Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the period ending December 31, 2004

CONVERIUM HOLDING AG
(Translation of registrant’s name into English)

Baarerstrasse 8
CH-6300 Zug
Switzerland
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F þ                     Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o                     No þ

If “Yes” is marked, indicate the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
Not Applicable

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CONVERIUM HOLDING AG

Date: March 4, 2005

Annual Report 2004

Shareholders’ Meeting

The Annual General Meeting 2005 is to be held at 10:30 a.m. local time on Tuesday, April 12, 2005 at the Casino in Zug, Switzerland.

First listed December 11, 2001 on the SWX Swiss Exchange and on the New York Stock Exchange.

Converium publishes quarterly, half-year and annual reports. Shareholders and others can gain access to reporting and other information about Converium at www.converium.com, or by contacting:

Zuzana Drozd, Head of Investor Relations
Converium AG, General Guisan-Quai 26
P. O. Box, 8022 Zurich, Switzerland
Phone +41 1 639 9120
E-mail zuzana.drozd@converium.com

Esther Gerster, Head of Public Relations
Converium AG, General Guisan-Quai 26
P. O. Box, 8022 Zurich, Switzerland
Phone +41 1 639 9022
E-mail esther.gerster@converium.com

Business profile

Financial highlights

Actual non-life combined ratio

Contents

Letter from the Chairman

Dear shareholders,

When I wrote to you in Converium’s 2003 Annual Report, I had every reason to believe that 2004 would be another successful year for our Company. Today I write with the clear realization that this was not the case. I share your unhappiness and disappointment in the results we report in the pages that follow.

Last year I wrote that even the best-made plans can be shaken, especially for companies in the risk business. At that time my colleagues on the Board and I had no indications that Converium’s reserve position would be challenged by the unexpected. The assessments during the course of 2003 gave us reason to believe that our reserves were adequate overall.

As you know, a material deficiency in the casualty provisions of Converium’s US subsidiary developed during the second quarter of 2004. The shortfall was mainly the result of a higher than modeled US casualty loss emergence, primarily related to the underwriting years 1997 to 2001.

Concerted and comprehensive reaction

Your Board responded swiftly and decisively. We chose to cease underwriting business in our US subsidiaries, to place our reinsurance operations there into run-off, and in future to write selective US business in Zurich. Although the US generates the largest premium volume of any country in the world, underwriting results there have generally been unsatisfactory from our perspective. In contrast, much of our business outside the United States – and especially that written in recent years – has proven both profitable and resilient. Your Board has decided to focus Converium’s capital and talent on reinsurance acceptances in more rewarding areas of business.

I have always indicated that, as a Board, we would be closely involved in the activities of your Company. We increased our oversight in 2004, as well as our interaction with Converium’s management. To strengthen day-to-day cooperation and communication between your Board and senior executives, Terry G. Clarke was appointed Managing Director with a view to working actively with management in order to enhance the effectiveness of strategic and operational decision-making and to ensure that the Board and management are working in concert. Following Dirk Lohmann’s departure on February 23, 2005, Terry G. Clarke stepped back as Managing Director and has since assumed the position of Chief Executive Officer.

While I am sincerely dissatisfied and disappointed by the blows inflicted on Converium by its past, I am not disillusioned about its present, or disheartened over its future. You have expressed trust in your Company by approving a US$ 420 million rights issue at the Extraordinary General Meeting that was held on September 28, 2004, and we will do the utmost to meet your trust. Converium has many strengths on which to trade forward. Not least of these is the operational and underwriting strategy developed since 2001. Having taken the decision to withdraw from underwriting through US subsidiaries and adjust the local corporate governance structure, I believe that our existing strategy remains sound in the current environment.

Many clients have expressed their confidence in Converium by continuing to do business with us. This gives me personal confidence in the inherent value of our organization. These clients have cleared up a great uncertainty which loomed over Converium in 2004: we have indeed been able to maintain our franchise. Our performance during the important renewal season of January 1, 2005 was in line with our expectations and targets. From the financial standpoint, as per the end of 2004, Converium’s tangible equity was US$ 1.6 billion, about the same as it was in early 2003. We now have a very strong capital base on which to rebuild, especially in view of our reduced premium volume.

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That said, I do not wish to deny the seriousness of the events of 2004, nor to refute the challenges which lie ahead. Without doubt, some clients’ confidence in your Company has been eroded, especially in intermediated markets. We must now set aside our aspiration to rank among the largest reinsurers and focus instead on our new goals as a profitable medium-sized company.

Securing the future

In a business where capital entry is easy and much of the product is undifferentiated, we possess a proven resource to provide value-added services. Our current strategy has proven robust: Specialty Lines underwriting, long-term joint ventures, and our relationships with specialist syndicates at Lloyd’s have insulated Converium from some of the pressures arising from the fall in our financial strength ratings.

Ratings are critical in aviation, but Converium has drawn upon the support of its partners in the Global Aerospace Underwriting Managers Ltd. (GAUM) pool, to sustain our access to this preferred portfolio of aviation risk. Repositioning our life reinsurance segment to focus on new business in Continental Europe has provided a steady revenue stream. In total these strategic business undertakings, implemented since the Initial Public Offering (IPO) in 2001, yield approximately US$ 800 million in annual premium income. They provide a foundation on which to restore Converium’s market position.

Similarly, the strength of the direct business relationships built by our Client Relationship Managers has proven to be enormously beneficial in preserving our franchise. Although we have suffered certain business losses as a direct result of rating actions, Converium continues to receive strong support from many client segments. This is due in part to the value placed upon our technical skills, and on our expertise in specialist areas such as credit and surety, asset liability management, and natural catastrophe hazard modeling. This strong client support is also a clear benefit of increased client contact, whether initiated by Converium or facilitated by intermediaries.

Reputational damage cannot instantly be reversed. However, I believe that Converium’s excellent standing can be restored. The process has begun with your Board’s effort to regain your confidence in Converium. It is mirrored by the ongoing work of everyone within your organization to bolster the support of our current, former and future clients. Critically, it includes our ongoing efforts to retain the trust of Converium employees. Although, painful as it may be, our repositioning entails staff reductions worldwide, in order to decrease our cost base. These regrettable necessities are already underway.

I am personally confident that we have the resources and the will to continue to strengthen Converium’s franchise and to garner the renewed faith of rating agencies. As always, creation of shareholder value is the fundamental driver of your Board’s decision-making. We have always worked to build a modern, sophisticated reinsurance company engineered to create value. Clearly 2004 did not accomplish this, but following the successful rights issue and strategic repositioning, I believe that Converium is leaner and more focussed today.

Some thanks

I am very pleased to welcome Paul Dassenko as President and CEO of Converium Reinsurance (North America) Inc. His extensive run-off experience and strong leadership skills will prove invaluable to Converium’s shareholders and clients alike. Dirk Lohmann and Martin Kauer have left their posts as Chief Executive Officer and Chief Financial Officer, respectively. They were great contributors to the Company, and their commitment was critical for its establishment and for the successful IPO. The Board of Directors wishes both of them all the best for the future.

I would like to express my thanks to all shareholders, both new and long-term, for continuing to share my confidence in Converium. I would also like to thank our clients for their ongoing trust. Lastly, I wish to thank management and staff for standing by us through the crisis of 2004. I am thoroughly aware that the past year has been a very dramatic and trying one, but the Board and I look forward to cooperating with you to return Converium to a successful track.

Sincerely,

Peter C. Colombo
Chairman of the Board of Directors

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Review 2004 and outlook 2005

Reinsurance industry overview

Reinsurers continued to benefit from a positive trading environment in 2004. Although the industry’s pricing cycle turned downwards in many lines of business, discipline was maintained overall. Despite some relaxation, premium rates and reinsurance terms and conditions were mainly adequate to yield economic profits in expectation. Global investment markets remained stable, but at relatively low levels of return, forcing underwriters to keep focussed on technical profits.

Trends established in 2003 continued in most lines and markets during the course of 2004, with further slight reductions in prices for standard property reinsurance, for example, and more significant easing of rates and conditions for underlying property cover, especially for large and prominent risks. Motor quota share pricing and conditions were mostly flat, but eased slightly in the UK. In contrast, market prices increased somewhat for European motor excess of loss treaties, in response to developing claims trends, especially in France.

Although the aviation reinsurance market remained steady, price declines continued for many insurance products, with rates slipping up to 10–15% for airline policies. In contrast, pricing of product liability for aviation risks increased while general aviation insurance stabilized after a period of rising prices. Terms and conditions for most specialty and liability reinsurances were maintained, even as underlying insurance prices eased further in some areas. Competition over specialty lines primary insurance risks, especially long-tail risks such as directors’ & officers’, increased during the year despite the frequency and severity of claims activity in the first five years of the decade. Meanwhile, US federal asbestos- and tort-reform initiatives were interrupted by presidential politics.

Despite generally flat pricing, the loss environment for both insurers and reinsurers changed dramatically in 2004. Although the commercial aviation sector saw one of the lowest loss years on record, continuing a trend, a number of dramatic natural catastrophes struck around the world in the third and fourth quarters. These included a series of landfalling hurricanes in the southern part of the United States and the Caribbean, an unusually high number of storms affecting Japan, and the tragic and devastating tsunami wave which developed following an earthquake in the Indian Ocean on December 26, 2004.

Assumptions about event frequency and multinational exposure have been challenged by these events, which in combination made 2004 the most costly ever in terms of natural catastrophes. However, the cost to the reinsurance market fell well within most companies’ expectations. The year’s high level of natural catastrophe losses halted or eased the declining trend in catastrophe reinsurance pricing. Although affected contracts typically saw large increases, prices declined in territories which were catastrophe-free, or which have a limited demand for catastrophe reinsurance. The offshore energy market suffered a multi-billion dollar loss arising from damage to offshore facilities caused by hurricane Ivan, halting price declines in that specialist market.

Despite unprecedented natural catastrophes, the year’s loss experience was generally benign. Outside of the energy market which suffered significant risk losses early in the year and again through hurricane Ivan, most lines of business experienced few, if any large shock losses. However, the emergence of prior year losses continued to affect a number of reinsurers’ current income, much of which was related to underwriting during the soft market years of 1997 to 2001. Financial security ratings remained generally stable, following the industry-wide downgrading in 2002 and 2003. In the second half of 2004 Converium dominated industry news on both subjects.

In terms of external influences, 2004 was marked by an investigation into broker remuneration practices, led by New York Attorney General Eliot Spitzer. Increased scrutiny of the manner in which brokerage services are compensated, as well as of finite reinsurance structures and captive insurance, placed the industry in an unfavourable public spotlight. The remuneration practices under question are concentrated in primary insurance, and impact the reinsurance market only to a very limited extent. Finite reinsurance is internationally a widely accepted and used tool to manage underwriting and balance sheet risk at affordable cost. In general, transactions are governed by strict accounting and disclosure rules.

Converium will continue to provide finite reinsurance products, and, as in the past, will work closely with auditors and clients to ensure compliant structures from a regulatory and accounting perspective. Demand for finite products may be diminished, however, due to their somewhat esoteric nature and the perceived negative associations with the use of finite from a publicity and disclosure point of view.

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Converium’s 2004 performance

Converium began 2004 with a very strong renewal in an attractive pricing environment, but the unexpected reserve development emerging mid year had an obvious negative impact. Gross written premiums of the Standard Property & Casualty Reinsurance segment decreased by 9.9%, despite strong growth in Continental European markets early in the year. These early gains were offset by the run-off of Converium’s US reinsurance operations in the second half, by cancellations following rating downgrades, and by Converium’s selective reduction of exposures such as UK motor quota share and Japanese windstorm excess of loss due to falling prices.

A similar combination of growth and limitation factors affected premium income for Converium’s Specialty Lines segment, which recorded an overall decrease in gross written premium of 12.1%. Converium maintained its participation in the Global Aerospace Underwriting Managers Ltd. (GAUM) pool through fronting arrangements, although in the face of declining market rates GAUM chose not to renew the insurance programs of several high-profile international airlines, continuing the strict underwriting approach it adopted in the fourth quarter of 2003, when prices began to decline.

