Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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, 2006

CONVERIUM HOLDING AG

(Translation of registrant’s name into English)

Dammstrasse 19
CH-6301 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

 

 

annual report 06

Shareholders’ Meeting

The Annual General Meeting 2007 is to be held at 10:30 a.m. local time on Thursday, May 10, 2007 at the Kongresshaus in Zurich, Switzerland.

Share data

Shares registered as at December 31, 2006			146,689,462

SWX Swiss Exchange (CHF)

Share price as at December 31, 2006			16.35
Year High			16.70
Year Low			11.95
Average price in 2006			14.88
Average daily trading volume			822,189
Market capitalization as at December 31, 2006			2,398,372,704
Book value per share as at December 31, 2006			15.39

New York Stock Exchange (USD)

ADS price as at December 31, 2006			6.61
Year High			6.77
Year Low			4.78
Average price in 2006			5.97
Average daily trading volume in 2006			80,526

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

Financial calendar

May 8, 2007		First quarter results
May 10, 2007		Annual General Meeting
August 9, 2007		Half-year results
October 30, 2007		Third quarter results

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:

Marco Circelli, Head of Investor Relations
Converium Ltd, General Guisan-Quai 26
P.O. Box, 8022 Zurich, Switzerland
Phone      +41 44 639 91 31
E-mail      marco.circelli@converium.com

Beat Werder, Head of Public Relations
Converium Ltd, General Guisan-Quai 26
P.O. Box, 8022 Zurich, Switzerland
Phone       +41 44 639 90 22
E-mail       beat.werder@converium.com

Share price performance 2006

	Converium				12.8	%
	Dow Jones STOXX Insurance (Europe)				17.2	%
	Swiss Market Index (SMI)				15.4	%

Share price performance since rights issue 13 Oct 2004

	Converium				105.7	%
	Dow Jones STOXX Insurance (Europe)				64.0	%
	Swiss Market Index (SMI)				63.8	%

Share price performance since IPO 15 Dec 2001

	Converium				-59.6	%
	Dow Jones STOXX Insurance (Europe)				-8.0	%
	Swiss Market Index (SMI)				42.1	%

Note: rebased to 100, excluding currency adjustments

Business profile

By line of business

Total USD 1,852.0 million (net premiums written)

By region of premium origin

Total USD 1,980.9 million (gross premiums written)

By business segment

Total USD 1,852.0 million (net premiums written)

By distribution channel

Total USD 1,980.9 million (gross premiums written)

Please note all percentage figures rounded.

Financial highlights

(USD million)		2006				2005				2004
Gross premiums written			1,980.9				1,955.0				3,492.2
Net premiums written			1,852.0				1,783.1				3,255.9
Net premiums earned			1,811.7				2,254.8				3,098.5
Total investment results			279.3				289.1				258.7
Income from continuing operations before taxes			255.5				50.2				21.0
Income from continuing operations			215.0				34.1				25.6
Basic earnings per share from continuing operations (USD)			1.47				0.23				0.40
Total equity			1,846.0				1,653.4				1,734.8
Total underwriting reserves, net of reinsurance			7,006.8				7,931.1				10,014.2
Total invested assets			5,765.3				6,634.3				7,786.2
Return on equity from continuing operations (beginning of period) (%)			13.0				2.0				1.3
Non-life loss ratio (net premiums earned) (%)			65.1				77.4				77.6
Non-life expense ratio (%)			31.2				29.6				28.1
Non-life combined ratio (%)			96.3				107.0				105.7
Book value per share (USD)			12.63				11.29				11.86
Dividend per share (CHF)			0.20	*			0.10				—

Non-life combined ratio

Table of contents

Letter from the Chairman and CEO			4
Calendar of events			7
Review 2006 and outlook 2007			8
Strategy			10
Risk Management			11
Corporate Governance			15
Financial statements
Selected financial and other data			32
Management’s discussion and analysis of financial condition and results of operations			33
Converium Holding AG and Subsidiaries
Report of the group auditors			61
Consolidated statements of income			62
Consolidated balance sheets			63
Consolidated statements of cash flows			65
Consolidated statements of changes in shareholders’ equity			67
Notes to the consolidated financial statements			68
Converium Holding AG
Report of the statutory auditors			117
Principal activity and review of the year			118
Statements of income			119
Balance sheets			120
Notes to the financial statements			121
Proposed appropriation of available earnings			125
Addresses of offices			127
Glossary			129

Letter from the Chairman and CEO

Dear shareholders,

2006 was a remarkable year for Converium. We successfully completed our turnaround and posted strong financial results. Net income from our continuing operations was USD 215.0 million, a six-fold increase compared with 2005. Under new leadership the Company underwent a major overhaul. New talent joined Converium, enhancing professionalism and sophistication in crucial areas such as finance and risk management. In this respect, we contributed to, and benefited from, Zurich increasingly developing into a global reinsurance hub. We reviewed our business strategy and confirmed the main elements: To position Converium as an international multi-line reinsurer with a clear geographical focus and a special emphasis on global specialty lines. In all our undertakings the restoration of our A-level financial strength rating was a key priority. In early 2007 we finally achieved this major objective. Client support, especially in the year-end renewals, further strengthened on the back of a constant flow of good news, and testifies to the strength of the Converium franchise. All in all, over 2006 the Company laid strong foundations for a sustainable rebound. Now our sights are firmly set on building Converium’s future as a proactive as well as responsive and customer-focused organisation.

Review of 2006

Underlying earnings power significantly improved

The 2006 net income from continuing operations of USD 215.0 million compares with USD 34.1 million in 2005. The total net income of USD 57.1 million reflects the impact of the sale of our North American operations. The non-life combined ratio improved by 10.7 percentage points to 96.3%. The strong performance of the continuing operations demonstrates the quality of our underlying book of business, helped by an unusually benign natural catastrophe year. The impact from prior underwriting years (on the technical result) accounted for a positive contribution of USD 52.1 million. Shareholders’ equity at December 31, 2006 was USD 1,846.0 million, compared with USD 1,653.4 million at the end of 2005. The fact that our equity position continued to strengthen despite the North American transactional impact is testament to our strong financial performance in 2006.

We are pleased to report Converium’s business volume increased slightly in 2006, weathering the competitive disadvantage of a BBB+ financial strengthfuture rating. We are delighted with this achievement, particularly as Converium did not relax its pricing standards. Strong market demand for Converium as a knowledge-based medium-sized reinsurer was further apparent in the year-end renewals. Our book of business grew by 3% despite the increasingly competitive market environment. A number of clients and brokers have resumed or increased business with Converium even though the upgrade did not materialise before the end of 2006.

We are very pleased to report the successful sale of our North American operations to Berkshire Hathaway. By drawing a line under Converium’s North American exposure we can now fully concentrate on the way forward. Our clients, shareholders and employees all benefit from the finality we achieved through this transaction. No guarantees as regards prior-year loss reserves have been provided to the buyer. As usual for run-off operations we sold the North American companies at a discount to book value. However, the impact of the transaction on our balance sheet and income statement accounts was in line with analysts’ expectations and the overall response to the transaction was very positive.

In summer 2006 the Board and the management team jointly reviewed our medium-term business strategy. The core elements of our strategy, those of being a multi-line reinsurer, with a clear geographical focus, were confirmed. We also reiterated our particular emphasis on global Specialty Lines and our willingness to make further investments in value-added, knowledge-based client services which distinguish us from our direct peers.

Reflecting our strong financial results, the resolution of leadership issues at Board and management levels and the much greater certainty regarding our loss reserves, both Standard & Poor’s (S & P) and A.M. Best (from whom we solicit ratings) raised our ratings outlook to positive in 2006 and S&P even assigned a CreditWatch with positive implications after we announced the sale of our North American operations.

At the Annual General Meeting in April we completed the rejuvenation of our Board of Directors. Three outstanding personalities, Lennart Blecher, Detlev Bremkamp and Harald Wiedmann were elected to the Board. Their significant expertise in corporate finance, direct insurance and reinsurance, auditing and other areas was instrumental in raising the level of professionalism throughout the organisation.

In 2006 three new members to our Global Executive Committee (GEC) were appointed: Paolo De Martin as Chief Financial Officer, joining us from GE Insurance Solutions, Markus Krall, a former Senior Partner at McKinsey & Co., as Chief Risk Officer and Andreas Zdrenyk, formerly Converium’s Chief Financial Officer ad interim, as Chief Operating Officer. In all these areas significant progress was made, ranging from improved investment returns, and the continuing development of Converium’s Enterprise Risk Management (ERM) framework, to faster-than-expected compliance with the Sarbanes-Oxley requirements.

