive Plan Effective in 2005, CRNA has established a long-term incentive plan for its senior employees needed
for the run-off. The CRNA LTIP is based on CRNAs performance against target plan statutory
surplus levels over a 5-year period, 2005 through 2009. Awards are payable to participants in
cash, in early 2010, after performance can be determined. F-53




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##### Table of Contents



Converium Holding AG
Report of Independent Registered Public Accounting Firm
On the Financial Statement Schedules To the Board of Directors of Converium Holding AG, Zug Our audits of the consolidated financial statements referred to in our report dated March
4, 2005, except as to the subsequent events described in Note 27, as to which the date is
June 30, 2005, 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 financial statements. PricewaterhouseCoopers Ltd. Andrew Hill            Martin Frei Zurich, March 4, 2005 S-1




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##### Table of Contents



Schedule I Amount at whichSummary of investments other than investments
    
    Cost or
    
    
    
    
    
    
    shown in thein related parties as of December 31, 2004
    

amortized
cost
    
    
    Fair value
    
    
    balance sheet($ millions)Fixed maturities:Bonds held-to-maturity:US government
    
    
    584.3
    
    
    
    573.7
    
    
    
    584.3Other government
    
    
    266.1
    
    
    
    270.3
    
    
    
    266.1Total fixed maturities held-to-maturity
    
    
    850.4
    
    
    
    844.0
    
    
    
    850.4Bonds available-for-sale:US government
    
    
    1,765.6
    
    
    
    1,763.1
    
    
    
    1,763.1Other government
    
    
    1,769.3
    
    
    
    1,783.0
    
    
    
    1,783.0Public utilities
    
    
    17.0
    
    
    
    17.8
    
    
    
    17.8Other corporate debt securities
    
    
    499.9
    
    
    
    505.5
    
    
    
    505.5Unit trust
    
    
    144.2
    
    
    
    148.8
    
    
    
    148.8Mortgage and asset-backed securities
    
    
    612.2
    
    
    
    616.6
    
    
    
    616.6Total fixed maturities available for sale
    
    
    4,808.2
    
    
    
    4,834.8
    
    
    
    4,834.8Total fixed maturities
    
    
    5,658.6
    
    
    
    5,678.8
    
    
    
    5,685.2Equity securities:Common stocks:Public utilities
    
    
    7.7
    
    
    
    10.5
    
    
    
    10.5Banks, trusts, and insurance companies
    
    
    37.1
    
    
    
    47.3
    
    
    
    47.3Industrial, miscellaneous and all other
    
    
    259.8
    
    
    
    312.5
    
    
    
    312.5Unit trust
    
    
    27.1
    
    
    
    31.8
    
    
    
    31.8Non-redeemable preferred stocks
    
    
    6.3
    
    
    
    6.4
    
    
    
    6.4Total equity securities
    
    
    338.0
    
    
    
    408.5
    
    
    
    408.5Real estate
    
    
    138.8
    
    
    
    138.8
    
    
    
    138.8Policyholder, collateral and other loans
    
    
    29.4
    
    
    
    29.4
    
    
    
    29.4Other investments
    
    
    101.6
    
    
    
    104.1
    
    
    
    104.1Short-term investments
    
    
    133.3
    
    
    
    133.3
    
    
    
    133.3Total investments
    
    
    6,399.7
    
    
    
    6,492.9
    
    
    
    6,499.3Funds Withheld Asset
    
    
    1,305.1
    
    
    
    1,305.1
    
    
    
    1,305.1Total invested assets
    
    
    7,704.8
    
    
    
    7,798.0
    
    
    
    7,804.4
 S-2




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##### Table of Contents



Schedule II Converium Holding AGStatements of (loss) income Year ended December 31,($ millions)
    
    2004
    
    
    2003
    
    
    2002IncomeNet investment income
    
    
    13.4
    
    
    
    11.0
    
    
    
    12.6Other income (loss)
    
    
    23.5
    
    
    
    35.0
    
    
    
    (0.5
    )Total revenues
    
    
    36.9
    
    
    
    46.0
    
    
    
    12.1ExpensesOther operating and administration expenses
    
    
    (11.6
    )
    
    
    (8.6
    )
    
    
    20.7Interest expense
    
    
    (10.6
    )
    
    
    (10.5
    )
    