Following a restructuring in 2003, the Life & Health Reinsurance segment achieved strong growth in Europe, a result of intensive investment in customer servicing capabilities in Germany, France and Italy. Growth continued into 2005, as the segment increased its underwriting with existing clients and managed to attract new clients. Overall, Converium achieved strong underwriting results from business underwritten in 2004, as its technical approach to pricing and risk diversification continued to deliver profitable returns on risk-adjusted capital.

Solvency and capitalization

Converium is very well capitalized. Despite the events that rocked the Company in 2004, it finished the year with tangible equity* of US$ 1.6 billion, after the October rights issue re-established shareholders’ funds. Although Converium’s rights issue restored the Company’s tangible equity, the rating we were awarded by both major rating agencies was somewhat lower than our models would suggest. This is the consequence of reserving volatility in recent years and uncertainty with respect to Converium’s ability to maintain its franchise in the targeted markets. Converium has targeted the achievement of improved financial strength ratings within a reasonable timeframe, to reflect its true capital position.

Converium’s discussions with both major rating agencies will stress the progress and efforts to reinforce the financial strength of the various legal entities going forward. Given the concerns by customers and intermediaries regarding reinsurance security they are looking much more closely at the fundamentals of Converium’s balance sheet, in order to make their own assessment of the true financial strength of their counterparty. In many cases Converium was judged to be financially secure despite its current rating, as demonstrated by the achievement of the Company’s January 2005 renewal targets.

Outlook 2005

Converium succeeded in meeting its targets for the January 1, 2005 renewal, which represents a significant proportion of its total business. A large share of clients showed strong support, particularly those in Continental Europe and the Middle East. Nonetheless, the Company has begun the year significantly changed. Only small volumes of US business are expected to be underwritten from Converium’s Zurich headquarters, and rating-sensitive buyers and intermediaries in markets such as the UK and Australia (where the insurance supervisor mandates a minimum acceptable security rating) are unlikely to return to Converium until a rating upgrade has been achieved. In other markets Converium was able to maintain most relationships, albeit in many instances with reduced shares. While the initial impact is a reduction in premium written, it is encouraging to see that many clients “left the door open” to Converium and clearly signalled that a return to our former position in their reinsurance panel was a real possibility following an eventual upgrade in our rating.

Although ratings are an important selection criteria for all clients, Converium achieved a satisfactory renewal in markets where Client Relationship Managers have unrestricted access to customers. In many instances the level of service clients have received from Converium was an important factor in their decision to renew, as was their desire to continue to have a medium-sized, independent reinsurer such as Converium as part of their overall panel of reinsurers. As for the renewed business itself, terms and conditions were relatively stable. Underwriting standards were not relaxed, with the exception of the pricing formula which was modified to reflect our changed tax situation. Overall our target returns, although somewhat lower than in the peak of the hard cycle, remain in excess of our long-term return objectives as

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Converium’s focus remains on improved risk diversification and reduced economic risk.

In the wider market, competition is increasing in most lines, and the trend towards price reductions continues. So far the market has remained disciplined in the main, but capital increases continued throughout 2004, as the reinsurance industry completed its recapitalization and grew stronger in terms of its capital base than it was before the losses of September 11, 2001 (source: Benfield). Insurance prices for some large property, specialty liability, and airline exposures are likely to continue to decline, and catastrophe reinsurance prices have resumed a slight downward course where no losses have occurred, as capacity remains abundant for most exposures.

In other lines, including European motor, small enterprise property, and many liability exposures, rates remained stable or increased upon renewal and are likely to remain satisfactory over the course of the year. As a result, in the absence of major catastrophic events the market as a whole is on track to achieve satisfactory profitability in 2005. Converium expects to deliver another profitable underwriting year, as its technical and disciplined approach is steadfastly enforced. In the autumn of 2004 we expected our non-US premium volume for the underwriting year 2005 to be reduced by up to 40% compared to 2004. All indications to date suggest that the Company will achieve those revenue goals, without sacrificing underwriting integrity and the maxim of profit over top-line performance.

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Strategy

Early in 2004 Converium adopted a comprehensive corporate strategy intended to build on its accomplishments since the Company was formed in 2001. Later in the year the Global Executive Committee was forced to adjust the business model in response to developments which led to the decision to cease underwriting in North America, and to the downgrading by Standard & Poor’s and A.M. Best Company of Converium AG’s insurer financial strength rating to BBB+ and B++, respectively.

In contrast, key elements of Converium’s post-IPO strategy have proven both profitable and tactically sound. Business underwritten outside the United States since the IPO has met or exceeded financial targets based on current estimates. Converium’s strategic decisions since its independence have reinforced its ability to withstand the legacy-related challenges of the year in review.

Converium continued to attract business in targeted lines and regions during the January 1, 2005 renewals. This success underlines market appetite for a mid-sized, independent reinsurer, and justifies shareholders’ decision at the Extraordinary General Meeting in late September 2004 to support Converium as a stand-alone entity delivering consistency and continuity under its existing business model.

Current strengths arising from recent strategic positioning and development include the decision to continue to build direct client relationships in Continental Europe and elsewhere. In general, such relationships have proven more enduring than broker channels in the current business environment. In the specific case of Converium’s contract renewals for January 1, 2005, the greatest business continuity achievements were made among clients with which Converium has direct personal relationships at all levels, with or without the involvement of intermediaries.

In addition, the strategic diversification of Converium’s income streams has created a more robust organization by gaining access to business at its source. These steps include the development of joint ventures such as that with the Medical Defence Union in the United Kingdom, participation in Global Aerospace Underwriting Managers Ltd., and the formation of Converium’s Corporate Name at Lloyd’s to support clients operating in that market by providing capital to them directly.

Other successful strategic initiatives include expansion in the Asia-Pacific region, and refocusing and expanding of Converium’s Life & Health Reinsurance segment in Europe. Strategic decisions to increase activity supported by knowledge-based underwriting in certain specialty lines markets and to maintain a thoroughly technical and profitability-focused approach to all aspects of Converium’s business have also contributed to the Company’s resilience.

Looking ahead

Despite the strength of Converium’s strategic business model, changes lie ahead. The Company will continue to adjust its client base to concentrate on partnership-focussed professional reinsurance buyers within client segments dependent on reinsurance. This move is supported by Converium’s value proposition, built around comprehensive client services such as underwriting support and financial and natural hazard modeling.

Geographically, Converium now focuses its local presence and underwriting on clients located in Europe, Asia-Pacific, and Latin America. The Company will continue to serve North American customers selectively from Zurich, following the decision to place Converium Reinsurance (North America) Inc. into an orderly run-off, which will be accompanied by an active commutation strategy. A restructuring process is now underway to ensure that Converium’s physical presence matches its strategic outlook.

Converium will continue to serve and develop clients that will benefit from its strong capitalization following the 2004 rights issue. Converium’s existing targeting of strategic alliances and joint ventures will continue, especially for rating-sensitive specialty lines underwriting. Although 2004 was a challenging year for Converium, the validity of its incumbent strategic path outside the United States has been clearly endorsed. Converium’s business model will be further enhanced in 2005, with a clear line-of-business and geographical focus, an emphasis on expertise and service, and a rigorous technical approach.

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Risk Management

Risk management practice in the global financial sector has increased in breadth and intensity since Converium was launched in 2001. The subject of risk management has been elevated to a board-level concern for listed companies around the world as corporate governance standards are overhauled, and scrutiny from regulators, supervisors, analysts and shareholders multiplies. The range of risks addressed by financial institutions has become considerably more comprehensive, and their analysis significantly more complex. Procedures now commonly include investigation of the potential interdependence of risk factors and determination of the risk-weighted capital required to support them.

During this time most reinsurance companies have developed comprehensive risk identification, analysis and control procedures, and are in the process of implementing these measures. Converium has been actively developing or extending a comprehensive Enterprise Risk Management (ERM) approach, rather than looking at risks separately and individually.

Risk Management further intensified

Converium advanced its ability to manage risk on an enterprise basis through its October 2003 reorganization into three global business segments based on the types of underwriting risk Converium assumes: Standard Property & Casualty Reinsurance, Specialty Lines, and Life & Health Reinsurance. The new structure replaced the historical geographical division, and allowed Converium to enhance and optimize its Enterprise Risk Management environment by introducing a universal risk management approach which regards the business as a uniform whole.

The reorganization included the creation of the position of the Chief Risk Officer at the Global Executive Committee level. Risk management functions were henceforth carried out according to this new organizational structure. This allowed management to assess and evaluate risks arising from the main annual reinsurance renewal season according to lines of business, rather than geographically.

While no risk management process can be 100% foolproof, Converium believes that its current procedures, incorporating principle-based risk analysis and enhanced in 2004 through the implementation of a dedicated risk reporting function, will create a safety net intended to prevent adverse situations from occuring and will ensure that such situations are identified in a timely manner.

Converium’s reserving policy

To ensure reserving throughout our business departments is consistent and adequate, Converium’s reserving policy has been further enhanced and codified. It comprises the reserving principles which spell out the approach and governance under which the company sets reserves. This comprises guidance as to best practice for developing best estimate indications and reserve ranges reflecting the inherent uncertainty in predicting future loss cost settlements, considerations as to reserve adequacy as well as to the reserving process and feedback loops between various parties to ensure a reliable, transparent and sustainable analysis of reserve levels in a timely manner.

Enterprise Risk Management approach

Converium’s Enterprise Risk Management approach is an integrated, rolling process which is reviewed on a regular basis. Constant risk identification leads on to a formalized risk assessment and prioritization process, including annual risk assessment procedures. Appropriate risk mitigation responses are developed and implemented. Control and monitoring functions lead into a communication process, supported by the dedicated risk reporting function. This communication is fed into Converium’s overall strategy development activities.

This principle-based risk management approach considers each risk in the light of all other risks, ensuring consistency and transparency of standards for risk measurement, control and reporting. The goal of this work, led by the Chief Risk Officer, is to recognize, understand, measure, hedge and mitigate all aspects of risk, actual and potential, that touch the organization.

Remaining risks may be significant, since Converium is in the business of accepting and retaining insurance risk from its clients. Retained risk is effectively balanced by blocks of allocated capital sufficient to ensure the sustainability of the organization while striving to maximize return to shareholders. Investment returns play a role, but they are anticipated and priced into Converium’s products on a risk-free basis and reflect the current low-margin return environment for the long term. Aggregate risks are measured across the Company, and incorporated into both performance analysis and strategic planning.

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Reinsurers, including Converium, also face many of the conventional risks common to all enterprises. These include health and safety risks to the workforce, external risks such as theft and litigation, IT systems risks, and operational risks related to failed processes. In addition, however, reinsurers face a number of unique risks. Dominant among these are liability risks, including underwriting risk (the risk that inadequate reinsurance prices, terms and/or conditions result in premium income that is insufficient on average to offset claims payable to client insurers) and reserving risk (the risk that insufficient funds have been set aside to make future payments for claims incurred from the business underwritten in the past).

Managing and mitigating liability risks

Converium’s practical approach to liability risk management is intended both to ensure that the quantitative characteristics of each liability risk assumed are monitored through setting and controlling of the adherence to pricing and policies and guidelines, and to make certain that the unique aggregate risks which reinsurers can amass are within pre-defined tolerance levels.

Risk mitigation measures include monitoring the industry-wide pricing cycle to help shape an underwriting policy which reflects industry conditions; the implementation of risk diversification strategies and aggregation and accumulation controls; the exercise of strict underwriting policies, guidelines and authorization levels; and retrocession activities including group pooling and the issue of catastrophe bonds. Converium has now implemented the codification of its reserving policy, as described on page 8. The Chief Risk Officer oversees quarterly actuarial assessments of reserve adequacy across all lines of business, and the Chief Financial Officer employs an asset /liability matching strategy which considers duration, interest rates and currencies.

Applying a consistent strategic approach

Converium uses advanced techniques to calculate risk-adjusted capital allocation and return on risk-adjusted capital (RORAC) when pricing risks. The intent is to quantify the uncertainty related to each risk in the context of Converium’s existing portfolio, considering Converium’s overall risk tolerance. In order to measure risk, the frequency and severity of the potential loss event are defined based on stochastic event scenarios and their implications.