2007 developments and outlook

The first quarter saw three major developments: First, we finally were awarded with an A- financial strength rating by Standard & Poor’s, marking the full completion of our turn-around. We are now excited about capturing the opportunities from the upgrade: This includes regaining shares of business we lost in the wake of the downgrade as well as expanding Converium’s scope of business, both in terms of geographical markets and products.

The second major development was a change to our executive team. Effective 1 February, Jakob Eugster joined Converium and the GEC as Executive Vice President for Standard Property & Casualty Reinsurance. In addition, Benjamin Gentsch assumed additional responsibility for our Life & Health Reinsurance activities as he continues to head up the Specialty Lines operations. Frank Schaar and Christoph Ludemann left Converium. We would like to thank them for their contributions to Converium over the years. We believe that the organisational adjustments associated with these personnel changes will accelerate Converium’s development into a truly global company.

Third, the severe winter storm Kyrill affected our first quarter performance, with claims for Converium estimated at around EUR 25 to 35 million. As far as our Company is concerned, Kyrill most severely impacted the property and motor lines of business in Germany and Austria. The UK, France, Belgium, the Netherlands and several other Northern and Central European countries experienced smaller insured losses.

Our main focus for the future is to lay the foundations for successfully delivering on our medium-term financial target: a sustainable return on equity of at least 14% by 2009. Contrary to previous practice we have for the first time shared with

our shareholders a medium-term return target. This again demonstrates our commitment to increased transparency.

We believe that the return target is within our grasp. For this purpose, we have developed a three-year strategic map for Converium which encompasses all relevant value drivers in our business: Growing a profitable underwriting book; enhancing capital efficiency; increasing returns on investment; and achieving operational excellence.

Renewing focus on our customers

Customer focus will be a cornerstone of our strategy implementation. After successfully dealing with the various operational challenges of the recent past we are now able and determined to place the customer at the centre of all our endeavours. 2007 will see a number of specific marketing and product development initiatives. We are convinced that Converium’s long-term positioning as a mid-sized multi-line reinsurer will ultimately depend on excellence in client marketing and servicing. We must aim at outperforming larger competitors in terms of responsiveness, flexibility and proactiveness.

Acknowledgements

Our sincere thanks go to Converium’s employees whose dedication and commitment have finally been rewarded with a successful turnaround and ratings upgrade. We are also very grateful to our clients and brokers for their continued support. Their loyalty was paramount to Converium’s return to the A ratings league. And finally, we would like to thank our shareholders for their confidence in Converium’s turnaround and future prospects. Shareholders’ patience was rewarded with a significant appreciation of the Converium share, a development which gained further momentum in 2007.

Sincerely,

Markus Dennler		Inga Beale
Chairman of the Board of Directors		Chief Executive Officer

Calendar of events

January
Jan 18		Converium announces comprehensive changes to its Board of Directors and proposes three new candidates to be elected at the Annual General Meeting 2006
February
Feb 1		Inga Beale joins Converium as new CEO
Feb 16		Converium reports stable premium volume from the renewal season
Feb 28		Converium publishes restated financial informa - tion for the periods from 1998 through 2004, as well as its third quarter 2005 results
March
March 15		Converium reports net income of USD 68.7 million for the full year 2005
April
April 7		S&P completes its Converium reserve analysis which represents a key factor in the rating process
April 11		Converium holds its Annual General Meeting and elects three new members of the Board of Directors; in the constituent Board meeting Markus Dennler is appointed as new Chairman
April 28		Moody’s changes Converium’s ratings outlook from negative to stable
May
May 9		Converium reports successful April 1 treaty renew- als with stable premium volume
May 17		Converium appoints a new Chief Financial Officer and Chief Operating Officer
May 23		Converium reports net income of USD 61.6 million for the first quarter of 2006 and appoints a new Chief Risk Officer
June
June 15		The Board of Directors approves Converium’s medium-term business strategy proposed by the Global Executive Committee
July
July 1		The new Chief Financial Officer and Chief Risk Officer join Converium
July 3		The new Chief Operating Officer takes office
July 31		S&P assigns a positive financial strength rating outlook to Converium
August
Aug 8		Converium reports net income of USD 124.1 million for the first half year of 2006
Aug 16		Converium secures an uncollateralized USD 250 million letter of credit facility
Aug 29		Inga Beale receives the title “Reinsurance CEO of the year” which is awarded by Reactions, a world- wide reinsurance magazine
September
Sep 8		A.M. Best assigns a positive financial strength rating outlook to Converium
Sep 14		As part of advisory services Converium delivers Economic Scenario Generator data to a client
October
Oct 3		Converium achieves a collateral reduction on its letter of credit facility
Oct 10		Converium obtains regulatory approval in Labuan, Malaysia, to write international “Retakaful” business
Oct 17		Converium agrees to sell its North American operations to Berkshire Hathaway
Oct 17		S&P places Converium on CreditWatch with posi- tive implications
November
Nov 7		Converium reports net income of USD 178.4 million for the nine months ended 2006
December
Dec 11		Converium celebrates its fifth anniversary
Dec 14		Converium closes the sale of its North American operations
Dec 20		Inga Beale is voted as fourth most successful Swiss CEO in 2006 by the Swiss business weekly newspaper Handelszeitung

Review 2006 and outlook 2007

For the reinsurance industry, 2006 was a benign year. Following severe global catastrophe losses in 2004, with the record again being broken in 2005, insured catastrophe losses during 2006 were minor. The industry was given the opportunity to replenish funds depleted by the two preceding costly catastrophe years. In 2006, only one named storm made US landfall from the North Atlantic, with limited damage caused. Some localized destruction was inflicted by typhoons in East and South East Asia, but with comparatively little insured losses. A lack of natural catastrophes was matched by a lack of man-made disasters, in particular with no major airline losses being recorded during 2006.

The industry demonstrated its resilience into 2006, without any major reinsurance casualties in the wake of the 2005 storms. However, the 2005 events did shift expectations and alter perceptions, particularly in terms of the previously unimaginable devastation caused by Hurricane Katrina. Models were recalibrated in 2006, with upper potential loss limits from hurricanes being reassessed and increased.

The recalibration of models helped ensure that property pricing, particularly in the US, stayed firm. High prices attracted further capital into the industry, following the rash of startups at the end of 2005. Risk taking, however, remained cautious as clearly demonstrated by a crunch in the retrocession market. Reinsurers pulled back from offering each other added coverage. The lack of retrocession provided in turn a boost for other risk vehicles. Already well established, the catastrophe bond market posted a record issuance, expected to have exceeded USD 4 billion throughout 2006.

It was, however, another vehicle of risk transfer, the sidecar, that attracted the most attention. A handful existed prior to the 2005 storms; over the last quarter of 2005 and into 2006 around a dozen sidecars have come into existence. These entities allowed investors to participate in a specific book of ceded business with the sponsor in the form of a quota-share agreement. For reinsurers, sidecars represent an attractive and relatively low cost operation, allowing for risk transfer, capacity expansion and a ceding commission. The limited period of risk attaching to this form of risk transfer appealed to investors – including hedge funds and investment banks – to participate in the hard market. In the year following Hurricane Katrina more than USD 4 billion was placed in sidecars.

Although the transfer of insurance risk to capital markets increased dramatically at the end of 2005 and into 2006, such activities remain a relatively small percentage of overall risk taking capacity. In terms of traditional products, property-focused reinsurers were keen to diversify their books of business. As a result there was some pressure on pricing in certain casualty and specialty lines.

However, the market remained attractive overall. A number of developments helped maintain prices at appropriate levels across most lines of business. During 2006 reinsurers were confronted with a range of deadlines and requirements from rating agencies and regulators, notably regarding Enterprise Risk Management, Contract Certainty and Sarbanes-Oxley. Heightened industry supervision and risk regulation have placed additional constraints on underwriting, discouraging excessive price competition.

Converium’s 2006 performance

Converium completed its turnaround during 2006, following substantial losses in 2004 due to reserve shortfalls in US casualty business. A number of milestones were achieved throughout the year. Senior management was substantially refreshed. Inga Beale took over as CEO in February. Paolo De Martin was subsequently appointed as Chief Financial Officer, and Markus Krall as Chief Risk Officer. Andreas Zdrenyk, the former Chief Financial Officer ad interim was appointed Chief Operating Officer. At Board level, Lennart Blecher, Detlev Bremkamp, and Harald Wiedmann all joined as Board members as of the Annual General Meeting 2006 and the Board elected Markus Dennler as its Chairman.