    
    (10.7
    )Total expenses
    
    
    (22.2
    )
    
    
    (19.1
    )
    
    
    10.0Income before taxes
    
    
    14.7
    
    
    
    26.9
    
    
    
    22.1Income tax benefit (expense)
    
    
    2.5
    
    
    
    (3.5
    )
    
    
    (2.2
    )Income before equity in income (loss) of subsidiaries
    
    
    17.2
    
    
    
    23.4
    
    
    
    19.9Equity in (loss) income of subsidiaries
    
    
    (778.0
    )
    
    
    161.7
    
    
    
    86.9Net (loss) income
    
    
    (760.8
    )
    
    
    185.1
    
    
    
    106.8
 See notes to our 2004 consolidated financial statements. S-3




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##### Table of Contents



Converium Holding AG
Balance sheets December 31,2004
    
    
    2003AssetsInvested assetsInvestment in subsidiaries
    
    
    1,661.5
    
    
    
    2,006.8Notes receivable
    
    
    196.7
    
    
    
    150.0Short-term and other investments
    
    
    
    
    
    
    44.7Total invested assets
    
    
    1,858.2
    
    
    
    2,201.5Other assetsCash and cash equivalents
    
    
    2.1
    
    
    
    1.2Other assets
    
    
    32.5
    
    
    
    42.7Total assets
    
    
    1,892.8
    
    
    
    2,245.4Liabilities and equityLiabilitiesAccrued expenses and other liabilities
    
    
    0.6
    
    
    
    12.1Notes payable
    
    
    172.0
    
    
    
    150.0Total liabilities
    
    
    172.6
    
    
    
    162.1EquityCommon stock
    
    
    554.9
    
    
    
    253.0Additional paid-in capital
    
    
    1,430.6
    
    
    
    1,326.7Treasury stock
    
    
    (7.7
    )
    
    
    (10.0
    )Unearned stock compensation
    
    
    (7.5
    )
    
    
    (6.1
    )Total accumulated other comprehensive income
    
    
    304.1
    
    
    
    261.4Retained earnings
    
    
    (554.8
    )
    
    
    258.3Total equity
    
    
    1,720.2
    
    
    
    2,083.3Total liabilities and equity
    
    
    1,892.8
    
    
    
    2,245.4
 See notes to our 2004 consolidated financial statements. S-4




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##### Table of Contents



Schedule II Converium Holding AGStatements of cash flows Year ended December 31,($ millions)
    
    2004
    
    
    2003
    
    
    2002Cash flows from operating activitiesNet income (loss) before equity in income (loss) of subsidiaries
    
    
    17.2
    
    
    
    23.4
    
    
    
    19.9Changes in other assets and liabilities
    
    
    24.4
    
    
    
    (20.1
    )
    
    
    (17.9
    )Cash provided by operating activities
    
    
    41.6
    
    
    
    3.3
    
    
    
    2.0Cash flows from investing activitiesIssuance of note receivable
    
    
    (46.7
    )
    
    
    
    
    
    
    Investment in Converium AG
    
    
    (355.1
    )
    
    
    29.9
    
    
    
    Net decrease (increase) in short-term investments
    
    
    
    
    
    
    3.6
    
    
    
    (3.6
    )Net cash (used in) provided by investing activities
    
    
    (401.8
    )
    
    
    33.5
    
    
    
    (3.6
    )Cash flows from financing activitiesIssuance of note payable
    
    
    22.0
    
    
    
    
    
    
    
    Net purchases of common shares
    
    
    (6.0
    )
    
    
    (17.3
    )
    
    
    (14.7
    )Dividends to shareholders
    
    
    (47.8
    )
    
    
    (29.9
    )
    
    
    Proceeds from 2004 rights offering
    
    
    428.4
    
    
    
    
    
    
    
    2004 rights offering issuance costs
    
    
    (25.1
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    371.5
    
    
    
    (47.2
    )
    
    
    (14.7
    )Effect of exchange rate changes in cash and cash equivalents
    
    
    (10.4
    )
    
    
    10.8
    
    
    
    Change in cash and cash equivalents
    
    
    0.9
    
    
    
    0.4
    
    
    
    (16.3
    )Cash and cash equivalents, beginning of period
    
    
    1.2
    
    
    
    0.8
    
    
    