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Once the basic model for any given contract is determined, the contract is assessed in the context of Converium’s portfolio. Contracts which improve portfolio diversification are allocated less capital than those that increase risk accumulation, thereby using price setting to improve risk diversification and steer the portfolio. Changes to Converium’s business platform in 2004 will, of course, significantly affect the geographical and asset class diversification previously achieved in the portfolio. However, as the structure of the portfolio for future underwriting years develops, the same diversification strategies and tools will be considered.

Converium’s capital modeling approach also factors in extreme events, often described as ‘the conditional worst case’ or ‘tail value at risk’. Capital is allocated to support the expected shortfall of assets required to cover these extreme events. Meanwhile, the portfolio approach ensures that accumulation of risk from diverse sources does not lead to a greater risk to capital than the amount of capital allocated allows.

Effective catastrophe risk management protection

To protect against a series of large catastrophes, Converium successfully completed a five-year catastrophe bond transaction in June 2004. The facility, Helix 04, takes advantage of capital markets’ appetite for fixed-price catastrophe risk to provide the Company with US$ 100 million in fully collateralized second and subsequent event reinsurance for North Atlantic hurricane, US earthquake, Japanese earthquake and European windstorm property catastrophe exposures.

The implementation of these risk management measures to ensure risk-adequate pricing, portfolio diversification and risk-adjusted capital adequacy have contributed to the current-year underwriting profits achieved across Converium’s reinsurance portfolio since 2002. Our effective approach and comprehensive catastrophe exposure management limited our net losses for the 2004 Atlantic hurricanes, typhoons in Japan and the tsunami in the Indian Ocean to a manageable size. Total natural catastrophe losses in 2004 amounted to US$ 154.5 million, adding 4.8 percentage points to the year’s combined ratio.

Managing and monitoring asset risks

In common with any organization managing a large investment portfolio, Converium also faces asset risks. These include market risks (the potential for losses arising from decreased asset values), credit risks (the potential for losses to arise from third parties failing to fulfill their obligations to Converium) and liquidity risks (the possible inability to fund obligations because assets cannot be used to meet liabilities when they fall due, because of the asset class). Converium employs several strategies to mitigate these risks, including the use of investment and treasury policies and guidelines incorporating a strategic and tactical asset allocation, retrocession security assessment and monitoring measures, and Converium’s sophisticated Asset and Liability Management (ALM) approach.

This ALM process, underpinned by a dynamic financial analysis system designed by in-house experts, drives regular analyses of both the investment and underwriting portfolios. The process identifies potential correlations between entries on either side of Converium’s balance sheet. ALM determines the optimal risk-based capital requirement for asset risks, as well as for underwriting. The Group’s prudent capital allocation model requires that capital, once allocated to liability or asset risk, cannot be used for any other purpose. Thus capital assigned to asset risk cannot be deployed to support assumed underwriting risk. ALM is also used to understand and evaluate changes in capital markets. For example, it is used to calculate the potential impact on Converium’s profit and loss account and balance sheet of specific changes in interest rates.

Dynamic asset management is another critical risk management approach for asset risks. In 2004 Converium has further reduced its exposure to equity investments, and has actively managed its bond portfolio to shorten the duration in anticipation of rising interest rates, which could lead to impairment of bonds.

Converium became more disciplined in 2004, a development which was also supported by the implications of the Sarbanes-Oxley Act, placing higher priorities on processes, controls and governance. Beyond cycle management, Converium intends to develop its risk and ALM models even further, and to enhance the ERM approach constantly.

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Corporate Governance

Organizational structure

Converium is organized into three global business segments: Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance. The lines of business by segment include the following:

Standard Property & Casualty Reinsurance
General Third Party Liability
Motor
Personal Accident (assumed from non-life insurers)
Property

Specialty Lines
Agribusiness
Aviation & Space
Credit & Surety
Engineering
Marine & Energy
Professional Liability and other Special Liability
Workers’ Compensation

Life & Health Reinsurance
Life and Disability
Accident and Health

The three business segments include all lines of business and markets. In addition, Converium has several business support functions which assist the three segments in the underwriting process. They comprise: Actuarial and Risk Modeling Services, Claims, Risk Pooling, Transactional Legal Services, Underwriting Technical Services and Risk Management. Converium also has certain departments, which provide services to all segments and functions globally. These include Finance, Information Technology, Human Resources, Internal Services, Corporate Legal Services, the Strategic Project Office and Corporate Communications and Development. Converium is reorganizing Converium Reinsurance (North America) Inc. (CRNA) in order to ensure an effective and orderly run-off of business under a new management. As at December 31, 2004 Converium had 771 employees worldwide.

Legal structure

Converium Holding AG, a company organized under Swiss law with its domicile in Zug, Switzerland, directly or indirectly owns all Converium companies. Converium Holding AG, with a share capital of CHF 733,447,310, is the only listed company within Converium. Its shares are traded on the SWX Swiss Exchange (ISIN: CH0012997711) and its American Depository Shares (ADSs, ISIN: US21248N1072) are traded on the New York Stock Exchange. The market capitalization as of December 31, 2004 was CHF 1,488,898,039.

Significant non-listed companies

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In December 2002, Converium Finance S.A., a Luxembourg company, issued non-convertible, unsecured, guaranteed subordinated notes with a principal amount of US$ 200 million. The notes, which are listed on the New York Stock Exchange, are irrevocably and unconditionally guaranteed on a subordinated basis by Converium Holding AG and Converium AG.

Significant shareholders

Cross-shareholdings

Capital structure

Ordinary share capital

Conditional and authorized share capital

In addition, the Annual General Meeting resolved to create authorized share capital. Pursuant to Article 3b of the Articles of Incorporation, the Board is authorized, on or before April 27, 2006, to increase the share capital by the issue of up to a maximum of 4,000,000 fully paid-up registered shares of CHF 5 nominal value each, amounting to a maximum of CHF 20,000,000. The subscription rights of the shareholders may be excluded by the Board if the new shares are used for a take-over of a business, parts of a business, or participations, or for the financing of such transactions, or for the enlargement of the shareholder base in connection with the listing of shares on a stock exchange.

Changes in capital

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Shares, other certificates and limitations on transferability

For more details on ownership rights and nominee registration please see page 20 under shareholder participation rights. Converium has neither issued participation, profit sharing nor dividend-right certificates nor has it issued convertible bonds or options/warrants to third parties. Information about Converium’s share options granted to members of the Board of Directors (BoD), the Global Executive Committee (GEC) and employees is contained in the Remuneration section of this document on page 19, and page 85 of the notes to the financial statements.

Some interests in Converium shares are held by investors in the form of ADSs issued by the Bank of New York. One ADS represents the right to receive one half of one Converium share. ADSs are traded on the New York Stock Exchange.

Converium’s Board of Directors

Converium’s global strategy is set by its Board of Directors (BoD), the body with ultimate responsibility for Converium’s policies and management, including investment, treasury, solvency and liquidity policies. The BoD consists of no less than four and no more than nine members. Currently it comprises six. With wide-ranging experience in the reinsurance sector, this group represents an appropriate mix of skills for the effective governance of a major international reinsurance organization. The BoD oversees Converium’s affairs and offers regular directives to the Global Executive Committee. All Board members, except Terry G. Clarke¹ who holds the position of Managing Director and Derrell J. Hendrix who acts for us as a consultant through the RISConsulting Group LLC, are non-executive and independent of management. None of the Board members have ever held an executive position within Converium or any of its subsidiaries. No interlocking directorships exist between the Board members of Converium and board members of any other company.

Members of the Board of Directors

The members of the Board, their dates of birth, nationality and terms of office as at December 31, 2004 were as follows:

Members of the Board of Directors

Curricula Vitae of the Board members

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Georg Mehl served as a consultant for the Wüstenrot & Württembergische Group, Stuttgart, Germany, since 2001 and in addition as a member of the Executive Management Board of Hanse-Marine-Versicherung-AG, Hamburg, Germany, until the end of 2003. Previously, he served in a series of positions with the Württembergische Group, most recently as CEO of Wüstenrot & Württembergische AG. Georg Mehl had worked for almost 30 years for the Allianz Group, Hamburg and Munich, Germany. He is Chairman of the Board of Directors of Sektkellerei Schloss Wachenheim AG, Trier, Germany. Mr Mehl also serves as a member of the supervisory or advisory boards of several German financial services and commercial institutions. He graduated from the German Insurance Academy in Cologne, Germany, in 1961.

Terry G. Clarke was a consulting actuary with the Tillinghast Business of Towers Perrin and a Principal of Towers Perrin. He joined their London office in 1986 and was Managing Principal of Tillinghast’s North America practice prior to retiring at the end of 2001. From 1978 until 1986 Mr Clarke was a member of the Norwich Winterthur Group senior management team. Prior to 1978, he held various positions in the Norwich Union Group. Mr Clarke qualified as a Fellow of the Institute of Actuaries in 1967, and is co-author of several papers on non-life insurance subjects as well as a tutor and examiner. He has been a member of a number of professional committees both in the United Kingdom and in Continental Europe. Mr Clarke served as Converium’s Managing Director, and, since February 24, 2005 serves as Chief Executive Officer of the Company.

Derrell J. Hendrix is the Manager and Chief Executive Officer of The RISConsulting Group LLC, a Boston-based risk management consulting company which he founded in 1996 together with Hannover Rückversicherungs AG (through its US subsidiary, Insurance Corporation of Hannover). Mr Hendrix served from 1995 to 1996 as Managing Director and Head of Derivatives at the Bank of Boston. He began his career at Citibank in 1977, and from 1980 through 1995 he held various department head positions in Citicorp’s banking and investment banking operations in Toronto, Hong Kong and London. Mr Hendrix holds a Master of Arts from the Fletcher School of Law and Diplomacy, Medford, Massachusetts, and a Bachelor of Arts from Amherst College, Amherst, Massachusetts.

George G. C. Parker is the Dean Witter Distinguished Professor of Finance and Management, Graduate School of Business, Stanford University, Stanford, California. From 1993 to 2001, Professor Parker was Senior Associate Dean for Academic Affairs and Director of the MBA Program at Stanford. Professor Parker served as Director for Executive Education, Stanford Business School, between 1979 and 1988, and from 1973 to 1979 he was Director of the Stanford Sloan Program for Executives. He is currently a board member of California Casualty Group of Insurance Companies, San Mateo, California; Continental Airlines Inc., Houston, Texas, and various other US-based companies. He graduated from Haverford College, Pennsylvania, with a degree in economics in 1960, and received an MBA in finance in 1962 and a doctorate in finance in 1967, both from Stanford.

Anton K. Schnyder served as a full professor for private law at the University of Basel, Switzerland, from 1993 to 2003. As of summer term 2003 he has been appointed to Zurich University as a full professor for private and international as well as comparative law. In 1994 he was appointed Vice President and in 2004 President of the Federal Appeal Commission supervising private insurance. From 1987 to 1993, Professor Schnyder served as a corporate legal adviser to the Zurich Insurance Group, and from 1992 as a member of the executive staff. He graduated from Zurich University, Switzerland, in 1978 and received his doctorate degree in 1981, being awarded the Professor-Walther-Hug-Prize for his doctoral thesis. Additionally, he holds a Master of Laws from the University of California, Berkeley. For many years he has been a special adviser to the governments of Switzerland and Liechtenstein for insurance legislation. Currently Professor Schnyder is Chairman of the working party for a revision of the Swiss Insurance Contract Law.

Internal organizational structure of the BoD

The BoD is headed by the Chairman or, in his absence, by the Vice Chairman. It meets as often as circumstances require, but at least four times per year. In 2004 the BoD met six times physically and held 17 further meetings by way of conference calls. The increased number of conference calls was required after the announcement of the reserve strengthening on July 20, 2004, in order to take the necessary measures. Furthermore an ad-hoc committee consisting of Peter C. Colombo as Chairman, Georg Mehl, Terry G. Clarke and Derrell J. Hendrix was formed to prepare decisions by the BoD with respect to the Extraordinary General Meeting in particular. The ad-hoc committee held a total of four conference calls and meetings.

