Converium Says 14% ROE Proves SCOR Offer Too Low

Swiss-based Converium confirmed it has achieved its medium-term ROE target of 14 percent, which, it also said highlights the “under valuation of the current SCOR offer” (See IJ web site March 7).

Converium’s CFO, Paolo De Martin, made the announcement on Monday, March 19 and followed it up with a presentation to sell-side analysts in Zurich and London yesterday. He provided “further details on Converium’s road map towards a sustainable 14 percent ROE by 2009, backed by management’s strong and successful track record in turning Converium around,” said the bulletin.

“With regards to SCOR’s unsolicited offer, Paolo De Martin will specifically highlight SCOR’s current under valuation of Converium; the weak acquisition currency of the bidder; and the major execution risks arising from the hostility of the proposed transaction,” it continued.

The presentation made the following points:

— Converium’s new management team has created significant value for its shareholders, with the Company’s share price outperforming the DJ Insurance Index by almost 40 percent since March 2006. This successful track record has culminated in achieving Converium’s full turnaround: both S&P and Moody’s have upgraded Converium to ‘A-‘ ratings; underwriting has returned to profitability; Converium’s capital base has further strengthened; and reserve finality regarding Converium’s North American operations has been achieved.

— Converium reiterates the key elements of its road map to a sustainable ROE of 14 percent by 2009: to grow the book of business to $3 billion, benefiting from the opportunities offered by the upgrade and regaining a further share of wallet; improving the non-life combined ratio to 96 percent, in line with peers; slashing corporate center costs by $20 million; lifting the book investment yield to 5 percent; boosting capital efficiency by returning $300 million to shareholders; and increasing hybrid debt to $500 million.

— Converium’s Board of Directors continues to believe that SCOR’s unsolicited offer undervalues the Company’s prospects and potential. Due to the erosion of SCOR’s share price and the 80 percent share component of the offer, the effective value of SCOR’s offer is around CHF 19 [$15.66] per Converium share, a discount of more than 6 percent compared with Converium’s current share price. The unattractiveness of the current offer is compounded by significant execution risks. Due to the hostile character of the proposed transaction the risk of business and key personnel attrition, as well as pressure on financial strengths ratings, could be considerable. Ultimately, the hostility of the deal could destroy value for all stakeholders.