UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
		Date of current requiring this shell company report ___________

		Name of each Exchange
Title of each class		on which registered
American 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 Exchange
Registered shares, nominal value CHF 5 per share*		New York Stock Exchange
8.25% Guaranteed Subordinated Notes due 2032 issued by Converium Finance S.A.		New York Stock Exchange
Subordinated Guarantee of Subordinated Notes+		New York Stock Exchange

*		Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
+		Not for trading, but only in connection with the listing of the Subordinated Notes, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

146,473,231 registered shares, nominal value CHF 5 per share, including 10,894,430 American Depositary Shares (as evidenced by American Depositary Receipts), each representing one-half (1/2) of one registered share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Note—checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.

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.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ                               Accelerated filer o                                Non-accelerated filer o

Indicate by check mark which financial statement item the registrant has elected to follow.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

TABLE OF CONTENTS

PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16. [RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Item 16B. CODE OF ETHICS
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
SIGNATURES
INDEX TO EXHIBITS
EX-7.1
EX-8.1
EX-12.1
EX-12.2
EX-13.0
EX-4.46
EXHIBIT 1.3
EXHIBIT 4.46
EXHIBIT 7.1
EXHIBIT 8.1
EXHIBIT 12.1
EXHIBIT 12.2
EXHIBIT 13.0

PRESENTATION OF INFORMATION

In this annual report on Form 20-F, unless the context otherwise requires, “Converium,” “the Company”, “we,” “us,” and “our” refer to Converium Holding AG and its consolidated entities. Please refer to the glossary beginning on page G-1 for definitions of selected insurance and reinsurance terms.

The Company’s consolidated financial statements included in this Form 20-F are prepared in accordance with accounting principles generally accepted in the United States (US GAAP).

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” “US$”, “USD” or “$” and “cents” are to US currency, references to “Swiss francs” or “CHF” are to Swiss currency, references to “yen” “JPY” or “Japanese yen” are to Japanese currency, references to “British pounds”, “GBP” or “£” are to British currency and references to “euro”, “EUR” or “€” are to the single European currency of the member states of the European Monetary Union at the relevant time.

In February 2006, Converium restated its consolidated financial statements (the “Restatement”) as of and for the years ended December 31, 2004, 2003, 2002, 2001, 2000, 1999 and 1998 and for each of the quarters ended March 31, 2003 through June 30, 2005, and the Notes related thereto as discussed further in Note 3 to our 2005 consolidated financial statements. All amounts in this Form 20-F document reflect the restated numbers.

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 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 and with regard to our internal review and related Restatement.
•		certain statements in “Item 11. — Quantitative and Qualitative Disclosures About Market Risk” with regard to sensitivity analyses for invested assets.
•		certain statements in “Item 15. — Controls and Procedures” with regard to our actions to remediate the material weaknesses identified in our financial accounting and reporting function.

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;
•		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 us and the insurance industry as a result of the investigations being carried out by US and international regulatory authorities including 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 of our reinsurers;
•		our failure to prevail in any current or future arbitration or litigation; and
•		extraordinary events affecting our clients, such as bankruptcies and liquidations.

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, 2005, 2004, 2003, 2002 and 2001.

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 for 2001 are presented as if we had been a separate legal entity and include estimates related to the allocation to Converium of costs of Zurich Financial Services’ corporate infrastructure prior to the Formation Transactions. We believe that these allocations are reasonable. However, this financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a stand-alone entity during the periods covered.

The selected financial and other data should be read in conjunction with the Consolidated Financial Statements and related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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 Converium Reinsurance (North America) Inc. (“CRNA”) into orderly run-off and management’s desire to monitor this business on a stand-alone basis. Therefore, Converium’s business is now 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 non-life and life, originating from CRNA and Converium Insurance (North America) Inc. (“CINA”), excluding the US originated aviation business written through CINA. 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 as well as expenses not allocated to the operating segments. In addition to reporting segment results individually, management also aggregates results for Standard Property & Casualty Reinsurance and Specialty Lines into ongoing non-life business, as management considers this aggregation meaningful in understanding the performance of Converium. This measure excludes the non-life business contained within the Run-Off segment in line with management’s desire to monitor this segment on a stand-alone basis. The aggregation of the Life & Health Reinsurance segment with the ongoing non-life business is referred to as total ongoing business. Segment data for all years is presented in line with the new reporting segments.

		For the year ended December 31,
US$ millions (except per share data)		2005				2004				2003				2002				2001
Income statement data:
Revenues:
Gross premiums written			1,994.3				3,978.7				4,300.4				3,372.4				2,846.8
Less ceded premiums written			-178.6				-252.6				-377.7				-137.2				-194.1
Net premiums written			1,815.7				3,726.1				3,922.7				3,235.2				2,652.7
Net change in unearned premiums			567.5				156.1				-154.9				-157.7				-204.2
Net premiums earned			2,383.2				3,882.2				3,767.8				3,077.5				2,448.5
Net investment income			324.9				312.7				234.4				251.8				234.9
Net realized capital gains (losses)			25.5				46.5				18.4				-10.3				-18.4