Meetings generally last one day, with Committee meetings preceding Board meetings. Agendas are set by the Chairman or the Chairman of the respective Committee. At each of its meetings the BoD must be informed, through formal reports

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by the Chief Executive Officer (CEO) and the members of the Global Executive Committee (GEC), about the course of the business and the activity of the business segments and the GEC. In case of important business incidents, the BoD must be informed without delay. Furthermore, each Board member receives appropriate information with respect to any matter to be considered by the BoD. For financial reporting purposes, this includes an appropriate quarterly reporting package comprising financial and investment information including consolidated financial accounts of Converium and its business segments.

The Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the General Legal Counsel attend Board meetings on a regular basis. Members of the GEC and other executives attend meetings at the Chairman’s invitation. In addition, Board members meet at regularly scheduled sessions without management. Furthermore, conference calls and meetings between Board members and members of the GEC are held to resolve formal matters or to exchange information.

The BoD performs an annual self-evaluation and sets its objectives based upon this evaluation. Annually it reviews the performance of the CEO and approves his objectives. The Head of Internal Audit reports directly to the Audit Committee, and the Board meets regularly with Converium’s external auditors, and as may be necessary, with outside consultants to review the business, better understand all laws and policies, and support the management in meeting requirements and expectations.

Board Committees

The BoD has four Committees, which meet in conjunction with or prior to Board meetings, as necessary, and regularly report and submit proposals to the BoD. Each Committee has a Chairman who directs the meetings according to a set agenda, and a secretary, currently the General Legal Counsel.

The Nomination Committee comprises at least three Board members and currently comprises four. It appoints and dismisses the Head of Internal Audit and outside directors of Converium companies, unless such appointment or dismissal is required by regulatory law or order, in which case such appointment or dismissal lies in the responsibility of the CEO. The Committee proposes to the BoD the appointment of Board members and the members of its Committees and their Chairmen, the Chairman and Vice Chairman of the BoD and the members of the GEC. It defines and implements procedures for the annual self-evaluation of the BoD’s and the Committees’ performance; for the annual statement of independence of the BoD and disclosure of any conflict of interests and any agreements concluded with Converium or any of its subsidiaries; and for the orientation program for new Board members. Standing invitees are the CEO and the Chief Human Resources Officer. In 2004 the Nomination Committee held four meetings.

The Remuneration Committee comprises at least three Board members and currently comprises four. It sets the compensation levels for the GEC (except the CEO) and the Head of Internal Audit, and proposes to the BoD the overall remuneration for the CEO, for each of the members of the BoD and the Managing Director, as well as the principles of compensation, of incentive schemes, and bonus payments to employees. Standing invitees are the CEO and the Chief Human Resources Officer. In 2004 the Remuneration Committee held five meetings.

The Finance Committee comprises at least three Board members and currently comprises three. It approves external providers of asset management services and capital increases in subsidiaries between US$ 5 million and US$ 20 million. It submits to the Board for its approval the accounting standards framework for Converium, the annual budget and financial plans, investment and treasury policy, solvency and liquidity planning, strategic asset allocation, tax planning, the allocation of expenses to be charged to the Corporate Center, capital increases and the use of contingent or authorized capital, year-end results and dividend policy, as well as exchange listings and de-listings. Standing invitees are the CEO and the CFO. In 2004 the Finance Committee held three meetings.

The Audit Committee comprises the Chairman of the BoD and the Chairmen of the Finance, Nomination and Remuneration Committees. In connection with his appointment to the position of Managing Director, Terry G. Clarke resigned from the Audit Committee and also resigned as the Chairman of the Nomination Committee. The Audit Committee currently only comprises three members because the Chairman of the Remuneration and Nomination Committee is the same person. Only independent and financial literate directors are eligible to serve on the Audit Committee. In order to qualify as independent, a member may not accept any consulting, advisory or compensatory fee from the company. In addition, an Audit Committee member may not be a person affiliated with the company or any of its subsidiaries. The Audit Committee reviews and approves the quarterly financial statements, except year-end results; approves and supervises the implementation of Converium’s Audit Charter, including

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the review of internal control systems and Converium’s risk management and auditing processes; reviews and assesses significant accounting and reporting issues; oversees external and internal auditors and the external and internal audit process; assesses the accuracy of the annual financial statements and determines that appropriate accounting principles have been applied; and liaises with Converium’s Risk Management functions to identify Converium’s areas of greatest risk and to assess management’s role in mitigating the risks. Standing invitees are the CEO, the Managing Director, the Head of Internal Audit and the external auditor. In 2004 the Audit Committee held six meetings.

The Audit Committee is supported in its supervisory task by Internal Audit, which reports directly to the Audit Committee.

Internal Audit is committed to the Standards for Professional Practice of Internal Auditing set out by the Institute of Internal Auditors. The strategic goals of the Internal Audit department, which were formally approved by the Audit Committee, are as follows:

The Internal Audit department currently consists of ten persons and covers all operations of Converium worldwide. Internal Audit has unrestricted access to all relevant information and documents.

The areas of responsibility between the BoD, the Managing Director and the Global Executive Committee are defined in the Organizational By-laws of Converium Holding AG, which are available on the internet at www.converium.com.

Managing Director

In order to enhance the effectiveness of strategic and operational decision-making and ensure greater collaboration between the BoD and Converium’s management team, the BoD decided to establish the position of a Managing Director. On September 10, 2004 Terry G. Clarke¹ was appointed Managing Director. The Managing Director serves on the BoD and has oversight over Converium’s day-to-day management. The Managing Director attends all meetings of the Global Executive Committee and has veto power over decisions taken by the GEC.

Converium’s Global Executive Committee

The BoD has delegated the management of Converium to the Global Executive Committee (GEC). The GEC comprises an executive management team currently with seven members. It is responsible for implementing Converium’s global strategy, ensuring effective collaboration between each subsidiary, and business segment, and reviewing progress against financial and operating plans as approved by the BoD.

At December 31, 2004 the GEC consisted of:

Members of the Global Executive Committee

Gary Prestia resigned as Chief Technical Officer effective September 10, 2004. Dirk Lohmann took over the responsibilities of the Chief Technical Officer ad interim. On November 4, 2004 Martin Kauer announced his resignation as Chief Financial Officer. The Board appointed Andreas Zdrenyk as interim Chief Financial Officer of Converium following Martin Kauer’s agreed departure on February 28, 2005. Andreas Zdrenyk serves as Converium’s Global Chief Information Officer. A search and recruitment process for Mr Kauer’s replacement is under way. On February 23, 2005 the Board of Directors appointed Terry G. Clarke as Chief Executive Officer and replaced Dirk Lohmann with immediate effect. Mr Clarke continues to be a member of the Board of Directors.

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Curricula Vitae of the GEC members

Dirk Lohmann was the Chief Executive Officer of Converium until leaving the Company on February 23, 2005. He joined Zurich Financial Services in September 1997 as Chief Executive Officer of its reinsurance operations in Zurich and of its German operating subsidiary, Zürich Rückversicherung (Köln) AG. In July 1998, Mr Lohmann was appointed as a member of the Group Executive Board of Zurich Financial Services, serving as the Chief Executive Officer of its global reinsurance operations. Before joining Zurich Financial Services, he held various management positions at Hannover Re between 1980 and 1997, most recently as a member of the Executive Board of Management. He is a non-executive director of Global Aerospace Underwriting Managers Ltd. (GAUM) and a director and chairman of the Medical Defence Union Services Ltd. (MDU), both located in London, United Kingdom. Mr Lohmann received a Bachelor of Arts degree in economics and political science from the University of Michigan, Ann Arbor.

Frank Schaar is the Executive Vice President for Standard Property & Casualty Reinsurance. He joined Zürich Rückversicherung (Köln) AG as Chief Executive Officer in 2000. Previously he was employed by Hannover Re for 17 years through 1999, most recently serving as a Managing Director and a member of the extended board in charge of Asia, Australia and Africa. From 1982 until 1997, Mr Schaar served in various capacities, most recently as Senior Vice President with responsibility for Germany. Mr Schaar holds a degree in insurance economics and worked as a lecturer in reinsurance at the Institute for Professional Development of the Insurance Association in Hannover for ten years.

Benjamin Gentsch is the Executive Vice President for Specialty Lines. In 1998, he joined Zurich Re as the Chief Underwriting Officer Overseas where he was given the task of strengthening the company’s position in the Asian, Australian, African and Latin American markets. In addition, he took charge of the Global Aviation reinsurance department and built up the Professional Risk and Global Marine reinsurance departments. In September 2002, Mr Gentsch was appointed Chief Executive Officer of Converium Zurich. Between 1986 and 1998, he held various positions at Union Reinsurance Company, Zurich, where from 1990 he was responsible for treaty reinsurance business in Asia and Australia. He is an alternate director of Global Aerospace Underwriting Managers Ltd. (GAUM). Mr Gentsch holds a degree in business administration of the University of St. Gallen, with a focus on risk management and insurance.

Christoph Ludemann is the Executive Vice President for Life & Health Reinsurance. He joined Converium in September 2002, bringing to the company 20 years’ experience in the reinsurance market. From 1990 until 2002 Mr Ludemann was responsible for General Cologne Re’s European and Latin American life and health markets, and from 1995 until 2002 he was also a member of the Executive Board of Management of General Cologne Re of Vienna. Between 1983 and 1990, he worked as General Cologne Re’s Marketing Manager for the Netherlands, Scandinavia and Austria. Mr Ludemann has a degree in mathematics and insurance economics from the University of Cologne.

Hans Peter Boller is the Chief Risk Officer and an Executive Vice President of Converium. He is responsible for risk management, corporate compliance, pricing, reserving, Asset and Liability Management (ALM) and natural hazard modeling. He joined the company in 1999 as the Chief Actuary for Zurich Re, Zurich. Prior to 1999, he was a consultant with Tillinghast-Towers Perrin. Mr Boller is a fellow of the German Actuarial Society (DAV) and the Swiss Actuarial Society (SAV), and a member of the International Actuarial Association (IAA). He serves as Chairman of the Reinsurance Subcommittee of the IAA and was a member of the Risk-Based Capital Solvency Structure Working Party of the IAA, advising the supranational regulatory bodies on actuarial matters. He also serves on the Swiss Solvency Board advising the Swiss Regulatory Authority. Mr Boller holds a Master’s degree in economics and engineering and a doctorate in actuarial science from the University of Karlsruhe.

Martin Kauer was the Chief Financial Officer and an Executive Vice President of Converium until leaving the Company on February 28, 2005. He served as Chief Financial Officer of Zurich Financial Services’ global reinsurance operations from July 1998. From 1996 to 1998 Mr Kauer managed the demutualization of Rentenanstalt/Swiss Life, where he was also responsible for Strategic Planning and Controlling. Previously, he worked for Union Bank of Switzerland as an investment banker. Mr Kauer holds a degree in economics from the University of Zurich.

Christian Felderer is the General Legal Counsel and an Executive Vice President of Converium. He joined Zurich Re in 1997 and has 20 years’ experience in the insurance and reinsurance industry, most recently as Senior Legal Counsel for Zurich Re and General Counsel for Converium. Between 1990 and 1997 Mr Felderer had various management responsibilities within the Zurich Group’s International Division,

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including the establishment and management of the Captives and Financial Risk Management department and management of the Claims organization of the International Division. From 1986 to 1990 he was Corporate Legal Counsel in the General Counsel’s Office of the Zurich Insurance Group, and from 1983 to 1986 he was an underwriter in the Casualty department of the International Division. Mr Felderer has a law degree from the University of Zurich and is admitted to the Bar of the Canton of Zurich.

Andreas Zdrenyk is Chief Information Officer of Converium and has been appointed interim Chief Financial Officer of the Company as of February 28, 2005. He joined Zurich Re in 1998 and has gained in-depth insight into the Company’s operations in various functions such as Chief Financial Officer of Converium Zurich and Zurich Re Zurich, respectively, and Head of Internal Audit & Consulting. Prior to joining Zurich Re Andreas Zdrenyk spent a total of 16 years with the Winterthur Swiss Insurance Group, six years of which as regional Head of Internal Audit North America based in the United States. Andreas Zdrenyk, a Swiss citizen, holds a Master’s of Business Administration degree from Cox School of Business (Dallas, USA) and a Master’s of Information Systems/Information Technology degree from the Swiss Association of Commerce (Zurich, Switzerland).