    17.1Cash and cash equivalents, end of period
    
    
    2.1
    
    
    
    1.2
    
    
    
    0.8
 See notes to our 2004 consolidated financial statements. S-5




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##### Table of Contents



Schedule IV ($ millions)
    
    Gross
    
    
    Ceded to other
    
    
    Assumed from other
    
    
    
    
    
    
    % of amountReinsurance
    
    Amount
    
    
    Companies
    
    
    Companies
    
    
    Net Amount
    
    
    assumed to netInsurance premiums
and other
considerations:2004
    
    $
    490.9
    
    
    
    ($287.9
    )
    
    $
    3,350.0
    
    
    $
    3,553.0
    
    
    
    94.3
    %2003
    
    $
    561.4
    
    
    
    ($396.9
    )
    
    $
    3,662.5
    
    
    $
    3,827.0
    
    
    
    95.7
    %2002
    
    $
    88.0
    
    
    
    ($213.6
    )
    
    $
    3,447.8
    
    
    $
    3,322.2
    
    
    
    103.8
    %
 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.National Association of Insurance
Commissioners
(NAIC)
    
    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.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.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.
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##### Table of Contents



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.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.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
investment income.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.
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SIGNATURES The registrant hereby certifies that it meets all of the requirements for the 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/ Terry G. ClarkeName:
    Terry G. ClarkeTitle:
    Chief Executive Officer, Converium Holding AG By
    /s/ Andreas ZdrenykName:
    Andreas ZdrenykTitle:
    Chief Financial Officer, Converium Holding AG Date: June 30, 2005 Sig-1




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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 October 12, 2004.1.4
    
    Bylaws of Converium Holding AG, revised April 11, 2005.2.1
    
    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 filed 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




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##### Table of Contents



ExhibitNumber
    
    DescriptionCompany, 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)
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




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##### Table of Contents



ExhibitNumber
    
    DescriptionCompany, Converium Holding AG and Converium AG dated December 3, 2001. *4.24
    
    Form of Converium Standard Stock Option Plan for Non-US Employees. *4.25
    
    Form of Converium Standard Stock Purchase Plan for Non-US Employees. *4.26
    
    Omnibus Share Plan for US Employees. *4.27
    
    Converium Employee Stock Purchase Plan for US 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. #4.40
    
    Agreement dated November 29, 2004, USD 1,600,000,000 Credit Facility for Converium AG,
arranged by ABN AMRO Bank N.V., Barclays Capital, BNP Paribas, Commerzbank
Aktiengesellschaft, Credit Suisse First Boston and J.P. Morgan.4.41
    
    Deed of Pledge, dated December 15, 2004, Converium Rückversicherung (Deutschland) AG as the
Pledgor and ABN Amro Mellon Global Securities Services as the Account Bank and ABN Amro Bank
N.V. as the Pledgee.4.42
    
    Deed of Pledge, dated December 15, 2004, Converium AG, Zürich, as the Pledgor, and ABN Amro
Bank N.V. as the Pledgee and ABN Amro Mello Global Securities Services as the Account Bank.4.43
    
    Guarantee, dated October 21, 2004 between Converium AG, Zürich as the Guarantor, and
Converium Insurance (UK) Limited.




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##### Table of Contents



ExhibitNumber
    
    Description4.44
    
    Guarantee, dated October 21, 2004 between Converium AG, Zürich as the Guarantor, and
Converium Rückversicherung (Deutschland) AG.4.45
    
    Fronting and Administration Agreement relating to the Global Aerospace Underwriters Pool,
dated January 7, 2005, between Global Aerospace Underwriting Managers Limited, Global
Aerospace, Inc., Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München,
National Indemnity Company and Converium AG.7.1
    
    Computation of ratio of earnings to fixed charges.8.1
    
    Subsidiaries of the Registrant.12.1
    
    302 Certification of Chief Executive Officer.12.2
    
    302 Certification of Chief Financial Officer.13.1
    
    906 Certification of Chief Executive Officer.13.2
    
    906 Certification of Chief Financial Officer.14.1
    
    Consent of PricewaterhouseCoopers Ltd, independent accountants.
 
 *
    
    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.#
    
    Incorporated by reference to the Companys Annual Report on Form 20-F for the year ended
December 31, 2003, filed on April 5, 2003.