		For the year ended December 31,
US$ millions (except per share data)		2005				2004				2003				2002				2001
Other (loss) income			-13.4				-8.2				17.5				31.6				2.9
Total revenues			2,720.2				4,233.2				4,038.1				3,350.6				2,667.9
Benefits, losses and expenses:
Losses, loss expenses and life benefits			-1,775.9				-3,342.5				-2,760.1				-2,491.1				-2,460.6
Total costs and expenses			-818.0				-1,165.3				-1,065.5				-841.6				-687.5
Impairment and amortization of goodwill (1)			—				-94.0				—				—				-7.8
Amortization of intangible assets			-21.5				-9.9				-1.8				—				—
Restructuring costs			-20.5				-2.7				—				—				-50.0
Total benefits, losses and expenses			-2,635.9				-4,614.4				-3,827.4				-3,332.7				-3,205.9
Income (loss) before taxes			84.3				-381.2				210.7				17.9				-538.0
Income tax (expense) benefit			-15.6				-201.3				-32.8				17.9				182.4
Net income (loss)			68.7				-582.5				177.9				35.8				-355.6
(Loss) earnings per share:
Average number of shares (millions)			146.4				63.4				39.8				39.9				40.0
Basic earnings (loss) per share (2)			0.47				-9.19				2.24				0.45				-4.46
Diluted earnings (loss) per share (2)			0.46				-9.19				2.23				0.45				-4.46
		Year ended December 31,
		2005				2004				2003				2002				2001
Balance sheet data:
Total invested assets			6,634.3				7,786.2				7,502.0				6,117.3				4,892.1
Total assets			11,825.9				14,187.3				13,280.4				10,757.5				8,862.1
Reinsurance liabilities			8,200.8				9,898.9				8,428.6				6,986.7				5,871.3
Debt			391.2				391.1				393.1				392.9				206.1
Total liabilities			10,172.5				12,452.5				11,352.4				9,162.3				7,361.3
Total shareholders’ equity			1,653.4				1,734.8				1,928.0				1,595.2				1,500.8
Book value per share			11.29				11.86				48.47				39.97				37.52
		For the year ended December 31,
		2005				2004				2003				2002				2001
Other data:
Net premiums written by segment:
Standard Property & Casualty Reinsurance			739.0				1,377.5				1,299.9				974.2				1,015.0
Specialty Lines			737.7				1,565.3				1,119.0				962.4				443.3
Life & Health Reinsurance			306.4				313.2				254.5				230.0				196.0
Run-Off			32.6				470.1				1,249.3				1,068.7				998.4
Total net premiums written			1,815.7				3,726.1				3,922.7				3,235.2				2,652.7
Ongoing non-life combined ratio			107.2				106.1				91.9				101.3				116.4	(3)
Ratio of earnings to fixed charges (4)			3.3				(5	)			6.8				1.8				(6	)

The table below shows the components that comprise the ongoing non-life ratios, of which the later are Non-GAAP measures. As discussed above, management aggregates the results for the Standard Property & Casualty Reinsurance and Specialty Lines segments into ongoing non-life business, as they consider this aggregation a key indicator in understanding the performance of Converium.

																		Other
		Net				Net				Losses								operating and				Loss				Acquisition				Administration
		premiums				premiums				and loss				Acquisition				administration				ratio				costs ratio				expense ratio				Combined
Combined Ratio		written				earned				expenses				costs				expenses				(1)				(2)				(3)				ratio (4)
Analysis	(US$ millions)																					(%)
2005
Standard Property & Casualty Reinsurance			739.0				880.8				-729.6				-181.3				-45.2				82.8				20.6				6.1				109.5
Specialty lines			737.7				1,059.2				-772.5				-263.8				56.3				72.9				24.9				7.6				105.4
Total Ongoing Non-life consolidated			1,476.7				1,940.0				-1,502.1				-445.1				-101.5				77.4				22.9				6.9				107.2
2004
Standard Property & Casualty Reinsurance			1,377.5				1,392.3				-1,002.9				-353.3				-58.5				72.0				25.4				4.2				101.6
Specialty lines			1,565.3				1,387.6				-1,154.7				-328.1				-59.6				83.2				23.6				3.8				110.6
Total Ongoing Non-life consolidated			2,942.8				2,779.9				-2,157.6				-681.4				-118.1				77.6				24.5				4.0				106.1
2003
Standard Property & Casualty Reinsurance			1,299.9				1,285.2				-838.8				-266.4				-50.3				65.3				20.7				3.9				89.9
Specialty lines			1,119.0				1,038.1				-713.0				-227.9				-41.4				68.7				22.0				3.7				94.4
Total Ongoing Non-life consolidated			2,418.9				2,323.3				-1,551.8				-494.3				-91.7				66.8				21.3				3.8				91.9
2002
Standard Property & Casualty Reinsurance			974.2				942.1				-668.4				-234.2				-45.7				70.9				24.9				4.7				100.5
Specialty lines			962.4				885.5				-709.8				-157.3				-40.5				80.2				17.8				4.2				102.2
Total Ongoing Non-life consolidated			1936.6				1827.6				-1378.2				-391.5				-86.2				75.4				21.4				4.5				101.3
2001
Standard Property & Casualty Reinsurance			1015.0				938.9				-780.0				-155.2				-36.0				83.1				16.5				3.5				103.1
Specialty lines			443.3				366.6				-426.1				-109.4				-19.2				116.2				29.8				4.3				150.3
Total Ongoing Non-life consolidated			1458.3				1305.5				-1206.1				-264.6				-55.2				92.4				20.2				3.8				116.4

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 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

In June 2006, the Board of Directors confirmed Converium’s current business model, with a clear line-of-business and geographical focus,

an emphasis on expertise and service and a rigorous technical approach. The success of the January 1, 2006 renewal season underlines market appetite for a mid-sized, independent and financially strong reinsurer, especially in view of accelerating industry consolidation and supports the decision to continue as a stand-alone entity delivering consistency and continuity under its existing business model, i.e. as an international multi-line reinsurer with geographic emphasis on Europe, Asia-Pacific, and the Middle East, and a focus on global specialty lines. See “Item 4. Business Overview — Overview” and “— Our Strategy”.