Management contracts

Converium has not entered into management contracts with other companies which transfer key management functions.

Compensation, shareholdings and loans

Board remuneration

In 2003 the BoD reviewed its overall compensation structure in consideration of its increased workload and emphasis on enlarged Committee work and more complex corporate governance rules. Since then the level of compensation remained unchanged. For the office term 2004/2005, basic cash compensation for an ordinary Board member, set at CHF 100,000 (US$ 80,593), includes compensation for membership of one Committee. Board members are entitled to receive equity compensation granted at the end of the respective period for which it is due, which shall comprise Converium shares equal to a value of CHF 25,000 (US$ 20,148) with a restriction period of three years, and share options equal to a value of CHF 25,000 (US$ 20,148) calculated on the Black-Scholes formula on the basis of Converium’s share price at the beginning of the period. The Chairman is entitled to an increase of 50% and the Vice Chairman to one of 25% of the individual elements of the compensation package. The following compensation was agreed for membership of a second and third Committee:

The remuneration of the BoD is not performance-related.

The following table illustrates the compensation paid to each Board member in 2004. Cash compensation paid at the date of each Ordinary General Meeting comprises 50% of the cash compensation due for the ending annual period and 50% for the commencing annual period.

Total cash compensation
(without expenses)
paid to members of the Board in 2004

Jürgen Förterer, who resigned from the BoD on September 29, 2004, received pro rata compensation for his services rendered in the office term 2004/2005 (see table above). Converium has no other former Board members.

Converium has retained The RISConsulting Group LLC, of which Mr Hendrix is co-owner and chief executive officer, for certain consulting services. For 2004 Converium paid total fees of US$ 250,000 (CHF 310,212) to RISConsulting

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Group LLC. Mr Hendrix is also a manager and owner of approximately 57% of the outstanding share capital of RISC Ventures LLC, a Delaware-based limited liability company created to manage and operate companies engaged in commercializing technologies and intellectual properties developed by The RISConsulting Group LLC and its affiliates. In April 2004, Converium AG invested US$ 2.0 million in RISC Ventures LLC for an approximate 17.5% ownership interest in that entity.

In 2004 neither Converium nor any of its subsidiaries granted loans, advance payments or credit lines to Board members, senior management or parties closely related to them. As of the end of December 2004 no such loans, advance payments or credit lines are outstanding. No shares and options are held by closely linked parties of the members of the Board.

Shareholdings of Board members
in Converium as of December 31, 2004

Options held by the members of the Board as of December 31, 2004

Managing Director remuneration

Terry G. Clarke receives for his services as Managing Director a remuneration of GBP 50,000 (CHF 113,684) per month plus reimbursement for customary expenses.

GEC remuneration

The Remuneration Committee sets compensation levels for members of the GEC and proposes to the Board the remuneration of the Chief Executive Officer.

Compensation for each member of the GEC consists of a base salary and an incentive component based on Converium’s and the individual’s performance. The incentive component may vary highly from year to year depending on the achievement of the incentive award targets set annually by the Board of Directors.

The Remuneration Committee determines the awards paid out to the GEC.

The performance-based incentive component consists of the annual incentive plan (AIP) and the long-term incentive plan (LTIP). A minimum of 25% of the performance-based compensation paid under the AIP is paid in the form of Converium shares. The LTIP is part of Converium’s executive share ownership program and designed to align the interests of management closely with those of shareholders as well as to encourage stock ownership. 50% of the award paid out under the LTIP is delivered in Converium shares and the other 50% of the award is paid out in non-qualified options.

Total aggregate compensation of all officers of the GEC in 2004 was US$ 6.7 million (CHF 8.3 million). This total includes base salary and cash awards made under short- and long-

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term incentive plans paid during 2004, and the estimated value of other compensation-related items. This sum also includes the compensation of Gary Prestia who resigned on September 10, 2004. No severance payment other than the contractual salary and bonus entitlements were made to Gary Prestia.

Richard E. Smith, a former member of the GEC, was available as consultant to Converium until December 31, 2004 in exchange for additional compensation of US$ 1.5 million (CHF 1.9 million) paid in early 2004. Converium has no other former members of the GEC.

GEC members held shares and options at the end of December 2004. Some were awarded under Converium’s AIP and LTIP, some converted to Converium shares and options from employee participation plans of Converium’s former parent, Zurich Financial Services, and others bought in conjunction with the Initial Public Offering or otherwise. No options are held by closely linked parties. GEC members participate in local pension plans. More information about Converium’s employee participation and pension plans is contained on pages 82 and 85 of the notes to the financial statements.

Shareholders’ participation rights

Converium’s registered shareholders are granted rights to participate at Ordinary and Extraordinary General Meetings (General Meeting). The procedure for convocation is set out in Article 9 of the Articles of Incorporation. Agenda items are set by the BoD. According to Article 10 of the Articles of Incorporation, shareholders representing a nominal amount of at least CHF 1 million may request agenda items at least 45 days prior to the General Meeting.

Shareholdings ¹ of GEC members in
Converium as of December 31, 2004

Options held by the members of the GEC as of December 31, 2004

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The General Meeting is convened by the BoD or, if necessary, by the auditors, at least twenty days before the date of the meeting in accordance with the Articles of Incorporation. A notice of the meeting states the place and time of the meeting, the items on the agenda, and the motions of the BoD and of the shareholders who requested the meeting. In case of elections, the names of the nominated candidates are specified. If these conditions have not been met, no resolutions are passed, except resolutions to convene an Extraordinary General Meeting or to initiate a special audit. Motions within the limits of the items on the agenda and negotiations that do not require the passing of a resolution do not require such an announcement. The business report and the report of the auditors are made available for inspection by the shareholders at the registered office of the company no later than twenty days before the Ordinary General Meeting. Each share grants the holder the right to one vote. Only shareholders listed in the share register on a cut-off day prior to the General Meeting and fixed by the BoD are authorized to take part. In view of the Ordinary General Meeting 2005, all shareholders noted at April 8, 2005 in Converium’s share register as shareholders with voting rights are eligible to vote. Registered shareholders may exercise all further membership rights, including the right to receive dividends, appoint a proxy, convene an Extraordinary General Meeting, place items on the agenda of a General Meeting, and other rights defined in the Swiss Code of Obligations. A shareholder may be represented by his legal representative, another person who does not need to be a shareholder of the company, by independent proxies or by depositaries, authorized in writing.

The General Meeting passes resolutions and holds elections with the majority of votes cast, excluding abstentions and void and blank votes. As an exception, the following matters, which are set in Converium’s Articles of Incorporation, require the approval of at least two-thirds of votes represented, and an absolute majority of the nominal values of the shares represented is required.

Converium maintains a share register showing the name, residence, address and nationality (in case of legal entities the registered office) of the holders and usufructuaries of the shares. It will recognize shareholders and usufructuaries of shares only if they are listed in the share register, and accepts only one representative per share. Upon request, acquirers of shares are listed in the register as shareholders with the right to vote, provided they explicitly declare that they acquired the shares in their own name and for their own account. The BoD is authorized to grant exemptions from this provision in connection with the trading of shares on foreign markets, for example nominees in connection with the American Depository Receipts (ADR) program. The BoD is authorized to register such nominees as shareholders with voting rights up to a maximum of 5% of the nominal share capital of Converium. Over this limit, the BoD is authorized to register nominees as shareholders with voting rights only if the nominee discloses the name, address and the shareholding of the persons on whose behalf they act and whose shareholding is 0.5% or more of the nominal share capital of the company. The BoD enters into agreements with such nominees with regard to disclosure requirements, representation of the shares and exercising voting rights. After having heard the party concerned, Converium may cancel entries in the share register if they result from incorrect information of the acquirer. He or she must be informed immediately. Converium’s Articles of Incorporation are available on the internet at www.converium.com.

Changes of control

The Articles of Incorporation do not provide for an opting out or opting up in the meaning of articles 22 and 23 of the Federal Act on Stock Exchanges and Securities Trading. Therefore mandatory offers have to be submitted when a shareholder or a group of shareholders acting in concert exceeds 33% of issued and outstanding share capital. Neither the employment agreements with the members of the GEC or other staff nor the mandate letters agreed with the members of the BoD do provide for additional benefits in the case of a change of control.

Auditors

PricewaterhouseCoopers Ltd, Zurich, Switzerland assumed their initial mandate as Converium’s external auditors on June 19, 2001, the date of Converium’s incorporation. The duration of the mandate is one year, from Ordinary General Meeting to Ordinary General Meeting. At the Annual General

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Meeting on April 27, 2004 PricewaterhouseCoopers Ltd was re-appointed for another one-year term as Converium’s auditors. The current lead audit partner assumed the mandate on May 27, 2003. The fees for services rendered, excluding expenses, related to the year 2004 are:

The Audit Committee reviews the scope and general extent of the internal and external audit, including its cost effectiveness, the independence and objectivity of the external auditors, and the nature and extent of non-audit services provided by the external auditors. In 2004 the Audit Committee held six meetings with the external auditors.

Sarbanes-Oxley Act

As a foreign registrant listed on the New York Stock Exchange, Converium is subject to all relevant United States securities laws and regulations including the US Sarbanes-Oxley Act (the Act) of 2002. The US Congress enacted this law as a response to several large insolvencies of registered entities involving fraudulent accounting and financial reporting practices. Converium is legally required to comply with Section 404, a critical section regarding internal controls and procedures for financial reporting for the year ending December 31, 2005. Converium is using the Act as an opportunity to further streamline and document its business and control processes, thus making them more effective and efficient. Converium has dedicated a qualified project team to focus on the implementation of the compliance process required by the Act.

Compliance with corporate governance rules of the New York Stock Exchange (NYSE)

As a foreign issuer listed on the New York Stock Exchange (NYSE) Converium is also in compliance with the corporate governance rules of the NYSE with the following exceptions, where Converium continues to apply Swiss practices:

Responsibility of the Audit Committee for the appointment of external auditors

Swiss company law requires that the Annual General Meeting (AGM) is responsible for the appointment of the external auditors, not the Audit Committee. Converium’s Audit Committee prepares a proposal to the Board of Directors with respect to the appointment and dismissal of the external auditors. The Board of Directors then nominates the external auditor for election by the shareholders’ meeting.

Shareholders’ votes on equity compensation plans

Under Swiss practice equity compensation plans are not voted at the AGM. The reason for this approach is that the capital of a Swiss company is determined in its Articles of Incorporation, and therefore each change of share capital, including increases, requires AGM approval. Shareholders do not have the authority to vote on the open market purchase of shares by Converium for its equity compensation plans.

Nominating/corporate governance and compensation committees composed entirely of independent directors

Due to the small size of the BoD, Converium cannot comply with this requirement. Terry G. Clarke¹, Board member and Managing Director of Converium, is also a member of the Nomination and Remuneration Committee. He does not qualify as an independent director.

Nominating/corporate governance and compensation committee must have a written charter

The main duties and responsibilities of the Nomination and Remuneration Committees are defined in the Organizational By-laws. Converium’s Nomination and Remuneration Committees do not have separate written charters.

Separate reports of the audit and compensation committees to be included in the annual report

Under Swiss company law all reports addressed to the shareholders are provided and signed by the BoD. The committees prepare and submit their reports to the BoD.

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Information policy

Converium publishes quarterly, half-year and annual reports. Shareholders and others can gain access to reporting and other information about Converium at www.converium.com, or by contacting:

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Financial Statements
 

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The Converium share
 

The Converium share in 2004

Stock markets around the world saw modest gains in 2004, typically rising by about half the level of gains achieved in 2003. The SWX Swiss Exchange, on which Converium’s shares are traded, rose 10.1% during the year. The United Kingdom’s FTSE 100 rose 7.5%, France’s CAC 7.4%, and Germany’s DAX 7.3%. In the United States, the S & P 500 ended the year with an 8.9% gain, the Dow Jones Industrial Average was up 3.2%, and the Nasdaq Composite increased 8.6%. Insurance stocks followed a similar growth pattern, with the Bloomberg European and US Insurance Indices rising 5.8% and 10.0%, respectively, during the course of the year.