Reflecting the financial recovery as well as the changes amongst senior staff, Standard & Poor’s awarded Converium with a positive outlook on its BBB+ rating in July. In September A.M. Best also assigned Converium with a positive outlook. In October Converium announced the resolution of one of the key points identified by the ratings agencies; an agreement to sell the Company’s North American subsidiaries to Berkshire Hathaway; therewith resolving one of the remaining open issues in the way of an upgrade. The agreed sale, which was completed in December, marked finality on Converium’s North American operations. In response to this announcement, Converium was placed on CreditWatch with positive implications by Standard & Poor’s, predicated upon the conclusion of the sale, and of the resolution of regulatory investigations into the Company following a restatement of prior-year financial accounts.

Converium was able to report a series of encouraging numbers over the course of the year. 2006 net income from continuing operations was at USD 215.0 million, compared with USD 34.1 million in 2005. This six-fold increase reflects the quality of the underlying book of business, aided in part by the relative lack of natural catastrophes. At the end of 2006 the Company recorded eight consecutive quarters of positive prior year impact. Converium’s non-life combined ratio was 96.3%, an improvement by 10.7 percentage points. Consolidated net income for 2006 was USD 57.1 million, reflecting the impact of the sale of Converium’s North American operations.

As reported in February 2007 the Company succeeded in increasing premium volume from the year-end renewals by 3%. This outcome reflects growing confidence in Converium’s prospects which led many clients to increase the Company’s treaty shares and prompted brokers to expand business with Converium. Throughout the renewals Converium continued to adhere to its strict profitability standards.

Outlook 2007

The reinsurance market is expected to remain attractive overall in 2007. There is likely to be some softening in certain lines, as reinsurers look to further diversify geographically and across lines of business, particularly recent start-ups. However, more rigorous risk management requirements from rating agencies and other major stakeholders are expected to prevent any excessive pressure on rates, terms and conditions. Moreover no one is likely to discount the potential of another severe natural catastrophe year in view of what many pundits regard as a change to global climate and weather patterns. It is widely accepted across the industry that climate change is likely to give rise to more volatile atmospheric conditions, resulting in a higher loss frequency and severity. The severe winter storm Kyrill which hit large parts of Europe mid January served as a reminder, causing an estimated EUR 3 –7 billion in industry damage.

On the other hand, investment banks and hedge funds will continue to see investment opportunities in what has traditionally been reinsurance risk coverage. Given the large amounts of global liquidity still expected to be chasing returns into 2007 their appetite for insurance risk is set to remain significant.

Strategy

We aim to be a major player in the international reinsurance industry. Our efforts are focused on supporting our clients with leading-edge solutions. We aspire to be recognized as a learning, decisive, communicative and action-oriented organization.

We are an international multi-line reinsurer that satisfies our clients’ needs by excelling at analyzing, assuming and managing risks. We are experts in managing our clients’ volatility and helping them optimize capital efficiency. In an ethical and responsible manner we provide:

–		sustainable value growth for our shareholders,
–		superior service for our customers and intermediaries,
–		a fulfilling work environment for our employees.

Core elements of our business strategy

As a multi-line reinsurer Converium pursues a strategy of profitable organic growth with a geographic emphasis on Europe, Asia-Pacific, Central and South America, and the Middle East. Reflecting its significant capabilities in this particular area, the Company places a distinct focus on global specialty lines. Converium implements its strategy by

–

Making investments in specialty lines: Based on the Company’s track record and human capital Converium is committed to further expanding its specialty portfolio, including aviation & space, engineering, marine & energy, credit & surety and agribusiness.

–

Maintaining and developing multiple distribution channels, including joint ventures: To leverage Converium’s proven skills at identifying and managing joint ventures and distribution channels which provide direct access to business, the Company will continue to seek opportunities in this field. This offers growth opportunities beyond organic business development and outright acquisitions.

–

Broadening the client base: In addition to expanding relationships with existing clients Converium seeks to establish new relationships in the Company’s preferred geographical markets and lines of business.

–

Expanding the knowledge base: Converium believes in the value of a knowledge-based business model, offering clients insight and services beyond pure underwriting capacity. To this end, the Company will continue to boost its intellectual capital.

–

Further enhancing the risk management and control culture: These efforts will focus on further implementing a state-of-the-art Enterprise Risk Management (ERM) framework.

–

Advancing cost and capital efficiency: Converium is committed to further rationalise its internal processes and setup in order to achieve a competitive administrative expense ratio. In addition, Converium constantly seeks to maximize capital efficiency by exploring opportunities for leveraging its balance sheet and transferring risks directly to capital markets.

Goals and aspirations

In our previous Annual Report we described 2006 as our “Year of restoration”. This has clearly been achieved with our A– financial strength rating by Standard & Poor’s regained on February 28, 2007. This rating significantly improves our competitiveness in the global reinsurance market. We now look forward to steadily recapturing business we lost since 2004 by increasing our share of wallet with existing clients. In addition, we seek to further broaden our client base to support future growth. To this end, 2007 will be our “Year of the Customer”, following two years of turnaround management.

We now have the potential to regain a significant share of our clients’ wallet, to expand into the fast growing emerging markets, to restore our traditionally strong position in Specialty Lines and to improve the combined ratio, as the business mix shifts and administration expenses are spread across a larger base of business.

In the area of operational excellence we will aim for a single European stock market listing, a more normal level of legal and audit fees and a drastic simplification of our IT environment.

In asset management, we expect to benefit from more degrees of freedom in asset allocation as letter of credit requirements are reduced. We also anticipate a sustainable improvement in investment yields on the back of a new strategic asset management partnership with a leading institution.

Further, we aim at significant improvements in capital efficiency as we expect excess capital partially to be deployed for profitable growth and partially to be returned to shareholders. This will be accompanied by a more efficient, properly leveraged capital structure, including more hybrid debt.

Risk Management

The management of risk is the core added value provided by a reinsurance company to its clients. Managing its own risk is therefore of crucial importance to any reinsurer and risk management is fundamental to Converium. The Company manages its risk in a landscape that is constantly changing in response to the requirements from stakeholders including customers, shareholders, regulators and rating agencies. These changes lead Converium to continually refine and enhance its strong risk management capabilities, investing in new tools and improving existing ones.

Risk management culture at Converium

Converium has a clear approach to risk management: The Company enforces a holistic risk management approach across all types of risk. A culture of risk awareness permeates all layers of the Company. The Board of Directors determines the areas of greatest risk, decides on actions to mitigate risks, applies control mechanisms to review these actions, and defines policies and guidelines for Converium. The Global Executive Committee (GEC) takes important decisions within this framework, in particular regarding capital and capacity allocation, group-wide planning, limit setting, product mix and product features, net retentions, and major transactions. The Chief Risk Officer (CRO) is a member of the GEC and reports directly to the CEO. The CRO is a standing invitee at the Board of Directors’ Finance and Risk Committee, and Audit Committee.

The CRO ensures that risk is only accepted if there is sufficient capacity to manage that risk and an adequate return is received for taking the risk. The emphasis is on strong risk ownership and clarity in roles and responsibilities. Risk control functions are strictly separated from our risk-taking functions. Risk professionals work closely together with other colleagues throughout the Company, to ensure clear profitability goals in relation to their risk, an optimal use of capital, and the monitoring of emerging risks.

Converium’s risk management organization is further responsible for guaranteeing the implementation of and the adherence to risk control procedures and regulations. Converium has Company-wide training programs and tools in place to keep all relevant staff up-to-date on current trends and regulatory requirements. The processes are regularly tested and examined to ascertain any potential improvements. Sarbanes-Oxley requirements – including the demand for a whistle-blower facility – strengthened processes, and internal controls, particularly in relation to the risks of incorrect or incomplete financial statements (for more information on Sarbanes-Oxley please see the Corporate Governance section on page 28 and for more information on operational risk please see page 13).

The prominence of risk within Converium, together with its inclusive implementation, has further strengthened the Company’s Enterprise Risk Management (ERM) practices. This approach is based on five pillars: Risk Management Culture, Risk Controls, Emerging Risk Management, Risk and Capital Models, and Strategic Risk Management. ERM was designated as a distinct rating category by Standard & Poor’s (together with other rating agencies) in 2006. It is designed to focus financial institutions on taking a comprehensive view of their entire risk landscape, and gain a holistic approach to risk measurement, rather than having potential exposures in distinct risk areas.

Risk management infrastructure at Converium

The Company’s risk management teams are staffed by experienced professionals from diverse industry backgrounds. Many have advanced qualifications in quantitative subjects. Alongside the skills they bring with them to Converium, the Company has a number of advanced targeted training programs, which staff are encouraged to complete.