There can be no assurance, however, that we will be able to successfully implement our 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 strategy are insufficient, it is possible that our strategy would fail and 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 and implemented.

The run-off of our North American business subjects us to particular risks

We have ceased the underwriting of substantially all new business in North America, however Converium will offer reinsurance for US-originated business to select US based clients. This business will be underwritten and managed through Converium AG, Zurich. In addition we have taken the following additional steps with respect to our North American business:

•

CRNA has been placed into orderly run-off and will seek to commute its liabilities wherever appropriate. In addition, CRNA hired an experienced run-off professional as its President and CEO and has restructured its organization and 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 Ltd. (“GAUM”) pool; GAUM pool business is recognized in ongoing business operations in the Specialty Lines segment and does not form part of the Run-Off segment;

•

CINA is now a limited writer, offering continuing coverage for only one primary program, 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.

By placing CRNA into orderly 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. CRNA 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, 2007, 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.

The ratings downgrades as well as our decision to place CRNA into orderly 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, Converium 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.

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 current ratings or any further downgrade of our ratings, could have a material adverse effect on our business, financial condition, result of operations or cash flows

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. At the end of 2005, Standard & Poor’s and A.M. Best confirmed Converium’s financial strength ratings of BBB+ and B++, respectively, with a stable outlook.

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.

In the light of changing business circumstances associated with Converium’s S & P ratings downgrade in 2004, Converium entered into fronting agreements with Munich Re and National Indemnity Company in order to support and sustain the aviation business from GAUM. These fronting agreements initially extended to September 30, 2005 with no contractual guarantee that they would be extended beyond that date. In the third quarter of 2005, Converium entered into a new aviation fronting arrangement with National Indemnity Company and Munich Re, effective October 1, 2005. The new agreement ensures Converium’s continued participation in the pool of GAUM until September 30, 2006.

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 expects that continuation of its membership at its current rating is likely to be conditional upon its entering fronting arrangements acceptable to other pool members in a timely fashion and thereafter maintaining such 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 pool membership were terminated, it may also be required to sell its 30.1% stake in GAUM. In 2005, this business generated US$ 233.1 million of gross premiums written. See Notes 4, 9 and 19 to our 2005 consolidated financial statements for additional information on GAUM.

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 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, 2005 we had US$ 7,568.9 million of gross reserves and US$ 6,807.9 million of net reserves for losses and loss expenses. If we underestimated these net reserves by 5%, this would have resulted in an additional US$ 340.4 million of incurred losses and loss expenses, before income taxes, for the year ended December 31, 2005.

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. If the underlying assumptions used do not hold true over time, actual losses could vary, possibly materially, from the estimates.

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 volatility in its loss reserve development over the past several years, predominantly in its US casualty reinsurance lines of business. Since 2001, Converium has recorded US$ 712.3 million of additional net provisions on prior year’s non-life business (2001: US$ 123.6 million; 2002: US$ 148.5 million; 2003: US$ (63.5) million; 2004: US$ 579.2 million; and 2005 US$ (75.5) million).

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

Due to our current ratings and because of regulatory requirements, 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 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. As of December 31, 2005, Converium had outstanding letters of credit of US$ 1,160.2 million under the facility. Investments of US$ 2,238.1 million were pledged as collateral related to the Syndicated Letter of Credit Facility and other irrevocable letters of credit of US$ 852.9 million (to secure certain assumed reinsurance contracts). 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.

See “Item 3. — Key information — D. Risk factors – Ratings changes” for information on collateral requirements related to GAUM and Notes 4, 9 and 19 to our 2005 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.

Securitization trend could disadvantage medium-sized players

The reinsurance market is undergoing rapid changes in the nature of its core business practices. One of the trends in the insurance industry has been the development of instruments designed to allow for the trading of insurance risks in the capital markets. Examples of insurance securitization tools that have been developed include catastrophe bonds and catastrophe equity puts. Trading insurance risks in the capital markets will spread the risks across alternative risk carriers which could lead to a reduced demand for reinsurance products.

As a result of ongoing investigations of the insurance and reinsurance industry and non-traditional insurance products, we conducted an internal review and analysis of certain of our reinsurance transactions and restated our financial statements, however the governmental inquiries are ongoing

Ongoing investigations of the insurance and reinsurance industry and non-traditional insurance and reinsurance products are being conducted by U.S. and international regulators and governmental authorities, including the U.S. 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 appeared likely that MBIA made such an agreement or understanding with Axa Re Finance 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. Converium has also received additional inquiries from the Securities and Exchange Commission and other governmental authorities in Europe regarding non-traditional insurance and reinsurance products and/or the restatement of its financial statements. The inquiries are ongoing and Converium is fully cooperating with the governmental authorities.