Against the backdrop of a major net reserve strengthening and the subsequent developments, Converium’s share performed disappointingly. After reaching the year’s high of CHF 37.03 (adjusted) on February 16, 2004, shares fell sharply in value on July 20, 2004. Share values continued to decline, reaching a low of CHF 7.42 on October 15, 2004.

Thereafter Converium’s share price began to slowly recover, following the closing and settlement of its US$ 420 million Rights Offering, and the announcement by Standard & Poor’s that Converium’s Insurer Financial Strength Rating had been upgraded to BBB+. The Company’s rating by A.M. Best is B++. A steady increase in share price has continued, with Converium shares closing 2004 at a price of CHF 10.15 on the SWX Swiss Exchange, marking an increase of 36.8% since October 15, 2004. Converium American Depository Shares listed on the New York Stock Exchange followed a broadly similar pattern during the year, reaching a high of US$ 29.57 on February 13, 2004 and finishing the year at US$ 4.64.

26

Key share data for 2004

Major shareholders

Find more information on major shareholders in the Corporate Governance section on page 12.

Financial calendar

27

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 of America (“US GAAP”). The following selected financial data highlights selected information that is derived from our financial statements found later in this annual report, which have been audited by Pricewaterhouse Coopers Ltd, independent auditors.

28

Management’s discussion and analysis
of financial condition and results of operations
 

The following discussion and analysis should be read in conjunction with our financial statements, including the related notes to those financial statements. This discussion contains forward-looking statements that involve risks and uncertainties and actual results may differ materially from the results described or implied by these forward-looking statements. See “Cautionary note regarding forward-looking statements”.

To the extent that the description of our business presents historical financial data, such financial data may not reflect our future operating performance. As a result of the ratings downgrades and the run-off of our North American business, we expect a significant decline in the amount of premiums as well as significant shifts in the geographic and line of business distributions of premiums that we write going forward as compared to our historical performance.

Overview

Converium Holding AG and subsidiaries (“Converium”) is an international reinsurer whose business operations are recognized for innovation, professionalism and service. We believe we are accepted as a professional reinsurer for all major lines of non-life and life reinsurance in Europe, Asia-Pacific and Latin America. We actively seek to create innovative and efficient reinsurance solutions to complement our target clients’ business plans and needs. We focus on core underwriting skills and on developing close client relationships while honoring our and our clients’ relationships with intermediaries.

We offer a broad range of traditional non-life and life reinsurance products as well as “non-traditional” solutions to help our target clients efficiently manage capital and risks. In non-life reinsurance, our lines of business are General Third Party Liability, Motor, Personal Accident (assumed from non-life insurers), Property, Agribusiness, Aviation & Space, Credit & Surety, Engineering, Marine & Energy, Professional Liability and other Special Liability and Workers’ Compensation. In Life & Health Reinsurance, our lines of business are Life and Disability reinsurance, including quota share, surplus coverage and financing contracts, and Accident and Health.

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

Due to the reserving actions and subsequent lowering of Converium’s ratings during 2004, we placed our US reinsurance operations into run-off, which resulted in the discontinuation of writing reinsurance from offices located in North America. We will, however, offer reinsurance for attractive US-originated business to a limited number of select accounts. This business will be underwritten and managed through Converium AG, Zurich. Converium Reinsurance (North America) Inc. (“CRNA”) was placed into orderly run-off and we are seeking to commute CRNA’s liabilities wherever appropriate (see Note 3).

As a result of ratings downgrades, it was necessary to re-evaluate our global strategy to optimize shareholder value. The decision to place CRNA into run-off and to transfer the underwriting of North American non-life business to Zurich will result in a reduction of gross premiums written of North American originated business of approximately US$ 1.0 billion for underwriting year 2005, predominantly in Standard Property & Casualty Reinsurance and Specialty Lines. We also expect additional reductions in other parts of our business. Based on the January 1 renewal period, Converium’s renewable non-life premium income was reduced by approximately US$ 727.4 million, or 37% as compared to 2004. Based on this development, Converium’s gross premiums written in 2005 are expected to reach approximately US$ 2.0 billion.

Results of operations

During 2004, there were several items that resulted in measurable effects on our financial results. These items primarily include (i) the strengthening of prior years’ reserves with an impact on the financial result of US$ 578.1 million, (ii) the reduction of ultimate premium estimates after reflecting associated loss and underwriting expenses, with a positive impact on the financial results of US$ 3.0 million, (iii) a reduction of retrocessional recoveries of US$ 12.0 million, and commutation gains, which resulted in a net impact on the technical result of US$ 581.3 million. In addition, we established a full valuation allowance against the net deferred tax balances previously recorded at CRNA of US$ 269.8 million and a valuation allowance on the net operating losses carried forward at Converium AG of US$ 19.9 million, and recorded an impairment of goodwill of US$ 94.0 million.

29

Management’s discussion and analysis
of financial condition and results of operations (continued)

For the year ended December 31, 2004 we reported a net loss of US$ 760.8 million versus net income of US$ 185.1 million for the same period in 2003. The decline is primarily due to the impact of those items described above, in addition to losses related to the natural catastrophes that occurred in 2004.

We reported a pre-tax operating loss (defined as pre-tax income or loss excluding pre-tax net realized capital gains or losses, impairment of goodwill, amortization of intangible assets and restructuring costs) of US$ 362.5 million for the year ended December 31, 2004, a decrease of US$ 568.5 million as compared to the same period in 2003. We use pre-tax operating results to measure performance, as this measure focuses on the underlying fundamentals of our operations without the influence of realized gains and losses from the sale of investments, or other non-operating items such as goodwill impairment and restructuring costs.

For the year ended December 31, 2004, gross premiums written decreased 9.1%, net premiums written decreased 7.2% and net premiums earned increased 0.2%. The reduction in gross and net premiums written primarily resulted from clients exercising their rights of special termination under various reinsurance contracts and adjustments of ultimate premium estimates, as described below. Despite the decrease in premiums, there still remained some growth across lines of business within the Specialty Lines segment as well as in the Life & Health Reinsurance segment resulting from overall market conditions and new client relationships.

Adjustments of ultimate premium estimates: During the course of 2004 Converium implemented enhanced procedures for establishing written premium estimates. Our processes require underwriters and others to assess the realization of premium estimates on a quarterly basis. This was supplemented at year-end by a detailed review using actuarial techniques, primarily for European non-life business, which compare estimates with actuarially derived amounts using ceding companies actual reported premium information. These analyses resulted in a decrease in net premiums written and earned in the Standard Property & Casualty Reinsurance and Specialty Lines segments in the amount of US$ 219.8 million; after reflecting the impact on accrued underwriting expenses of US$ 16.5 million and losses of US$ 206.4 million, the impact of these adjustments on the technical result was US$ 3.0 million.

Our non-life combined ratio was 118.2% for the year ended December 31, 2004 as compared to 97.9% for the same period in 2003. Reserve actions and natural catastrophes in 2004 increased the combined ratio by 17.3 points and 4.8 points, respectively for the year ended December 31, 2004.

We recorded net realized capital gains of US$ 46.5 million and US$ 18.4 million for the years ended December 31, 2004 and 2003, respectively. The 2004 amount includes pre-tax net realized capital gains associated with the sale of equity securities to adjust our asset allocation. Impairment charges of US$ 6.2 million are included in the pre-tax net realized capital gains in 2004 as compared to US$ 27.4 million in 2003. Included in the impairment charges for 2004 were US$ 2.5 million related to our equity securities portfolio, US$ 3.0 million related to our real estate portfolio and US$ 0.7 million related to other investments. In 2002, we recorded pre-tax net realized capital losses of US$ 10.3 million. Included in this amount are gains on the restructuring of the fixed maturities portfolio of US$ 62.9 million, offset by losses on the restructuring of the equity portfolio of US$ 48.2 million, losses realized on the sale of WorldCom fixed income investments of US$ 15.8 million and impairment charges of US$ 48.3 million.

We reported pre-tax operating income of US$ 206.0 million for the year ended December 31, 2003, an improvement of US$ 138.3 million as compared to pre-tax operating income of US$ 67.7 million for 2002. The improvement in pre-tax operating income in 2003 was due to the significant premium growth and an overall improved non-life combined ratio.

Our effective tax rate was 80.0% for the year ended December 31, 2004 as compared to 17.5% and (86.1)% for 2003 and 2002, respectively. The 2004 consolidated income tax expense reflects an additional expense of US$ 289.7 million related to the establishment of a full valuation allowance against the net deferred tax balances previously carried at CRNA (US$ 269.8 million) and a valuation allowance on the net operating losses carried forward at Converium AG (US$ 19.9 million). The 2002 consolidated tax benefit reflects a one-time benefit of US$ 21.3 million as the result of a ruling received from the Swiss tax authorities regarding a tax loss carryforward.

30

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

Ratings and regulatory issues

Based on the developments of the latter part of 2004, both Standard & Poor’s Ratings Services and A.M. Best initially lowered our ratings, but following our successful Rights Offering in October 2004, some of the ratings were subsequently raised. Such ratings are as follows.

Standard & Poor’s

On September 10, 2004, Standard & Poor’s lowered both the long-term counterparty credit and insurer financial strength ratings of Converium AG to “BBB” from “A–” and Converium Rückversicherung (Deutschland) AG and Converium Insurance (UK) Ltd to “BBB–” from “A–”, and the “CreditWatch” status was revised to developing from negative. In addition, Standard & Poor’s lowered the long-term counterparty credit and senior unsecured debt ratings on Converium Holdings (North America) Inc. to “BB” from “BBB–” and its junior subordinated debt rating on Converium Finance S.A. to “BB+” from “BBB”. At the same time, Standard & Poor’s lowered its long-term counterparty credit and insurer financial strength ratings of CRNA to “R” from “BB+”.

On September 27, 2004, Standard & Poor’s revised to positive from developing its “CreditWatch” implications on the long-term counterparty credit and insurer financial strength ratings on Converium AG. All other ratings remained on “CreditWatch” with developing implications. In addition, Standard & Poor’s noted that if the Rights Offering was completed barring any material unforeseen event, it expected to raise its long-term ratings on Converium AG to “BBB+” and its long-term junior subordinated debt rating on Converium Finance S.A. to “BBB–”. Standard & Poor’s also noted that an acceptabley worded guarantee would allow it to rate Converium Rückversicherung (Deutschland) AG and Converium Insurance (UK) Ltd in line with Converium AG.

On October 15, 2004, Standard & Poor’s revised both the long-term counterparty credit and insurer financial strength ratings of Converium AG to “BBB+” from “BBB”. In addition, Standard & Poor’s raised its long-term counterparty credit and senior unsecured debt ratings on Converium Holdings (North America) Inc. to “BB+” from “BB”, and its junior subordinated debt rating on Converium Finance S.A. to “BBB–” from “BB+”. All ratings were removed from “CreditWatch” and assigned a stable outlook. This decision reflects Converium’s successful closing of its share issue and Standard & Poor’s expectation that Converium will maintain significant support from key clients and intermediaries.

On October 22, 2004, following the successful completion of the Converium Holding AG Rights Offering, Standard & Poor’s raised its long-term insurer financial strength ratings on Converium Rückversicherung (Deutschland) AG and Converium Insurance (UK) Ltd to “BBB+” from “BBB–”. At the same time, Standard & Poor’s withdrew its “BBB–” long-term counterparty credit ratings on both entities at the request of Converium. All ratings were removed from “CreditWatch”, and the outlook on both entities is stable. The raising of the insurer financial strength ratings reflects that policyholder obligations of Converium Rückversicherung (Deutschland) AG and Converium Insurance (UK) Ltd are now guaranteed by Converium AG and therefore reflect the ratings of Converium AG.