In addition to having highly sophisticated pricing actuaries and tools, financial modelling is another one of Converium’s strengths. The team has developed a state-of-the-art financial model, applied not only to the management of assets and liabilities, but also to the wider macro-economic environment. The model measures Converium’s asset and liability risk, as well as assigning economic capital to each risk class, and taking into account diversification effects within and between risk classes. The model forms the basis for decisions on capital and capacity allocation to risk classes and lines of business. In turn, the models have been developed with an eye on external stakeholders including regulators, with members of the financial modeling team being in regular contact with rating agencies and regulators, providing input and monitoring current developments.

Natural catastrophe exposures are modelled and monitored by experts from the natural and physical sciences. As well as assessing the overall probabilities of major catastrophe events, they are closely involved in the pricing process, and in setting underwriting limits. The team bases its work on both in-house and off-the-shelf cat models.

Converium’s retrocession team is responsible for defining, placing, and administering all retrocession covers, in accordance with the target portfolio. Alongside standard retrocession,

Converium has an active catastrophe bond (Helix 04), providing peak level protection against a range of natural catastrophes. The retrocession policies are designed to provide balance sheet rather than earnings protection.

The risk management team provides transparency across all risk categories, ensuring the consistent treatment and measurement of risk, and securing adherence to policies and guidelines throughout Converium. It is responsible for identifying, measuring, mitigating, and managing potential events concerning strategic, operational, and emerging risk.

Group internal audit checks that the risk management and mitigation procedures outlined in the risk policies and guidelines are adhered to.

The Internal Control/Sarbanes-Oxley team under the leadership of the Chief Operating Officer ensures the implementation and maintenance of Sarbanes-Oxley compliance and relevant processes and controls. In addition, this team ensures a company-wide management of all issues arising out of the work of functions such as external and internal audit, risk management, and compliance.

Managing risk classes

Converium distinguishes three risk classes: asset risk; liability risk; and operational risk. In keeping with a Company whose central focus is reinsurance, risk capital is chiefly allocated to liabilities – around 75% of total. Asset risk stands at around 16% of total risk capital, whilst operational risk has been minimized at around 8% of total.

Of particular importance to Converium’s approach is the simultaneous measurement and management of assets and liabilities (ALM). Assets and liabilities are assessed according to a single economic scenario generator, with large liability losses modelled for their effects on assets. The model is tested to a 1% expected shortfall (average loss of 1% worst cases for Converium) as well as a 5% expected loss. Capital is assigned within the ALM model, taking into account diversification effects, producing a risk-based capital (RBC) model. The RBC model is in turn key to Converium’s strategy process.

Converium regularly stress tests ALM exposures against a series of externally and internally defined extreme scenarios. These scenarios replicate the effects of extreme events on the balance sheet, quickly generating a credible picture of the effects of an event on the Company’s RBC. A consistent ALM process is encouraged by the rating agencies.

Liability risk

Converium’s liabilities stem from its core underwriting business. The respective risk control policies begin as soon as business is undertaken. Strict underwriting guidelines and authorities are in place, stipulating exactly who is allowed to write which business up to defined limits. In setting limits, Converium pays particular attention to accumulation risk, ensuring that high frequency, but low severity events do not

account for any excessive risk concentration. Adjusting capital, capacity, and limit allocation to certain reinsurance lines of business, better utilizes diversification benefits, allowing Converium to achieve an improved risk-return profile on its reinsurance portfolio.

All business written within pre-approved limits must also pass strict profitability targets, as agreed with the pricing team. The profitability of any business must be balanced against the contribution it makes to the Company’s overall risk profile. Pricing discipline is enforced through fine reporting systems. Alongside allowing day-to-day adjustments, the models allow for thorough reviews of overall business, which feed into the Company’s strategy.

The reserving standards which are set to ensure sufficient coverage for arising losses, are maintained through actuarial methods, peer reviews, escalation processes and documentary requirements. Pricing loss ratios are assimilated into reserve models, whilst qualitative input is sourced from underwriters, claims and risk teams. Converium seeks to ensure an early initial headline loss figure is provided for any major event.

Retrocession is a key risk management tool to improve the net portfolio balance and limit the effects of severe events. Converium primarily utilizes excess of loss structures to reduce areas of known aggregation and to increase leverage. The Company has both traditional and non-traditional tools at its disposal, limiting its dependency on any single retrocession market.

Asset risks

Converium manages a large investment portfolio. This portfolio gives rise to market risks and credit risks, both of which are subcategories to asset risk.

Converium has a strong set of investment guidelines in place as part of the ALM process. The Company operates a Strategic Asset Allocation (SAA) policy to ensure the balance of its portfolio. SAA ensures that assets broadly match liabilities, providing sufficient diversity of assets and allowing a maximum investment return in line with the Company’s risk appetite. Converium does not engage in tactical asset allocation which tries to outperform the market, and only engages in active asset management to a limited extent, with the majority of assets managed close to benchmark. Some external parties are engaged for asset management, closely supervised by Converium.

The bulk of the portfolio consists of fixed income assets, particularly high quality investment grade paper. Converium underwrites certain business that requires the provision of Letter of Credit (LoC) collateral guarantees. As a result Converium is less exposed to market price movements or credit risk, but is exposed to interest rate risk. In order to reduce interest rate exposure, a hedging structure is in place to protect the value of the asset portfolio against upward movements in interest rates. Converium also ensures a policy of appropriate diversification amongst assets, getting away from excessively large holdings. The Company is moving towards copulas* to calculate its diversity, as requested by the rating agencies, and away from correlation measurements. Capital market exposures are also regularly stress-tested against a number of extreme event scenarios.

*

The dependency is increased in times of stress.

Operational risk

Converium’s operational risks cover a range of potential exposures for the daily running of the Company, including IT systems failure, an array of external risks from terrorism attacks to earthquakes, or compliance requirements with external authorities. Converium has business continuity plans in place ready to react to a number of pre-defined scenarios. Employees are regularly informed of operational risk procedures and processes. In 2006 a Compliance Officer was appointed, to minimize compliance risk, and to pro-actively anticipate changes in the regulatory environment. Operational risk processes are also externally tested to guarantee standards amongst the best in the industry.

Operational risk subcategories include strategic, liquidity and reputational risk. Converium’s strategy risk processes are designed to stress-test current strategies against a series of environmental changes to the Company, such as significant macroeconomic developments, regulatory changes or alterations in consumer behaviour. These thorough testing policies are used to develop and decide upon new products.

To mitigate liquidity risk, the Company models its expected cash flow against a number of different scenarios, in order to have a good understanding of Converium’s liquidity position at any given point. Scenario planning is in place to assess any reputational damage incurred to the franchise under a number of named circumstances.

The Company has in place a general framework for analyzing operational risk and its subdivisions, using a process of risk identification, measurement, mitigation, and incidence management. Risk identification occurs throughout Converium, and is coordinated by risk management. Mitigation processes are in place when they provide a positive contribution to risk reduction, including guidelines, limits, and training programs for all employees.

Communicating risk processes

The result of Converium’s risk processes are not only key for internal decision-making, they provide valuable information on the Company for its external stakeholders. Risk professionals are in regular contact with regulators from national authorities, European Union bodies, and international financial institutions. Converium provides information on processes, sharing its insights and findings in the creation of new rules and standards.

The rating agencies have a growing influence over the scope of risk development within the reinsurance industry. At Converium, risk professionals work closely and cooperatively with the rating agencies, seeking to assure the solidity of the Company’s processes. The responsible employees further monitor refinements made to rating agency models and mirror them, in order for management to have a clear picture of where Converium stands with regard to this key stakeholder.

Both the Company’s investors and clients have a central interest in the risk policies of Converium. As with the relations with rating agencies and regulators, Converium provides levels of information above minimum disclosure requirements.

Anticipating future risk developments

Converium is confident in the robustness and the sophistication of its current risk policies. That does not however mean that it intends to rest on its laurels. Overall the Company aims to improve on operational and other risks, further developing control mechanisms in the underwriting process, and refining portfolio planning and capabilities. All the Company’s risk teams will continually advance their knowledge and will closely liaise with the rating agencies and regulators, seeking to make processes even more transparent for clients and investors. Converium believes that it is ahead of current regulatory developments, and is well prepared for the Swiss Solvency Test (SST) and Solvency II.

Swiss Solvency Test (SST)

In 2008 the Swiss Federal Office of Private Insurance (FOPI) will be introducing new regulatory requirements for (re-)insurers, based on the Swiss Solvency Test (SST). The SST requires the institutionalization of capital adequacy modelling and management, and compliance with sound risk management and corporate governance structures. By 2011 target capital requirements will have to be satisfied.