In view of the industry investigations and the events relating to MBIA described above, Converium engaged independent outside counsel to assist it in a review and analysis of certain of its reinsurance transactions, including the MBIA transactions. The internal review, which was overseen by the Audit Committee, addressed issues arising from the ongoing governmental inquiries and Converium’s own decision to review certain additional items. The internal review involved the assessment of numerous assumed and ceded transactions including structured/finite risk and other reinsurance transactions and encompassed all business units of Converium, a review of hundreds of thousands of e-mails, attachments to e-mails and other documents and interviews of certain members of the Global Executive Committee

and the Board of Directors, as well as certain former members of senior management and other employees of Converium. The Audit Committee believes that the scope and process of the internal review has been sufficient to determine whether Converium’s assumed and ceded transactions were improperly accounted for as reinsurance, rather than as deposits. After discussing the findings of Converium’s extensive internal review with independent outside counsel, the Audit Committee determined that certain accounting corrections were appropriate and authorized the restatement of Converium’s financial statements as of and for the years ended December 31, 2004 through 1998, which occurred during late 2005. As part of this process, the Audit Committee involved its independent group auditors, PricewaterhouseCoopers Ltd.

As noted above, we are fully cooperating with the governmental authorities, and are in the process of sharing the results of our internal review with the relevant authorities. Although the internal review was extensive, the ongoing governmental inquiries, or other developments, could result in further restatements of our financial results in the future and could have a material adverse effect 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 man-made catastrophic events, for example, acts of terrorism, are inherently unpredictable in terms of both their occurrence and severity. For example, in 2005, the reinsurance industry suffered extensive losses from the hurricanes that occurred in the United States and the floods in Continental Europe. These events adversely affected our results.

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 frequency and severity of events, the number of our clients affected, and the total catastrophe losses incurred by our clients and our participation in the reinsurance policies affected. In addition, depending on the nature of the loss, the speed with which claims are made and settled, and the terms and conditions 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.

Our efforts to protect ourselves against catastrophic losses, such as the use of selective underwriting practices, purchasing reinsurance (or retrocessional reinsurance, when bought by a reinsurer such as Converium) and monitoring risk accumulation 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 Europe, Japan and the United States. Accordingly, we are exposed to natural catastrophic events, which affect these regions, such as European windstorm, Japanese earthquake and US hurricane or earthquake events. For 2005, our maximum catastrophe loss exposure on a basis gross of retrocession and on a probable maximum loss basis, was managed to a self- imposed maximum gross event limit of US$ 400 million for a 250-year return period loss. See “Item 10. — Additional Information — C. 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 expenses arising out of the September 11th terrorist attacks at US$ 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 10 to our 2005 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, 2005 and 2004, net investment income and net realized capital gains accounted for 12.9% and 8.5% 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 in our available-for-sale portfolio, as well as the market values of, and corresponding levels of unrealized and realized capital gains or losses on the available-for-sale 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 and shareholders’ equity

We had a cash and investments portfolio of US$ 7,281.6 million as of December 31, 2005. 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 for the securities we account for as available-for-sale.

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 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 2005, approximately:

•		78% of our net premiums written
•		49% of our net investment income
•		59% of our losses, loss expenses and life benefits, and
•		64% of our operating expenses

were denominated in currencies other than the US dollar. As we will only be writing limited 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. Due to our current ratings 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 (including GE Insurance Solutions);
•		General Reinsurance Company, a subsidiary of Berkshire Hathaway, Inc.;

•		Hannover Re Group;
•		SCOR;
•		Companies active in the Bermuda market, including the PartnerRe Group, XL Capital Ltd. and RenaissanceRe Holdings Ltd.;
•		Everest Reinsurance Company;
•		Transatlantic Reinsurance Company; and
•		Lloyd’s syndicates active in the London market.

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 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. If some of these 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”.

We have identified material weaknesses in our internal control environment; 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 (“SOX 404”). However, during the later part of 2004 and in conjunction with our Sarbanes-Oxley implementation project, two “material weaknesses” were identified within Converium’s internal control environment as at December 31, 2004. For purposes of SOX 404, 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.

The first weakness identified as of December 31, 2004 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’s Audit Committee subsequently identified two additional material weaknesses as of December 19, 2005. The third weakness identified was the lack of controls to ensure that the underwriting and risk transfer analyses reflect all relevant elements of contractual relationships entered into by Converium. The fourth weakness identified relates to internal controls over the determination, valuation, completeness and reporting of certain components of the income tax payables and deferred income tax balances (assets and liabilities).

Converium has successfully addressed the first material weakness identified above and is in the process of addressing the remaining weaknesses. However, if our remedial measures are not successful, our ability to report our future financial results on a timely and accurate basis may be adversely affected.

The SEC, as directed by SOX 404, 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. We cannot be certain as to the timing of completion of any remediation actions or the impact of the same on our operations. Under the current rules, as a foreign private issuer, we must begin to comply with the rules implementing SOX 404 in respect of our 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 unremediated at that time, management will not be permitted to conclude that our internal controls over financial reporting are effective. Moreover, even if management does conclude that our internal controls over financial reporting are effective, if our independent group auditors are not satisfied with our internal controls over financial reporting or the level at which controls are documented, designed, operated or reviewed, or if the independent group auditors interpret the requirements, rules or regulations differently from us, then they may issue an adverse opinion. Any of these possible outcomes could result in a negative 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.