A.M. Best

On September 1, 2004, A.M. Best downgraded the financial strength ratings to “B++” from “A–” and the issuer credit ratings to “bbb” from “a–” for Converium AG and its core subsidiaries Converium Rückversicherung (Deutschland) AG, Converium Insurance (UK) Ltd and Converium Insurance (North America) Inc. All ratings remained under review with negative implications. At the same time A.M. Best downgraded the financial strength rating to “B–” from “A–” and the issuer credit rating to “bb–” from “a–” of Converium Reinsurance (North America) Inc. following our announcement of our intention to place the company into run-off. This rating had been assigned a negative outlook by A.M. Best. The issuer credit rating of Converium Finance S.A. was downgraded to “bb+” from “bbb–”, and the junior subordinated debt rating of the same company was lowered to “bb+” from “bbb”. For Converium Holdings (North America) Inc. the issuer credit as well as the senior unsecured debt ratings were lowered to “bb–” from “bb+”.

On September 29, 2004, A.M. Best affirmed the financial strength ratings of “B++” and upgraded the issuer credit rating to “bbb+” from “bbb” of Converium AG, Converium Rückversicherung (Deutschland) AG and Converium Insurance (UK) Ltd. These ratings were removed from under review and assigned a stable outlook. At the same time, A.M. Best downgraded the financial strength rating to “B” from “B++” and the issuer credit rating to “bb” from “bbb” of Converium Insurance (North America) Inc. For Converium Finance S.A. the issuer credit rating of “bb+” was affirmed whereas the junior subordinated debt rating was raised to “bbb–” from “bb+”.

On October 14, 2004, following the successful completion of the Converium Holding AG Rights Offering, A.M Best confirmed that the “B++” financial strength rating and “bbb+” issuer credit rating of Converium AG and all debt ratings remain unchanged.

We have reviewed the contracts with our cedents for implications of a potential ratings downgrade or a decrease in statutory surplus levels. The contracts that contain a ratings or statutory surplus level provision represent approximately one-third and one-fifth of our total ultimate treaty premium, respectively. This review has indicated that the significant majority of those contracts that contain termination provisions relating to either ratings or statutory surplus declines have been triggered and

31

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

therefore the counterparties have the right to terminate such contracts. This resulted in an estimated impact on gross premiums written of US$ (114.5) million in the second half of 2004.

The components of net (loss) income are described below.

Reinsurance results

Net premiums written decreased for the year ended December 31, 2004 over the same period in 2003 largely due to premium reductions resulting from clients exercising their rights of special termination under various reinsurance contracts, as described below, adjustments of ultimate premium estimates, and a reduction of reinsurance recoverables of US$ 12.0 million. For the year ended December 31, 2004, Standard Property & Casualty Reinsurance decreased by US$ 190.6 million or 11.6% and Specialty Lines decreased by US$ 153.8 million or 8.5%. Despite this, net premiums written in the Life & Health Reinsurance segment grew by US$ 70.4 million or 19.1%. We retained 92.5% and 90.6% of our gross premiums written for the year ended December 31, 2004 and 2003, respectively.

Special terminations: Many reinsurance contracts include a ratings or statutory surplus level provision. Ratings and surplus triggers typically give rise to a right of termination in favor of the cedent that allows the cedent to terminate the contract on a prospective basis from the date of termination. As a result of the rating agencies’ actions and the reduction in surplus due to the reserve strengthening, contracts with an estimated ultimate premium income of US$ 508.8 million were triggered in the second half of 2004. This resulted in an estimated impact on gross premiums written of US$ (114.5) million for the second half of 2004.

As of December 31, 2004, Converium’s reserves for unearned premiums, gross were US$ 1,312.3 million, which relates to business primarily written in 2003 and 2004, and is expected to materially earn out in 2005. The earn out of these reserves for unearned premiums and the reduced non-life premium income of the January 1, 2005 renewal period, are expected to result in a reduction of reserves for unearned premiums in future periods. See “Overview” for future prospects regarding our premiums.

For the year ended December 31, 2004, based on stable exchange rates, gross premiums written decreased by 13.1%, net premiums written decreased by 11.5%, and net premiums earned decreased by 4.3%.

See “Business development” for further information by line of business.

Our losses, loss adjustment expenses and life benefits incurred and non-life loss ratio increased for the year ended December 31, 2004 as compared to the same period in 2003, mainly due to the development of prior years’ loss reserves, as described below. In addition, the impact of the hurricanes, typhoons and the tsunami in 2004 added US$ 154.5 million of incurred losses, or 4.8 points to the 2004 loss ratio.

Development of prior years’ reserves: Converium has experienced significant adverse development, predominantly in its US casualty reinsurance lines, for the last several years. Since 2000, Converium has recorded a total of US$ 868.2 million of additional net provisions on prior years’ non-life business (2000: US$ 65.4 million: 2001: US$ 123.6 million; 2002: US$ 148.5 million; 2003: US$ (31.3) million; and 2004: US$ 562.0 million).

32

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

During early 2004, Converium announced that reported losses from prior year US casualty business had exceeded expected loss emergence and that the volatility of longer-tail risks was likely to persist for some time. This adverse loss-reporting trend continued and accelerated into mid-2004 and prompted Converium to initiate additional reviews of its US business from an integrated underwriting, claims and actuarial perspective in order to examine the adequacy of prior years’ provisions. In addition, in order to obtain an external review of our overall reserve position, we commissioned the actuarial consulting firm Tillinghast-Towers Perrin to perform an independent actuarial review of our non-life loss and allocated loss adjustment expense reserves as of June 30, 2004 in respect of the Zurich and New York originated businesses. The outcome of these in-depth internal and external reviews resulted in an aggregate strengthening of prior years’ non-life loss reserves by US$ 562.0 million for the year ended December 31, 2004. This action was taken in response to the continued adverse loss emergence due to increased claims reporting activity from clients relating to US casualty business written from 1997 to 2001 as well as deterioration from European non-proportional motor business written in recent years. While we believe that we have fully addressed this issue through our reserving actions, volatility is expected to persist for some time.

In the Standard Property & Casualty Reinsurance segment, the development of prior years’ reserves of US$ 73.5 million primarily related to adverse developments of General Third Party Liability (US$ 116.3 million), motor liability outside the United States (US$ 91.7 million) and Personal Accident (non-life) (US$ 8.1 million), which was partially offset by positive developments related to Property (US$ 82.1 million) and miscellaneous liability (US$ 60.5 million) that also included the impact of whole account retrocessions. In the Specialty Lines segment, the development of prior years’ reserves of US$ 488.5 million primarily related to adverse developments of the Professional Liability and other Special Liability lines (US$ 449.3 million), particularly excess & surplus lines and umbrella, Workers’ Compensation (US$ 55.3 million), and Engineering (US$ 12.9 million). These adverse developments in the Specialty Lines were partially offset by positive developments related to Aviation & Space (US$ 24.5 million), Agribusiness (US$ 0.7 million), and Credit & Surety (US$ 3.8 million).

In 2003, the positive development of US$ 31.3 million consisted of positive development on Property lines (US$ 113.5 million) and Aviation & Space (US$ 102.2 million), offset by adverse development on Workers’ Compensation and Professional Liability and other Special Liability lines (US$ 120.3 million) and the Motor and General Third Party Liability lines (US$ 64.1 million). The reserve releases in 2003 were primarily from the 2002 underwriting year, while the US business written in 1997 to 2001 mostly saw continued strengthening.

In 2002, Converium strengthened reserves for prior years by US$ 148.5 million. Throughout the year, increased loss experience related to prior years continued to emerge, which resulted in an in-depth actuarial reserve analysis of certain lines of business. This resulted in an additional US$ 148.5 million provision for losses, primarily related to underwriting years 1997 through 2000. In the Standard Property & Casualty Reinsurance segment, there were additional provisions of US$ 62.2 million for the liability, Motor and Property lines. In the Specialty Lines segment, there were additional provisions of US$ 86.3 million, primarily related to the Professional Liability and other Special Liability Lines of business.

Commutations: Based on the developments of 2004, we placed our US reinsurance operations into run-off and started to implement and execute a commutation strategy. Commutations can accelerate the realization of profit inherent in long-tail reserves by crystallizing outstanding claims reserves into payments, which are discounted to reflect the time value of money. Since commutation payments essentially reflect a discounted present value of estimated future cash flows, future investment income earned is expected to decline as the assets backing those reserves are liquidated to make payments. As of December 31, 2004, we agreed upon commutations with primarily North American cedents regarding gross loss reserves of US$ 545.8 million that resulted in a cash outflow of US$ 526.8 million.

Guaranteed Minimum Death Benefit (GMDB) business: For the year ended December 31, 2004 there were no additional reserving actions required for the GMDB book of business. In 2003 and 2002, the Life & Health Reinsurance segment strengthened reserves for this closed block of variable annuity business by US$ 20.5 million (to net US$ 56.0 million) and US$ 15.6 million, respectively. As a result of the positive performance of the US stock markets, GMDB’s net amount at risk further decreased to US$ 635.5 million at December 31, 2004 from US$ 809.7 million at December 31, 2003.

Impact of aviation and space business: Our aviation and space business contributes substantially to the profitability of the Specialty Lines segment. Related to this business, we had net premiums written of US$ 404.5 million, US$ 341.8 million, and US$ 365.3 million and a net non-life technical result (defined as net premiums earned minus losses and loss adjustment expenses and underwriting acquisition costs) of US$ 73.2 million, US$ 126.0 million, and US$ 64.3 million in 2004, 2003, and 2002, respectively.

Impact of property catastrophe losses: We reported the following large natural catastrophe losses, defined as those in excess of US$ 10.0 million or more of net incurred losses to us for our proportional and non-proportional property catastrophe business: hurricanes in the US and the Caribbean, the Japanese typhoons and the tsunami in the Indian Ocean (US$ 154.5 million) in 2004, Typhoon Maemi (US$ 15.4 million) and the Algerian earthquake (US$ 10.6 million) in 2003 and the European floods in 2002 (US$ 51.1 million).

33

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

September 11th terrorist attacks: The September 11th terrorist attacks in the United States represented the largest loss event in the insurance industry’s history. In 2001, we recorded gross losses and loss adjustment expenses of US$ 692.9 million arising out of the terrorist attacks. Net of retrocessional recoveries and the cap from Zurich Financial Services, our recorded losses and loss adjustment expenses were US$ 289.2 million, coming primarily from our aviation and property lines of business. The remainder of the losses were from our workers’ compensation, life and third-party liability lines of business. Zurich Financial Services, through its subsidiaries, agreed to arrangements that cap our net exposure for losses and loss adjustment expenses arising out of the September 11th terrorist attacks at US$ 289.2 million. As part of these arrangements, these subsidiaries of Zurich Financial Services have agreed to take responsibility for non-payment by the retrocessionaires of Converium AG and Converium Rückversicherung (Deutschland) AG with regard to losses arising out of the September 11th terrorist attacks in excess of the US$ 289.2 million cap. While the cap does not cover non-payment by the retrocessionaires of CRNA, our only retrocessionaire for this business is a unit of Zurich Financial Services. This business is fully collateralized in the form of letters of credit. Therefore, we are not exposed to potential non-payments by retrocessionaires for these events in excess of the US$ 289.2 million cap, although we will be exposed to the risk of non-payment of Zurich Financial Services’ units and we are exposed to credit risk from these subsidiaries of Zurich Financial Services.

In December 2004, a federal jury in New York concluded that the two planes that crashed into the World Trade Center during the attacks of September 11th, for insurance purposes, represented two separate attacks. This ruling increased our gross losses and loss adjustment expenses by US$ 8.7 million, but as our losses are capped at US$ 289.2 million by Zurich Financial Services, as described above, this ruling did not have an effect on our net loss position. In 2004, 2003 and 2002, there was no additional development in net reserves for the September 11th terrorist attacks.

Asbestos and environmental exposures: As of December 31, 2004 and 2003, we had reserves for environmental impairment liability and asbestos-related claims of US$ 49.2 million and US$ 45.8 million, respectively. Our survival ratio (calculated as the ratio of reserves held, including IBNR, over claims paid over the average of the last three years) for asbestos and environmental reserves was 13.6 years at December 31, 2004 and 2003.