Converium is an active participant in a number of committees currently preparing the SST rules and aims to pass the Swiss Solvency Test by the end of 2007. As such the requirements of the new directive are well understood by the Company, and the organization is currently ahead of schedule in implementing them. Preparing for compliance with the SST will provide Converium with much of the groundwork for the implementation of Solvency II.

Solvency II is a package of legislation revising the risk-based solvency requirements of insurers, which will be enforced in Europe by 2010.

Corporate Governance

Organizational structure

Converium is organized into three business segments: Standard Property & Casualty Reinsurance, Specialty Lines, 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

Run-Off

Converium’s US operations which comprised of the Run-Off segment were sold to National Indemnity Company, a Berkshire Hathaway company, on December 13, 2006.

The three business segments are supported by global functional departments which include: Actuarial and Risk Modeling, Claims, Retrocession, Risk Management, Finance, Information Technology, Human Resources, Internal Services, Legal Services, and Corporate Communications and Development. As of December 31, 2006 Converium had 514 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, 2006 was CHF 2,398,372,704 (USD 1,915,340,441).

In December 2002, Converium Finance S.A., a Luxembourg company, issued non-convertible, unsecured, guaranteed subordinated notes with a principal amount of USD 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 non-listed companies as of December 31, 2006

% of equity

Company name

Country of incorporation

share held

Currency

Share capital

Converium AG

Switzerland/Zurich

100

CHF

400,000,000

Converium IP Management AG

Switzerland/Zurich

100

CHF

100,000

Converium Rückversicherung (Deutschland) AG

Germany/Cologne

100

EUR

4,601,627

Converium Holding (UK) Ltd

United Kingdom/London

100

GBP

101

Converium Insurance (UK) Ltd

United Kingdom/London

100

GBP

60,000,000

Converium London Management Ltd

United Kingdom/London

100

GBP

1,000

Converium Underwriting Ltd

United Kingdom/London

100

GBP

2

Converium Finance S.A.

Luxembourg/Luxembourg

100

EUR

31,000

Converium Finance (Bermuda) Ltd

Bermuda/Hamilton

100

USD

12,000

Significant shareholders

As of December 31, 2006, Patinex AG, Wilen, Switzerland was registered in Converium’s share register with 5.79%, Nortrust Nominees Ltd., London, United Kingdom, acting in its capacity as a nominee for other investors, with 6.10% and Chase Nominees Ltd., London, United Kingdom, as well acting as a nominee for other investors, with 5.24% (voting rights 5%) of all shares issued. No other persons were recorded in Converium’s share register with a shareholding exceeding 5% of all issued shares as of December 31, 2006. For more information about the entry of shareholders and nominees in the share register please refer to shareholders’ participation rights on page 26.

The following notices have been given to Converium in 2006 and in the first two months of 2007 in accordance with Art.20 of the Federal Act on Stock Exchange and Securities Trading:

		Date of				% of
Company		notification				shares
Odey Asset Management
London, United Kingdom
(acting as investment manager for various funds)		January 16, 2006					5.30	%
		February 15, 2006					4.96	%
Zürcher Kantonalbank		June 21, 2006					10.45	%
Zurich, Switzerland		June 27, 2006					6.92	%
		February 28, 2007				below 5%
Patinex AG, Wilen, Switzerland		February 19, 2007				below 5%
Scor SA, Puteaux, France		February 19, 2007					32.94	%

On February 19, 2007 Scor announced that it had acquired 32.9% of Converium’s share capital: 8.3% through direct market purchases and 24.6% through share purchase agreements, the consummation of which is subject to regulatory and antitrust approvals.

In 2006 Converium did not receive any notifications from Dodge & Cox, San Francisco, USA (last notification June 16, 2005: 5.04%) and Patinex AG, Wilen, Switzerland (last notification December 19, 2005: 12.49%).

Cross-shareholdings

Converium has no cross-shareholdings with any other joint-stock companies.

Capital structure

Ordinary share capital

As of December 31, 2006 Converium Holding AG had an ordinary share capital of CHF 733,447,310 divided into 146,689,462 fully paid-up registered shares with a nominal value of CHF 5 each.

Contingent share capital

Pursuant to Article 3a of Converium’s Articles of Incorporation, Converium’s share capital can be increased by the issuance of 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 through the exercise of option or conversion rights which will be granted on a stand-alone basis or in connection with bond issuances or other debt financing by Converium or one of its subsidiaries. The subscription right of the shareholders with respect to these shares is excluded. The advance subscription rights of the shareholders may be excluded by the Board if the options or conversion rights are used in connection with the financing of a take-over of a business, parts of a business or participations. In this case, the structure, term and amount of the bond issue or other debt financing, if any, as well as the terms and conditions of the option and/or conversion rights, are to be determined by the Board on the basis of the market conditions prevailing at the time of the issue of the rights. Option and/or conversion rights shall be exercisable for the maximum period of ten years. In 2006 no registered shares were issued from the contingent share capital.

Authorized share capital

Pursuant to Article 3b of the Articles of Incorporation, the Board of Directors is authorized, on or before April 11, 2008, 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. In 2006 no registered shares were issued from the authorized share capital.

Changes in capital

The changes in “additional paid-in capital” in 2006 primarily result from repurchasing shares to fulfill delivery obligations under various Employee Participation Plans. The Annual General Meeting further approved a dividend payment of CHF 0.10 per share in 2006, or CHF 14,668,946, reducing retained earnings. (See pages 48 and 98 of the Notes to the financial statements for further information on shareholders’ equity.)

Shares, other certificates and limitations on transferability

Converium has issued 146,689,462 fully paid-up registered shares with a nominal value of CHF 5 each. Each share carries one vote. There are no preferential rights for individual

shareholders. The Articles of Incorporation of Converium Holding AG do not provide for limitations on transferability of shares.

For more details on ownership rights and nominee registration please see page 26 under shareholders’ 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, the Global Executive Committee (GEC) and employees is contained in the Remuneration section of this document on page 25 and page 95 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, the body with ultimate responsibility for Converium’s policies and management, including investment, treasury, solvency and liquidity policies. The Board of Directors consists of no less than four and no more than nine members. Currently it comprises six. With wide-ranging experience in the reinsurance sector, this group represents an appropriate mix of skills for the effective governance of a major international reinsurance organization. The Board of Directors oversees Converium’s affairs and offers regular directives to the Global Executive Committee. All Board members except Derrell J. Hendrix, who acted for Converium as a consultant through the RISConsulting Group LLC in 2005, are non-executive and independent. 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. Each Board member must disclose any material relationship with the company or potential conflict of interests, annually, in a special statement which is evaluated by the Audit Committee. Following this evaluation the Board of Directors affirmatively determines which members of the Board of Directors qualify as independent.

Members of the Board of Directors

The composition of the Board of Directors includes a cross section of geography and professional experience. The members of the Board of Directors are elected for a term of office of not more than three years, after which they become eligible for re-election. In case of the election of a substitute, the new Board member finishes the term of office of the predecessor. The members of the Board, their years of birth, nationality and terms of office as at December 31, 2006 were as follows:

Members of the Board of Directors

Date of

Term

Name

Position

Year born

Nationality

first election

expires in

Markus Dennler

Chairman, non-executive and independent

Member of Audit Committee

Member of Nomination and Remuneration Committee

1956

Swiss

12.4.2005

2008

Rudolf Kellenberger

Vice Chairman, non-executive and independent

Vice Chairman of Audit Committee

Member of Finance and Risk Committee

1945

Swiss

12.4.2005

2008

Lennart Blecher

Non-executive and independent Director

Chairman of Finance and Risk Committee

Member of Audit Committee

Member of Nomination and Remuneration Committee

1955

Swedish

11.4.2006

2009

Detlev Bremkamp

Non-executive and independent Director

Chairman of Nomination and Remuneration Committee

Vice Chairman of Finance and Risk Committee

1944

German

11.4.2006

2009

Derrell J.Hendrix

Non-executive Director

Member of Finance and Risk Committee

1953

American

16.11.2001

2007

Harald Wiedmann

Non-executive and independent Director

Financial Expert, Chairman of Audit Committee

Vice Chairman of Nomination and Remuneration Committee

1945

German

11.4.2006

2009

18 |

At the Annual General Meeting on April 11, 2006 Peter C. Colombo, Chairman, Georg Mehl, Vice Chairman, Terry G. Clarke, George G. C. Parker and Anton K. Schnyder stepped down from the Board of Directors.