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.

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 in our target markets in substantial part through reinsurance brokers. In some markets we principally write through reinsurance brokers. In 2005, two reinsurance intermediaries produced approximately 7.0% and 5.0% 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

Although the percentage of our gross premiums written produced through brokers decreased to 33% in 2005 (from 52% in 2004), we are still subject to risks associated with business produced 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” in “Item 4. — Information on the Company — A. History and Development of the Company” and in “Item 10. — Additional Information — C. Material Contracts”, 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 expenses arising out of the September 11th terrorist attacks at US$ 289.2 million, the amount of loss and loss 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 certain assets under the terms of our indenture relating to the US$ 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 condition, results of operations or cash flows. See “Item 4. – Information on the Company – B. Business Overview – Regulation – European Union Directives”.

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 Dammstrasse 19, CH-6301 Zug, Switzerland and our telephone number is +41 44 639 9335.

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 Form 20-F 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 US$ 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 US$ 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 US$ 140 million was used by Converium AG to acquire residential and commercial rental properties located in Switzerland from subsidiaries of Zurich Financial Services

For a description of the agreements and transactions involved in the Formation Transactions and our divestiture from Zurich Financial Services, including certain ongoing contractual arrangements with Zurich Financial Services, see “Item 10. — Additional Information — C. Material Contracts”.

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, management, 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 and reinsurance policies in conjunction with selected cases, currently comprising of our business relating to 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 Underwriting Ltd is a Lloyd’s corporate capital vehicle that was incorporated for unlimited duration in the United Kingdom on October 1, 2001. It was acquired by Converium AG on October 10, 2002 and sold to Converium Holdings (UK) Ltd on December 31, 2002. Converium Underwriting Limited participates as a corporate capital provider to syndicates underwriting at Lloyd’s of London, ceding 100% of the business written under a quota share arrangement to Converium AG. It has authorized share capital of GBP 2 divided into 2 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 contributed the rights to commercially exploit the Converium brand to Converium Finance (Bermuda) Ltd, which in turn sold the rights to commercially exploit the Converium brand in exchange for a loan to Converium IP Management Ltd. Converium IP Management AG, Bermuda, entered into a license agreement allowing it 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. During 2005, we subsequently transferred the domicile of Converium IP Management Ltd to Zug, Switzerland.

B. BUSINESS OVERVIEW

Overview

We are an international reinsurer whose business operations are recognized for innovation, professionalism and service. In terms of geographical markets we focus on Europe, Asia-Pacific and the Middle East. We pursue this strategy as a multi-line writer offering all major lines of business, with a focus on global specialty lines. In addition, we underwrite and manage US originated business through Converium AG, Zurich, with a focus on shorter-tail lines. We actively seek to develop efficient and effective 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 maintain and develop multiple distribution channels, including strategic partnerships and joint ventures.

We offer a broad range of non-life and life reinsurance products. In non-life reinsurance, our lines of business 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. In Life & Health Reinsurance, our lines of business include Life & Disability reinsurance and Accident & 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 addition, we generate business through strategic partnerships and joint ventures such as GAUM and MDU. In 2005, 33% of our gross premiums written were written through intermediaries and 67% were written on a direct basis.

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 written through CINA. 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.

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 responsive organization.

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; and
•		a fulfilling work environment for our employees.

Our Strategy

Converium’s franchise proved stable and resilient during the January 1, 2006 renewal period. This success underlines market appetite for a mid-sized, independent and financially strong reinsurer, especially in view of accelerating industry consolidation and supports the decision to continue as a stand-alone entity delivering consistency and continuity under its existing business model, i.e. as an international multi-line reinsurer with geographic emphasis on Europe, Asia-Pacific, and the Middle East, and a focus on global specialty lines. Current strengths arising from recent strategic positioning and development include the successful establishment and fostering of direct client relationships in Continental Europe and elsewhere. In addition, in the January 2006 renewals Converium was successful in increasing the number of client relationships generated through brokers. Further, 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 as demonstrated during two year-end renewals as a BBB+/B++ rated reinsurer.

Looking ahead

Despite the strength of Converium’s strategic business model, changes lie ahead. Whilst the Company focuses on profitable organic growth as an international multi-line reinsurer, Converium will make investments in specialty lines where we believe to have a comparative advantage. The Company will continue to broaden and adjust its client base to concentrate on partnership-focused professional reinsurance buyers within client segments dependent on reinsurance. Notwithstanding this focus Converium will also pursue business opportunities with multinational ceding companies at attractive terms and conditions. Converium’s client marketing and targeting approach is supported by our knowledge-based value proposition, built around comprehensive client services such as underwriting support and financial and natural-hazard modeling. Geographically, Converium will maintain its underwriting focus on clients located in Europe, Asia-Pacific and the Middle East. The Company will continue to serve North American customers selectively from Zurich, following the decision to place CRNA into orderly run-off, which will continue to be accompanied by an active and so far successful commutation strategy. Converium will continue to serve and develop clients that will benefit from its strong capitalization following the 2004 rights offering and the operating stabilization achieved during 2005. As part of the Company’s commitment to develop multiple distribution channels, Converium’s existing targeting of strategic partnerships and joint ventures will continue, especially for rating-sensitive specialty lines underwriting. Although 2005 was another challenging year for Converium, the validity of its strategic path outside the United States has been endorsed. Against this backdrop, in June 2006, the Board of Directors has confirmed Converium’s current business model, with a clear line-of-business and geographical focus, an emphasis on expertise and service and a rigorous technical approach. On this basis, we aim to complete our turn-around and to achieve a sustainable rebound.