Underwriting acquisition costs primarily relate to commissions on treaty and individual risk business. Our underwriting acquisition costs increased for the year ended December 31, 2004 as compared to the same period in 2003. The underwriting expense ratio was relatively stable in 2004 as compared to 2003.

Operating and administration expenses increased for the year ended December 31, 2004 over the same period in 2003 due to increased expenditures to support the growth in operations, additional costs of US$ 15.7 million related to the retention plans that were rolled out in late 2004 (see Note 15), and the continued weakening of the US dollar. In addition approximately US$ 7.0 million of advisory fees were recorded in conjunction with various corporate strategic initiatives during 2004. The non-life administration expense ratio remained relatively stable for the year ended December 31, 2004 as compared to the same period in 2003.

We fully charge the cost of options to operating expense under the fair value approach of SFAS No.123, “Accounting for Stock Based Compensation”, and recorded compensation expense of US$ 10.7 million, US$ 6.1 million and US$ 5.8 million in 2004, 2003, and 2002, respectively, in connection with our stock option plans.

34

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

Investment results are an important part of our overall profitability. Our net investment income increased US$ 78.6 million, or 33.7% for the year ended December 31, 2004 as compared to the same period in 2003. The increase largely resulted from growth in invested assets during 2004, particularly in our fixed maturities portfolio, as well as income received from the transition of a fixed income bond fund to a direct fixed income investment portfolio. The decline in income from the Funds Withheld Asset is due to the declining asset balance. See “Funds Withheld Asset”. Our net investment income decreased US$ 18.8 million, or 7.5% for 2003 as compared to 2002. The decrease reflects lower investment income yields offset by an increase in invested assets from operating cash flows. Our average annualized net investment income yield (pre-tax) was 3.8% for the year ended December 31, 2004 as compared to 3.3% and 4.3% for the same periods in 2003 and 2002, respectively.

Our average annualized total investment income yield (pre-tax) was 4.4% for the year ended December 31, 2004 as compared to 3.5% and 4.1% for the same periods in 2003 and 2002, respectively. Yields are calculated based on the average of beginning and ending total invested assets balances (including cash and cash equivalents). The total investment income yields were positively impacted by the increase in realized gains in 2004 resulting from the sale of equity securities to adjust our asset allocation in order to reduce investment portfolio risks as well as the decline in impairment charges compared to 2003. We paid fees in the amount of US$ 11.6 million, US$ 8.0 million and US$ 6.1 million to our asset managers and custodians in 2004, 2003 and 2002, respectively, including other investment-related costs.

Our average annualized total investment return (pre-tax) was 4.1% for the year ended December 31, 2004 as compared to 5.7%, and 2.2% for the same periods in 2003 and 2002, respectively. The return was driven by a reduction in net unrealized capital gains due to the realization of gains triggered by the sale of equity securities, partially offset by the continued positive development of the stock markets in 2004. In 2003, we had an increase in net unrealized capital gains of US$ 94.5 million as a result of the strong recovery of the stock markets. The average total investment return in 2002 included the effect of foreign currency on the change in net unrealized capital gains and losses of US$ (50.3) million, lowering the return by 0.8%. As of 2003 and forward, the currency effect on the change in net unrealized capital gains and losses was directly booked to cumulative currency translation adjustments, and therefore no longer affects the investment return.

We recorded US$ 6.2 million, US$ 27.4 million and US$ 48.3 million of impairment charges during 2004, 2003 and 2002, respectively. See “Critical accounting policies” for details on our fixed maturities and equity securities impairment policy.

35

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

Other (loss) income: Other loss for the year ended December 31, 2004 was US$ 2.6 million as compared to other income of US$ 2.7 million and other loss of US$ 1.2 million for the same periods of 2003 and 2002, respectively. Other loss for 2004 includes an amount of US$ 20.0 million for a retroactive stop-loss retrocession cover from National Indemnity Company, offset by a reduction of US$ 9.6 million in the bad debt provision related to the U.S. Life Insurance Company settlement (see Notes 21 and 26). Other (loss) income components also include interest income on reinsurance deposits, interest expense on funds held under reinsurance contracts, fee income, write-off of uncollectible balances and results from private equity funds.

Interest expense: Interest expense remained relatively stable for the year ended December 31, 2004 as compared to the same period in 2003. The increase in 2003 over 2002 was mainly due to US$ 16.5 million in interest expense on our US$ 200.0 million 8.25% guaranteed subordinated notes issued in December 2002.

Goodwill and other intangible assets: Impairment of goodwill was US$ 94.0 million for the year ended December 31, 2004. Amortization of intangible assets was US$ 9.9 million for the year ended December 31, 2004.

SFAS 142, “Goodwill and Other Intangible Assets”, requires impairment testing of goodwill annually or more regularly if any event or change in business circumstances occurs which would indicate that the carrying value of goodwill may be impaired. An impairment charge of US$ 94.0 million was recorded due to the reserving actions taken during 2004 in respect of prior year development in the Specialty Lines segment’s business written in North America, and the subsequent decision to take a full valuation allowance against the net deferred tax asset at CRNA. The goodwill impairment charge represents all the goodwill relating to CRNA.

SFAS 142 also requires that useful lives for intangible assets other than goodwill be reassessed and the remaining amortization periods be adjusted accordingly. On October 1, 2004, the useful life of our intangible asset related to Global Aerospace Underwriting Managers Limited (“GAUM”) was reduced to less than one year resulting in an amortization charge of US$ 9.9 million. See Note 8 for additional information regarding the reassessment of the useful life related to GAUM.

Restructuring charges: In September 2004, as a result of the announced run-off of our CRNA operations, we notified certain of our employees that their employment would be terminated between two to six months after such notification. For the year ended December 31, 2004, US$ 2.7 million has been expensed primarily due to the costs associated with these severance plans. CRNA is currently evaluating certain of its office leases, and a plan for reduced office space is expected to be approved in 2005 resulting in additional restructuring costs (see Note 26). Additionally, we are currently evaluating the cost base of our non-US operations, and a plan for cost reductions is expected to be approved in early 2005, resulting in additional restructuring costs.

Income tax expense: Converium’s consolidated income tax expense for the year ended December 31, 2004 reflects an additional expense of US$ 289.7 million related to the establishment of a full valuation allowance against the net deferred income tax balances previously carried at CRNA and a valuation allowance against the net operating losses carried forward at Converium AG. The 2003 consolidated tax expense reflects an increase in the tax loss carryforward due to the retrocession of certain contracts from Germany to Switzerland. The 2002 consolidated tax benefit reflects a one-time benefit of US$ 21.3 million as a result of a ruling Converium AG received from the Swiss tax authorities regarding a tax loss carried forward.

As required under SFAS 109, “Accounting for Income Taxes”, Converium is required to assess if it is more likely than not that some or all of the net deferred tax assets will not be realized. In making this assessment, reference is made to, among other things, historical losses. Therefore, a full valuation allowance was established against CRNA’s net deferred tax assets to reflect the continued net loss position of CRNA. CRNA may offset future taxable income against the existing net operating losses carried forward, resulting in no US federal tax expense on such income until such time as the net operating losses are utilized or expire. In addition, Converium AG presents deferred taxes for timing differences only. Future positive income will offset against net operating losses carried forward and will not cause any income taxes except changes in timing differences.

As of December 31, 2004, Converium’s valuation allowance on deferred tax assets was US$ 711.9 million, comprising net operating losses carried forward (US$ 571.7 million), loss reserve discount (US$ 110.2 million) and other temporary differences, net (US$ 30.0 million). As of December 31, 2003, the valuation allowance was US$ 47.9 million, all of which related to net operating losses carried forward.

As of December 31, 2004, Converium has total net operating losses carried forward of US$ 2,512.5 million available to offset future taxable income of certain branches and subsidiaries. The majority of these net operating losses carried forward relate to CRNA and Converium AG and expire in the years 2020 through 2024 and 2010 through 2011, respectively.

Converium will continue to monitor its tax position and reassess the need for a full valuation allowance on its net deferred tax assets on a periodic basis. Realization of the deferred tax asset related to net operating losses carried forward is dependent upon generating sufficient taxable income within specified future periods. The decision to place CRNA into run-off may limit the ability to generate taxable income to fully utilize its net operating loss carryforwards.

36

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

Business development

Converium’s business is organized around three operating segments: Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance, which are based principally on global lines of business. In addition to the three segments’ financial results, the Corporate Center carries certain administration expenses, such as costs of the Board of Directors, the Global Executive Committee, and other global functions.

Converium’s financial results for the year ended December 31, 2004 have been considerably affected by the recording of additional net strengthening of prior years’ loss reserves (US$ 562.0 million) and the resulting impairment of goodwill (US$ 94.0 million). The following table compares Converium’s segment results for the year ended December 31, 2004, 2003, and 2002 and reconciles segment results to (loss) income before taxes:

Standard Property & Casualty Reinsurance

Standard Property & Casualty Reinsurance reported segment (loss) income of US$ (12.5) million, US$ 183.7 million and US$ 55.8 million in 2004, 2003 and 2002, respectively. The decrease in 2004 was primarily attributable to the following:

37

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

For the year ended December 31, 2004, gross premiums written decreased 9.9% to US$ 1,617.6 million, net premiums written decreased 11.6% to US$ 1,455.0 million and net premiums earned decreased 4.8% to US$ 1,552.0 million. Adjustments of ultimate premium estimates resulted in a decrease in net premiums written and earned in the amount of US$ 119.3 million; after reflecting for accrued underwriting expenses (US$ 18.1 million) and losses (US$ 101.1 million), the impact of these adjustments of ultimate premium estimates on the technical result was US$ (0.1) million.

For the year ended December 31, 2004, the reduction in net premiums written in the Standard Property & Casualty Reinsurance segment by line of business included:

These decreases were offset by an increase in net premiums written within the General Third Party Liability line of business, which increased by 7.9% or US$ 26.4 million to US$ 361.4 million as a result of continuing rate increases and new business.

In the latter half of 2004, the Standard Property & Casualty Reinsurance segment agreed upon commutations with primarily North American cedents regarding gross loss reserves of US$ 125.9 million.

Specialty Lines

Specialty Lines reported segment (loss) income of US$ (245.2) million, US$ 115.2 million and US$ 56.0 million in 2004, 2003 and 2002, respectively. The decrease in 2004 was primarily attributable to the following:

38

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

For the year ended December 31, 2004, gross premiums written decreased 12.1% to US$ 1,777.3 million, net premiums written decreased 8.5% to US$ 1,658.1 million and net premiums earned increased 2.1% to US$ 1,699.2 million. Adjustments of ultimate premium estimates resulted in a decrease in net premiums written and earned in the amount of US$ 100.5 million; after reflecting for accrued underwriting expenses (US$ (1.7) million) and losses (US$ 105.3 million), the impact of these adjustments of ultimate premium estimates on the technical result was US$ 3.1 million. Included in these amounts were adjustments of ultimate premium estimates of the business relationship with a Lloyd’s syndicate, a major client of ours, which resulted in a decrease in net premiums written and earned in the amount of US$ 25.5 million. After reflecting for accrued underwriting expenses (US$ 0.4 million) and losses (US$ 19.0 million), the impact of this specific premium accrual adjustment on the technical result was US$ (6.1) million.

For the year ended December 31, 2004, the reduction in net premiums written in the Specialty Line segment by line of business included:

These decreases were offset by an increase in net premiums written in the agribusiness line of business, which increased by 41.0% or US$ 36.9 million to US$ 126.9 million. This was mainly the result of new business written, as well as return premium received on a specific contract due to favorable technical results. In addition, the aviation and space line of business increased by 18.3% or US$ 62.7 million to US$ 404.5 million, which grew as a result of an increased retention in the business underwritten by GAUM.

In the latter half of 2004, the Specialty Lines segment agreed upon commutations with primarily North American cedents regarding gross loss reserves of US$ 401.3 million.

39

Management’s discussion and analysis
of financial condition and results of operations (continued)
 

Life & Health Reinsurance