Curricula Vitae of the Board members

Markus Dennler served in a series of positions within the Credit Suisse Group, ultimately as a member of the Executive Board of Credit Suisse Financial Services and as Chief Executive Officer responsible for the global operational Life & Pensions business. Previously, he was a member of the Corporate Executive Board of Winterthur Insurance (subsidiary of Credit Suisse Group). Markus Dennler studied law at the University of Zurich and graduated in 1982. He received his doctorate degree in 1984 and was admitted to the Bar of Zurich in 1986. Further he attended the International Bankers School in New York and the Harvard Business School (AMP) in Boston. Currently he is Vice Chairman of Implenia, a member of the Board of Directors of Swissquote Group and Petroplus as well as a councillor of the British-Swiss Chamber of Commerce.

Rudolf Kellenberger served as Deputy Chief Executive Officer of Swiss Re from April 1, 2000 until the end of 2004. In this function he dedicated much of his time to tasks within the Corporate Center, in particular in the field of Management Development, Regulatory Affairs and E-Business Development. Previously, he served in a series of positions within Swiss Re’s Executive Board assuming responsibilities for the Northern European reinsurance sector and Special Lines and, as of July 1998, taking on the leadership of Swiss Re’s then newly founded Europe division. Rudolf Kellenberger studied civil engineering at the Federal Institute of Technology (ETH), Zurich, graduating in 1970. He is Chairman of the Swiss Aviation Pool and a member of the Board of Directors of Swiss Life.

Lennart Blecher is Managing Director of the HypoVereinsbank in Munich, Germany, and is responsible for relationships with major European clients. From 2002 to 2004 he was the Managing Director of Acquisitions & Business Development for GE Commercial Finance in London. Between 1988 and 2002 he held a number of positions within the ABB Group in Zurich, Switzerland, including General Counsel of the Financial Services Group, President of Structured Finance and President of Equity Ventures. Before working for ABB, Mr Blecher was an attorney in Sweden. He obtained a law degree from Lund University in Sweden in 1980 and an international law qualification from Dallas University in 1985. Mr Blecher is a Board member of Nordkap Bank in Zurich, the Volito Group in Malmö, Sweden (as well as co-owner), AIG Private Bank in Zurich, and Brunswick Rail Leasing in Russia. He is also a member of the advisory board of EQT Opportunity Fund in Stockholm, Sweden. During the period from 2000 to 2002 he was Deputy Chairman of the Swedish Export Credit Corporation.

Detlev Bremkamp served in a number of functions on the Board of Management at Allianz AG from 1991 to 2005, including responsibilities for European and overseas business, marine and aviation, alternative risk transfer and reinsurance. Prior to being promoted to the Board, he held a number of senior positions within the Allianz Group between 1971 to 1991, including Managing Director of Allianz Europe, and as member of the Board of Management within Allianz Versicherung. Mr Bremkamp did his apprenticeship with Allianz and completed further training programs with British insurers, brokers and Lloyd’s of London. He is a member of the supervisory board of ABB AG in Mannheim and Hochtief AG in Essen, both in Germany and Allianz Compagnia Italiana Finanziamenti S.p.A in Milan, Italy. Furthermore, he is on the advisory board of Lehman Brothers, London, and the Bayerische Landesbank in Munich, Germany. In addition, Mr Bremkamp holds a number of board memberships in several other companies and committees in the financial sector.

Derrell J. Hendrix is Chief Executive Officer of RISC Ventures LLC and 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.

Harald Wiedmann has been President of the German Accounting Standards Board in Berlin, Germany, since 2006. Before that, he worked in a variety of capacities within the KPMG Group from 1992 to 2005, first as a member of the Executive Board, then, from 1998 to 2005, as the CEO of KPMG Deutsche Treuhand-Gesellschaft AG, and, from 2002 until 2005, as Chairman of KPMG Europe, Middle East and Africa. From 1996 he was a member of the Executive Committee and the International Board of KPMG International. Prior to its merger with KPMG, he held a number of positions from 1974 in Peat Marwick Treuhand, an audit firm based in Frankfurt, Germany, most recently as Managing Partner. Professor Wiedmann was a member of the Main Technical Committee

of the German Institute of Auditors (Hauptfachaus-schuss des Institutes der Wirtschaftsprüfer) from 1988 to 1997, holding the post of President from 1993. He graduated with a degree in law from the German University of Munich in 1969 and obtained his doctorate and tax advisory qualification in 1976. He is an honorary professor at the University in Frankfurt and the Technical University in Berlin, both in Germany. He is the author of a number of publications on audit-related subjects and holds several professional memberships. Presently he is a member of the supervisory board of Praktiker Bau- und Heimwerkermärkte Holding AG, Wincor Nixdorf AG, ProSiebenSat.1 Media AG and Merz Pharma AG & Co KG and serves as member of the supervisory boards of several other non-listed companies in Germany.

Internal organizational structure of the Board of Directors

The Board of Directors 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 2006 the Board of Directors met seven times physically and held five further meetings by way of conference call. The average attendance of Board members at Board and Committee meetings was over 90%.

Meetings generally last one day, with Committee meetings preceding Board meetings. Agendas are set by the Chairman of the Board of Directors or the pertinent Chairman of the Committee respectively. At each of its meetings the Board of Directors must be informed, through formal reports 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 Board of Directors must be informed without delay. Furthermore, each Board member receives appropriate information with respect to any matter to be considered by the Board of Directors. For financial reporting purposes, this includes an appropriate quarterly reporting package comprising financial and investment information including consolidated financial accounts of 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, conference calls and meetings between Board members and members of the GEC are held to resolve formal matters or to exchange information. The Board of Directors performs an annual self-evaluation and sets its objectives based upon this evaluation. Annually it reviews the performance of the CEO and approves his or her 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 Board of Directors has three Committees, which meet in conjunction with or prior to Board meetings, as necessary, and regularly report and submit proposals to the Board of Directors. Each Committee has a Chairman who directs the meetings according to a set agenda, and a secretary, currently the General Legal Counsel.

The Nomination and Remuneration Committee¹ comprises at least three Board members and currently comprises four. Only independent Directors are eligible to serve on the Nomination and Remuneration Committee. In order to qualify as independent, a member may not accept any consulting, advisory or compensatory fee, other than his/her Board compensation, from the Company. In addition, a Nomination and Remuneration Committee member may not be a person affiliated with the Company or any of its subsidiaries. Standing invitees are the Chief Executive Officer (CEO) and the Chief Human Resources Officer.

The Nomination and Remuneration Committee proposes to the Board of Directors the appointment of members of the Board of Directors, of the Committees of the Board of Directors and of their chairpersons, the Chairman and Vice Chairman of the Board of Directors, the CEO and the members of the Global Executive Committee. They appoint and dismiss the General Legal Counsel (if not a member of the Global Executive Committee), the Head of Internal Audit and any outside directors of Converium companies. Furthermore the Nomination and Remuneration Committee sets the compensation levels for the GEC (except the CEO) and the Head of Internal Audit, and proposes to the Board of Directors the overall remuneration for the CEO and for each of the members of the Board of Directors. They elaborate the principles of compensation, of the incentive schemes, of bonus payments for the employees and submit them to the Board of Directors for approval. Their tasks and responsibilities also include the review of overall compensation above USD 750,000, the acceptance of Executive and Board memberships in third companies by GEC members, contracts between Converium

and any GEC members or any of their family members, not at arm’s length and any guidelines relating to the granting of loans by Converium to Converium employees. In 2006 the Remuneration and Nomination Committee met seven times physically.

The Finance and Risk Committee² comprises at least three Board members and currently comprises four. A majority of the members has to be financially literate. Standing invitees are the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the Chief Investment Officer and the Head of Financial & Rating Models.

The Finance and Risk Committee approves external providers of asset management services and capital increases in subsidiaries between USD 5 million and USD 20 million. It initiates and reviews the Credit Rating strategy of Converium and reviews the planned tactical asset allocation, group-wide cash management, financial performance of the asset management operations and the use of derivatives. The tasks and responsibilities also include the proposal to the Board of the accounting standards framework, 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, and share purchase program for Converium other than in connection with the operation of employee compensation plans, as well as exchange listings and de-listings.

The Finance and Risk Committee liaises with Converium’s Risk Management functions to review and identify Converium’s areas of greatest risk and their efficient management. It assesses and submits to the Board of Directors for approval Converium’s Risk Management Policy and the overall risk appetite for the most significant risk activities. It is responsible for the review and approval of the yearly risk management report, Converium’s risk assessment catalogue and action plans. In 2006 the Finance and Risk Committee held four meetings.

The Audit Committee comprises at least three Board members and currently comprises four. Only independent 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. Standing invitees are the Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, the Head of Internal Audit, the Global Financial Controller and the external auditor.