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 segment strategy focuses on partnership-oriented professional reinsurance buyers in the markets Europe, Latin America and Asia. 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. and our participation in GAUM, as well as many strong relationships with specialized mono-line insurers.

Also, Converium Underwriting Ltd, a Lloyd’s Corporate Member, has successfully provided and continues to provide 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 & Disability and Accident & Health lines of business. The Life & Health Reinsurance segment’s strategy is to increase the stability of Converium’s income. Traditional life reinsurance 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 Denmark and the Netherlands.

The business segments are supported by global business support functions such as Actuarial & Risk Management Services, and by global services such as Human Resources, Finance and IT.

Run-Off

The Run-Off segment was established in the first quarter of 2005 to handle all business, both life and non-life, originating from CRNA and CINA, excluding the US originated aviation business written through CINA. Although it is not part of our core business, the success of the Run-Off segment is vital to the implementation of Converium’s overall strategy.

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 pre-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 portfolio 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.

•

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 group-wide basis, through global risk pooling and the use of retrocession on specific line of business exposures.

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 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. In Life & Health Reinsurance, our lines of business include Life & Disability reinsurance and Accident & Health.

In addition to our offices in Cologne, New York, Zug and Zurich, we have branch offices in Bermuda, Labuan, Milan, Paris, Singapore, Sydney and Toronto, as well as marketing offices in Buenos Aires, Kuala Lumpur, 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 Zug, Switzerland and a licensed reinsurance company, Guernsey, facilitating intra-group reinsurance within Converium.

During 2005 our business was 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 written through CINA. The business segments are supported by global business support functions such as Actuarial & Risk Management 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.

The table below presents, by segment, the distribution of our premiums written and segment income (loss) for the years ended December 31, 2005, 2004 and 2003. For additional information regarding the results of our operating segments, see “Item 5– Operating and Financial Review and Prospects – A. Operating Results” and the Schedule of Segment Data on pages F-7 and F-8 of the financial statements.

		Gross premiums written												Net premiums written												Segment income (loss)
		(US$ millions)												(US$ millions)												(US$ millions)
For the year ended December 31		2005				2004				2003				2005				2004				2003				2005				2004				2003
Business Segment:
Standard Property & Casualty Reinsurance			803.1				1,509.1				1,438.6				739.0				1,377.5				1,299.9				46.7				91.5				209.8
Specialty Lines			833.1				1,655.3				1,325.0				737.7				1,565.3				1,119.0				109.5				-7.3				159.6
Life & Health Reinsurance			318.8				327.9				280.7				306.4				313.2				254.5				17.6				16.7				-69.1
Run-Off			39.3				486.4				1,256.1				32.6				470.1				1,249.3				47.6				-296.0				-40.0
Corporate Center			—				—				—				—				—				—				-50.1				-38.2				-34.3
Total			1,994.3				3,978.7				4,300.4				1,815.7				3,726.1				3,922.7				171.3				-233.3				226.0
Other (loss) income																											-13.4				-8.2				17.5
Interest expense																											-31.6				-33.1				-31.0
Impairment of goodwill																											—				-94.0				—
Amortization of intangible assets																											-21.5				-9.9				-1.8
Restructuring costs																											-20.5				-2.7				—
Income tax expense																											-15.6				-201.3				-32.8
Net income (loss)																											68.7				-582.5				177.9

Premium accruals are impacted if and when cedents report premium adjustments over time as the underlying exposure becomes increasingly certain. The impact is positive, i.e., accruals increase, if the cedent has assumed a higher exposure and hence higher premium than expected at policy inception. It is typically negative if estimated premiums for the assumed exposure turn out to be lower, leading to a reduction in accruals. The process of adjusting premium accruals varies greatly because cedents in many countries around the world apply local practices for, among other things, the recording of exposure, financial reporting as well as reporting to third parties (such as their reinsurers) and the timing of recording final premiums. In addition, accruals can be impacted by contracts cancelled under special termination clauses, leading to a reduction in premium accruals.

As discussed further in the segment discussions contained within “Item 5. — Operating and Financial Review and Prospects – A. Operating Results — Results of Operations by Operating Segment”, our 2005 gross premiums written and associated changes in premium accruals have been impacted by a number of factors including cancellations following our ratings downgrade in 2004, resulting reduced shares in 2005 on existing business, together with the impact of placing CRNA into orderly run off.

The table below presents the geographic distribution of our gross premiums written for the years ended December 31, 2005, 2004 and 2003, based on the location of the ceding companies.

