Sale sees Converium rating upgraded, but fails to push the company back into the "A" ranks...
Fitch has upgraded Converium's insurer financial strength rating to 'BBB+' from 'BBB-' and removed the rating from rating watch positive. Stable outlooks have been assigned to all ratings.
The rating action follows the conclusion of the sale by Converium of its North American operations to the Berkshire Hathaway Group for $95m in cash. In addition, Berkshire Hathaway has assumed $200m of senior debt from the North American operation.
Fitch views the sale positively, as the business has historically been a drag on the group's ratings due to potential further adverse reserve development on prior-year liabilities, the management time and effort required to manage the run-off of the portfolio and the non-fungibility of capital tied up in these operations.
Fitch also views positively the transfer of Converium's US senior debt to Berkshire Hathaway and the impact that the sale should have on the group's consolidated expense ratio. Significantly, Converium has not provided guarantees or indemnities relating to the reserves of the North American operations.
The ratings also reflect Converium's strong capitalisation, conservative investment strategy and improving franchise. Partially offsetting these positive rating factors are Converium's high expense base relative to its peers and outstanding class action lawsuits, which if defended unsuccessfully, could have a material effect on the group's financial strength, operating results and cash flows.