The Audit Committee recommends the appointment and dismissal of the external auditors to the Board of Directors, overviews the external auditors, supervises and reviews the effectiveness of the compliance policy including all compliance matters with material financial/reputational consequences, approves any public disclosure in conjunction with Converium’s financial results or any other disclosure with significant impact for Converium’s business, cooperates with the internal and external auditors in order to identify any possible deficiencies in the internal control mechanisms of Converium and discusses the annual audit report with the external and internal auditors as well as with management.

The tasks and responsibilities of the Audit Committee include the review of any financial statements, the approval of the quarterly and half-year results (except 4th quarter), review and assessment of any significant accounting and reporting issues as well as the review of Converium’s year-end results, reserve policy and dividend policy. The Audit Committee is briefed on how Converium’s management develops preliminary external announcements and interim financial information and assesses the fairness of such preliminary and interim statements on the basis of Converium’s applicable accounting principles. In 2006 the Audit Committee met nine times physically and held one meeting by way of conference call.

The Audit Committee is supported in its supervisory task by Group Internal Audit (GIA). GIA assists the Audit Committee in providing an independent, objective assurance and consulting activities that are designed to add value and improve an organization’s operations. GIA helps the organization in accomplishing its objectives by bringing a systematic approach for evaluating and improving the effectiveness of risk management, internal controls and governance processes.

GIA reports directly to the Audit Committee and covers all operations of Converium worldwide. GIA has unrestricted access to all relevant documents and information. The Audit Committee also approves the audit plans and the budgets of GIA.

2

In April 2006 the former Finance Committee was renamed “Finance and Risk Committee” and assumed responsibility for risk management matters previously assigned to the Audit Committee. This revision did not affect the overall tasks and responsibilities.

In 2006, GIA conducted various regular audit projects and executed the “Management Testing of the Internal Controls over Financial Reporting” (ICOFR) required by the Sarbanes-Oxley Section 404 on behalf of management.

Group Internal Audit is compliant with the Standards for Professional Practice of Internal Auditing set out by the Institute of Internal Auditors. This was confirmed by an external quality assessment review performed by KPMG.

The objectives of GIA, which were formally approved by the Audit Committee, are:

–		To evaluate the reliability and controls for the financial and risk reporting systems and to provide reasonable assurance that material errors and irregularities will be detected and that corrective actions are implemented on a timely basis.
–		To evaluate the reliability and integrity of financial and operational information.
–		To evaluate compliance with policies, plans, procedures, regulations, laws and contracts.
–		To safeguard the company assets.
–		To evaluate and promote efficient use of resources.
–		To review operations to ascertain whether results are consistent with established goals and whether the operations are being carried out as planned.
–		To review specific operations at the request of the Audit Committee (or management as appropriate).

The areas of responsibility of the Board of Directors, its Committees and the Global Executive Committee as well as the other corporate bodies are defined in the Organizational By-laws of Converium Holding AG, which are available on the internet at www.converium.com.

Converium’s Global Executive Committee

The Board of Directors has delegated the management of Converium to the Global Executive Committee (GEC). The GEC comprises an Executive Management Team, consisting of eight members as of December 31, 2006. The function of Chief Operating Officer whose responsibilities include reinsurance accounting, information technology, claims management and Sarbanes-Oxley compliance, was introduced as at July 1, 2006. The Head of Specialty Lines assumed additional responsibility for the Life & Health segment as of February 1, 2007. At the same time the number of members of the GEC was reduced from eight to seven. The GEC is generally responsible for implementing Converium’s global strategy, ensuring effective collaboration between each subsidiary and business segment, and reviewing progress against financial and operating plans as approved by the Board of Directors. At December 31, 2006 the GEC consisted of:

Members of the Global Executive Committee

Name		Year born		Nationality		Position held
Inga Beale		1963		British		Chief Executive Officer
Paolo De Martin		1969		Italian		Chief Financial Officer
Christian Felderer		1954		Swiss		General Legal Counsel
Benjamin Gentsch		1960		Swiss		Head of Specialty Lines
Markus Krall		1962		German		Chief Risk Officer
Christoph Ludemann		1956		German		Head of Life & Health Reinsurance
Frank Schaar		1960		German		Head of Standard Property & Casualty Reinsurance
Andreas Zdrenyk		1959		Swiss		Chief Operating Officer

Changes to the Global Executive Committee effective July 1, 2006:

–		Appointment of Markus Krall as Chief Risk Officer and member of the Global Executive Committee, replacing Peter Boller
–		Appointment of Andreas Zdrenyk as Chief Operating Officer and member of the Global Executive Committee
–		Appointment of Paolo De Martin as Chief Financial Officer and member of the Global Executive Committee, replacing Andreas Zdrenyk (interim Chief Financial Officer, February 28, 2005 until June 30, 2006)

Changes to the Global Executive Committee effective February 1, 2007:

–		Appointment of Jakob Eugster as Head of Standard Property & Casualty Reinsurance and member of the Global Executive Committee replacing Frank Schaar
–		Benjamin Gentsch Head of Specialty Lines assumes additional responsibility for Life & Health Reinsurance replacing Christoph Ludemann

Curricula Vitae of the GEC members

Inga K. Beale assumed the position of Chief Executive Officer as of February 1, 2006. She joined the Prudential Assurance Company, London, UK in 1982 as an underwriter specializing in reinsurance. In 1992 she joined GE Insurance Solutions where she headed up the UK Reinsurance Underwriting team. In 2001, Inga Beale took on the role of Global Underwriting Audit Leader in Kansas City, USA. Ms Beale became Global Underwriting CoE Leader in 2002 and in 2003 assumed responsibility for the Property & Casualty reinsurance business throughout Continental Europe, the Middle East and Africa. In 2004, she was appointed President and Chairman of the Board of Management of GE Frankona Rückversicherungs-AG in Munich, Germany. In 1987 she became an Associate of the Chartered Insurance Institute (ACII). She attended Newbury College, UK, where in 1981 she qualified in business studies, majoring in economics, mathematics and accountancy.

Paolo De Martin serves as Chief Financial Officer of Converium as of July 1, 2006. He joined General Electric Company in 1995 as a finance trainee in London. In 1997 he was recruited in GE’s internal auditing & consulting group, charged with assignments in multiple GE businesses in the Americas, Europe and Asia-Pacific. In 2001, Paolo De Martin was promoted to Executive Manager for GE Capital Europe and then joined GE Insurance Solutions as financial planning and analysis manager for Global Property and Casualty Reinsurance. As of 2003 he was CFO for GE Frankona group. Prior to joining GE he gained a two-year entrepreneurial experience in the eyeglasses business as founder and managing partner of an eyewear manufacturer. Paolo De Martin is a 1993 graduate in Business Economics of Ca’ Foscari University, Italy.

Christian Felderer is the General Legal Counsel and an Executive Vice President of Converium. He joined Zurich Re in 1997 and has more than 20 years experience in the insurance and reinsurance industry, most recently as Senior Legal Counsel for Zurich Re and General Counsel for Converium. Between 1990 and 1997 Mr Felderer had various management responsibilities within the Zurich Group’s International Division, including the establishment and management of the Captives and Financial Risk Management department and management of the Claims organization of the International Division. From 1986 to 1990 he was Corporate Legal Counsel in the General Counsel’s Office of the Zurich Insurance Group, and from 1983 to 1986 he was an underwriter in the Casualty department of the International Division. Mr Felderer has a law degree from the University of Zurich and is admitted to the Bar of the Canton of Zurich.

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 a director of Global Aerospace Underwriting Managers Ltd. (GAUM) and Medical Defence Union Services Ltd. (MDUSL). Mr Gentsch holds a degree in business administration of the University of St. Gallen, with a focus on risk management and insurance.

Markus Krall serves as Chief Risk Officer as of July 1, 2006. He was a senior partner at McKinsey & Company in Frankfurt and Head of the Risk Management Practice in Central Europe as well as a member of the Global Leadership Group of the Risk Management Practice. In this role he led a portfolio of global risk management assignments and projects spanning banking and insurance in Europe, the United States, the Middle East, Asia and Australia. Among the clients Mr Krall served were several of the global top 20 financial services providers, regulatory bodies and supranational institutions. He held that role since 2003 when he joined McKinsey & Company. Mr Krall started his professional career at Allianz AG Holding in Munich in 1991 as a member of the Executive Board’s staff. In 1994, he moved to the consulting profession with a focus on financial services, first for the Boston Consulting Group in Frankfurt, then, as from 1997, for Oliver Wyman & Company where he specialized in risk management for financial services institutions and was elected Partner and Director in 2000. He is a German citizen, holds a diploma and a PhD in economics from the University Freiburg i. Br., Germany. He completed his postgraduate studies at the Imperial University of Nagoya, Japan.

Christoph Ludemann was the Executive Vice President for Life & Health Reinsurance until January 31, 2007. 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.