		For the year ended December 31,
		2005								2004								2003
		(US$ millions)				% of total				(US$ millions)				% of total				(US$ millions)				% of total
United Kingdom*			481.0				24.1				1,160.8				29.2				1,188.0				27.6
Germany			395.0				19.8				389.6				9.8				286.9				6.7
France			86.1				4.3				158.2				4.0				160.4				3.7
Italy			107.1				5.4				162.3				4.1				131.2				3.1
Rest of Europe			251.4				12.6				379.8				9.5				338.9				7.9
Far East			132.1				6.6				238.5				6.0				266.4				6.2
Near and Middle East			103.1				5.2				124.3				3.1				134.3				3.1
North America			346.0				17.4				1,235.2				31.0				1,642.6				38.2
Latin America			92.5				4.6				130.0				3.3				151.7				3.5
Total			1,994.3				100.0				3,978.7				100.0				4,300.4				100.0

During 2005 additional information became available as to the geographic location of the ceding company of certain business written through the London market which is reflected in the 2005 numbers above. Comparable data for 2004 and 2003 is not available. This London Market business generated gross premiums written of US$ 141.4 million and US$ 176.5 million in 2004 and 2003 respectively, which is entirely categorized as United Kingdom business for those years.

The table below presents the distribution of our net premiums written and net premiums earned by line of business for the ongoing non-life business segments and the Life & Health Reinsurance segment and in total for the Run-Off segment for the years ended December 31, 2005, 2004 and 2003.

		For the year ended December 31,
		2005								2004								2003
		Net				Net				Net				Net				Net				Net
		premiums				premiums				premiums				premiums				premiums				premiums
(US$ millions)		written				earned				written				earned				written				earned
Standard Property & Casualty Reinsurance
General Third Party Liability			146.7				204.1				379.1				348.1				323.5				336.9
Motor			188.4				256.8				437.4				450.8				356.1				352.5
Personal Accident (assumed from non-life insurers)			13.3				14.3				34.5				43.8				35.3				34.4
Property			390.6				405.6				526.5				549.6				585.0				561.4
Total Standard Property & Casualty Reinsurance			739.0				880.8				1377.5				1,392.3				1,299.9				1,285.2
Specialty Lines
Agribusiness			36.7				28.9				11.4				15.5				7.8				3.9
Aviation & Space			241.8				352.4				404.5				327.3				354.7				325.2
Credit & Surety			58.4				168.2				204.3				177.9				195.6				174.3
Engineering			65.5				88.7				112.2				117.3				139.9				133.8
Marine & Energy			64.0				71.7				82.5				85.1				83.2				81.6
Professional Liability and other Special Liability			282.8				295.6				436.5				410.6				301.9				286.7
Workers’ Compensation			-11.5				53.7				313.9				253.9				35.9				32.6
Total Specialty Lines			737.7				1,059.2				1,565.3				1,387.6				1,119.0				1,038.1
Total ongoing non-life reinsurance			1,476.7				1,940.0				2,942.8				2,779.9				2,418.9				2,323.3
Life & Health Reinsurance
Life & Disability			235.2				240.7				234.9				239.7				172.8				178.2
Accident & Health			71.2				74.1				78.3				79.0				81.7				82.6
Total Life & Health Reinsurance			306.4				314.8				313.2				318.7				254.5				260.8
Run-Off			32.6				128.4				470.1				783.6				1,249.3				1,183.7
Total			1,815.7				2,383.2				3,726.1				3,882.2				3,922.7				3,767.8

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 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. 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.

The table below presents the distribution of our gross premiums written by type of reinsurance for the years ended December 31, 2005, 2004 and 2003.

		For the year ended December 31,
		2005								2004								2003
		(US$ millions)				% of total				(US$ millions)				% of total				(US$ millions)				% of total
Proportional			1,374.7				68.9				3,388.5				85.2				3,125.4				72.7
Non-proportional			619.6				31.1				590.2				14.8				1,175.0				27.3
Total			1,994.3				100.0				3,978.7				100.0				4,300.4				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 condition. 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 business is contained within our Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance segments. Whether working directly with the client or through a broker , our structured/finite business focuses on developing client-specific solutions after spending time with the client to understand its business needs. These client-specific solutions include such products as loss portfolio transfers and adverse loss development covers. Loss portfolio transfers involve the transfer of liability of discontinued or expired insurance programs from one company to another company for a fee. Coverage under adverse development covers is provided on an excess basis and amounts of indemnification are generally subject to specific aggregate limits.

Structured/finite products have several features that differ from traditional reinsurance products and may typically include (i) premium refunds based on actual loss experience; (ii) loss sharing provisions; (iii) additional premiums based on actual loss experience, (iv) sliding scale commission rates, (v) non-refundable reinsurer’s margins; and (vi) underwriting terms that limit the maximum aggregate exposure. Structured/finite business is classified as proportional or non-proportional, depending on its characteristics.

Structured/finite reinsurance markets are generally ratings-sensitive. Since our ratings downgrades in 2004, we have seen written premium volume reduce significantly in this area of business.

Non-Life Operations

Overview

We operate our ongoing non-life reinsurance business through our two ongoing non-life segments: Standard Property & Casualty Reinsurance and Specialty Lines. Our ongoing non-life operations had gross premiums written of US$ 1,636.2 million for the year ended December 31, 2005, representing 82.1% of our total gross premiums written.

The following table sets forth our ongoing non-life reinsurance gross premiums written, net premiums written and net premiums earned by type of business for the years ended December 31, 2005, 2004 and 2003:

		For the year ended December 31,
		2005												2004												2003
		Gross				Net				Net				Gross				Net				Net				Gross				Net				Net
		premiums				premiums				premiums				premiums				premiums				premiums				premiums				premiums				premiums
(US$ millions)		written				written				earned				written				written				earned				written				written				earned
Proportional			1,017.8				927.0				1,362.3				2,749.1				2,601.1				2,451.0				2,106.9				1,898.4				1,802.9
Non-Proportional			618.4				549.7				577.7				415.3				341.7				328.9				656.7				520.5				520.4
Total ongoing non-life			1,636.2				1,476.7				1,940.0				3,164.4				2,942.8				2,779.9				2,763.6				2,418.9				2,323.3

The table below presents the loss, acquisition costs and combined ratios of our ongoing non-life reinsurance business both by line of business and type of reinsurance for the years ended December 31, 2005, 2004 and 2003. This table represents an aggregation of line of business ratios for our two ongoing non-life segments. Subsequent tables present ratios for each ongoing 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
		For the year ended December 31,
						2005												2004												2003
		Loss				Acq costs				Combined				Loss				Acq costs				Combined				Loss				Acq costs				Combined
		ratio				ratio				ratio (1)				ratio				ratio				ratio (1)				ratio				ratio				ratio (1)
General Third Party Liability			91.4	%			13.7	%			105.1	%			67.1	%			30.0	%			97.1	%			64.1	%			22.4	%			86.5	%
Motor			96.4	%			16.1	%			112.5	%			103.7	%			17.9	%			121.6	%			89.0	%			15.4	%			104.5	%
Personal Accident (assumed from non-life insurers)			27.3	%			25.9	%			53.1	%			54.1	%			38.4	%			92.5	%			68.4	%			21.2	%			89.6	%
Property			71.8	%			26.7	%			98.5	%			50.6	%			27.6	%			78.2	%			50.8	%			23.0	%			73.9	%
Agribusiness			78.9	%			17.3	%			96.2	%			94.8	%			21.9	%			116.8	%			61.5	%			12.8	%			74.4	%
Aviation & Space			60.9	%			26.5	%			87.3	%			53.7	%			24.5	%			78.2	%			45.4	%			14.9	%			60.4	%
Credit & Surety			59.2	%			34.3	%			93.5	%			50.2	%			30.0	%			80.1	%			73.1	%			32.0	%			105.1	%
Engineering			71.4	%			31.3	%			102.7	%			76.6	%			25.5	%			102.1	%			64.8	%			29.7	%			94.5	%
Marine & Energy			81.3	%			25.8	%			107.1	%			92.0	%			20.7	%			112.7	%			76.0	%			12.5	%			88.5	%
Professional Liability and other Special Liability			89.5	%			17.3	%			106.8	%			112.3	%			19.8	%			132.1	%			77.4	%			30.6	%			108.0	%
Workers’ Compensation			91.8	%			20.1	%			111.9	%			96.8	%			24.5	%			121.3	%			199.4	%			-45.1	%			154.3	%
Total ongoing non-life			77.4	%			22.9	%			100.4	%			77.6	%			24.5	%			102.1	%			66.8	%			21.3	%			88.1	%
Proportional			67.3	%			26.6	%			93.9	%			74.6	%			25.9	%			100.5	%			68.1	%			23.4	%			91.5	%
Non-Proportional			101.2	%			14.4	%			115.7	%			100.3	%			14.1	%			114.4	%			62.4	%			13.9	%			76.3	%
Total ongoing non-life			77.4	%			22.9	%			100.4	%			77.6	%			24.5	%			102.1	%			66.8	%			21.3	%			88.1	%

For an explanation of ratio calculations, please refer to the Schedule of Segment Data on pages F-7 and F-8 of our 2005 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 was redefined following the rating agencies’ downgrading in the second half of 2004 and now focuses on partnership-oriented professional reinsurance buyers in the markets Europe, Latin America and Asia. 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.

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 gross and net premiums written and net premium earned by our Standard Property & Casualty Reinsurance segment for the years ended December 31, 2005, 2004 and 2003.

		For the year ended December 31,
						2005												2004												2003
		Gross				Net				Net				Gross				Net				Net				Gross				Net				Net
		premiums				premiums				premiums				premiums				premiums				premiums				premiums				premiums				premiums
(US$ millions)		written				written				earned				written				written				earned				written				written				earned
Standard Property & Casualty Reinsurance:
General Third Party Liability			184.2				146.7				204.1				404.7				379.1				348.1				361.5				323.5				336.9
Motor			188.9				188.4				256.8				472.0				437.4				450.8				386.7				356.1				352.5
Personal Accident
(assumed from non-life insurers)			13.3				13.3				14.3				33.8				34.5				43.8				38.1				35.3				34.4
Property			416.7				390.6				405.6				598.6				526.5				549.6				652.3				585.0				561.4
Total Standard Property & Casualty Reinsurance			803.1				739.0				880.8				1,509.1				1,377.5				1,392.3				1,438.6				1,299.9				1,285.2
Proportional			427.2				390.8				524.3				1,186.6				1,102.5				1,133.7				939.3				879.9				864.8
Non-Proportional			375.9				348.2				356.5				322.5				275.0				258.6				499.3				420.0				420.4
Total Standard Property & Casualty Reinsurance			803.1				739.0				880.8				1,509.1				1,377.5				1,392.3				1,438.6				1,299.9				1,285.2