Frank Schaar was the Executive Vice President for Standard Property & Casualty Reinsurance until January 31, 2007. He joined Zürich Rückversicherung (Köln) AG as Chief Executive Officer in 2000. Previously he was employed by Hannover Re for 17 years until 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.

Andreas Zdrenyk serves as Chief Operating Officer as of July 1, 2006. He joined Zurich Re in 1998 and gained in-depth insight into the Company’s operations in various functions such as Chief Financial Officer of Zurich Re, Zurich, Converium Zurich and Converium Group, Head of Internal Audit & Consulting and Global Chief Information Officer. 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. Since December 5, 2005, Mr Zdrenyk is a director of Medical Defense Union Services Ltd. (MDUSL). Andreas Zdrenyk holds a Master in Business Administration from Cox School of Business, Dallas, USA and a Master in Information Systems/Information Technology degree from the Swiss Association of Commerce, Zurich, Switzerland.

Member of the GEC as of February 1, 2007 Curricula Vitae

Jakob Eudgster is Converium’s Executive Vice President for Standard Property & Casualty Reinsurance, effective February 1, 2007. After finishing his studies in Sargans, Switzerland, he started his reinsurance career in 1974 at Swiss Re in Zurich, with a focus on the German market. Jakob Eugster later became the assistant to Swiss Re’s CEO before assuming the client relationship responsibility for Switzerland and Austria. In 1998 he was appointed Member of the Executive Team of Swiss Re’s Europe division, taking charge of the Swiss and Austrian markets as well as selected German clients. From 2002 to 2005 he served as Managing Director of the German office of Benfield, one of the world’s leading reinsurance brokers. In this Munich-based role he was responsible for developing Benfield’s German, Swiss and Austrian markets. From 1993 to 1995 Jakob Eugster attended the University of St. Gallen International Management Seminar for insurance industry executives.

Management contracts

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

Compensation, shareholdings and loans

Board remuneration

For the term of office 2005 / 2006, basic cash compensation for an ordinary Board member, set at CHF 100,000 (USD 79,860), includes compensation for the 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 (USD 19,965) with a restriction period of three years, and share options equal to a value of CHF 25,000 (USD 19,965) 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:

–		CHF 4,000 (USD 3,194) for membership of a second Committee
–		CHF 3,000 (USD 2,396) for membership of a third and any subsequent Committee and additionally,
–		CHF 5,000 (USD 3,993) if the member holds one or more chairmanships in the Committees.

Board Members receive an additional compensation for any Board or Committee meetings in addition to the regular number of meetings as follows:

–		CHF 5,000 (USD 3,993) for any additional meeting with physical presence by the member
–		CHF 2,500 (USD 1,997) for a meeting with attendance by phone or video conference by a member

Non-executive members of the Board of Directors receive compensation of CHF 12,522 (USD 10,000) annually for a membership in the Board of Directors and CHF 6,220 (USD 5,000) for a membership in a Committee of Converium Reinsurance (North America) Inc.

For the term 2006 / 2007 the overall cash compensation for the Board of Directors is as follows:

Function		CHF (USD)
Ordinary Board Member – No Committee Chair			106,667 (85,184	)
Ordinary Board Member – With Committee Chair			146,467 (116,968	)
Vice Chairman of the Board			220,000 (175,692	)
Chairman of the Board			440,000 (351,384	)

One half of the cash compensation is paid on the date of the Annual General Meeting at the beginning of the annual period for which the Board members serve and the other half on the date of the Annual General Meeting at the end of the annual period.

In addition to the cash compensation the Board of Directors are entitled to an equity compensation granted on the date of the Annual General Meeting at the end of annual period, which comprises of Converium shares in an amount equal to one quarter of the cash compensation, subject to a restriction period of three years and Converium share options in an amount equal to one quarter of the cash compensation calculated on the Black-Scholes formula on the basis of the Converium share price at the beginning of the period.

The remuneration of the Board of Directors is not performance-related.

The following table illustrates the compensation paid to each Board member in 2006. 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 Board members in 2006

		CHF
Markus Dennler			421,000
Rudolf Kellenberger			238,500
Lennart Blecher			73,333
Detlev Bremkamp			73,333
Derrell J. Hendrix			118,333	1
Harald Wiedmann			73,333
Peter C. Colombo*			371,000	2
Georg Mehl*			143,500
Terry G. Clarke*			886,940	3
George G. C. Parker*			92,000
Anton K. Schnyder*			137,000
Total			2,628,272

In 2006 no further compensation was paid to a former member of the Board of Directors.

Shareholdings of Board members in Converium as of December 31, 2006

		Shares				Shares held
		allocated				at Dec 31,
		in 2006				2006
Markus Dennler			2,110				2111
Rudolf Kellenberger			2,110				2111
Lennart Blecher			1				1
Harald Bremkamp			1				1
Derrell J. Hendrix			2,110				3,289
Harald Wiedmann			1				1
Peter C. Colombo			3,165				n.a.	*
Terry G. Clarke			2,110				n.a.	*
George Parker			2,110				n.a.	*
Georg Mehl			2,637				n.a.	*
Anton K. Schnyder			2,110				n.a.	*

Converium has retained the RISConsulting Group LLC, of which Mr Hendrix is co-owner and Chief Executive Officer, for certain consulting services. Converium paid total fees of USD 20,833 (CHF 25,918) to the RISConsulting Group LLC for services rendered in 2005. In 2006 the RISConsulting Group LLC did not render any services. 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 USD 2.0 million in RISC Ventures LLC for an approximate 17.5% ownership interest in that entity. Converium sold its 17.5% ownership interest in RISC Ventures LLC to a third party at book value on October 28, 2005.

Options held by Board members as of December 31, 2006

		Number of options
						Rudolf																																Sub-				Strike
Year		Markus				Kellen-				Derrell J.				* Peter C.				* George				* Terry G.				* George G. C.				*Anton K.				Expiry				scription				price
of grant		Dennler				berger				Hendrix				Colombo				Mehl				Clarke				Parker				Schnyder				date				ratio				CHF
2002			n. a.				n. a.				937				1,406				1,125				681				937				937			Oct 30, 12					1:1				28.67
2003			n. a.				n. a.				1,864				2,797				2,237				1,864				1,864				1,864			Nov 27, 13					1:1				27.03
2004			n. a.				n. a.				1,448				2,172				1,810				1,448				1,448				1,448			Oct 27, 14					1:1				14.80
2005			n. a.				n. a.				3,259				4,889				4,074				3,259				3,259				3,259			Oct 12, 15					1:1				33.22
2006			5,774				5,774				5,774				0				3,217				5,774				5,774				5,774			Oct 11, 16					1:1				11.85
Total			5,774				5,774				13,282				11,264				12,463				13,026				13,282				13,282

In 2006 no options were granted to Board members first elected on April 11, 2006.

Options vest immediately, have a term of 10.5 years and an exercise price equal to fair market value at the beginning of the period for which they are granted. The strike price of all options outstanding prior to the Rights Offering in 2004 was adjusted in 2005 in order to account for the dilution of the value of the options as a result of the Rights Offering. The reduction in the strike price maintains the same Black-Scholes value of the option before and after the Rights Offering and does not reflect any other decrease in the share price.

All options granted to Terry G. Clarke, Peter C. Colombo, Georg Mehl, George G. C. Parker, Anton K. Schnyder expire on April 11, 2008.

In 2006 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 2006 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.

GEC remuneration

The Nomination and 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 corporate and personal achievement of the incentive award targets set annually by the Board of Directors.

Shareholdings of GEC members in Converium as of December 31, 2006

		Shares granted				Shareholdings
		in 2006				as of December 31, 2006
						Unvested				Vested
						shares				shares
Inga Beale			19,109				19,109				0
Paolo De Martin			26,949				8,223				18,726
Christian Felderer			19,351				31,110				22,119
Benjamin Gentsch			35,706				47,645				78,276
Markus Krall			9,046				9,046				0
Christoph Ludemann			19,733				33,403				14,616
Frank Schaar			26,224				46,440				23,107
Andreas Zdrenyk			16,302				24,989				18,643

Shares granted in 2006 include shares awarded under the Long-Term Incentive Plan (LTIP), which are subject to various vesting schedules and shares purchased through the employee stock purchase plan. During the vesting period there is a risk of forfeiture in case of any termination of the employment relationship. Includes shares held by closely linked parties.

The Nomination and 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.

Options held by GEC members as of December 31, 2006

		Number of options
																																						Sub-				Strike
Year		Inga				Paolo De				Christian				Benjamin				Markus				Christoph				Frank				Andreas				Expiry				scription				price
of grant		Beale				Martin				Felderer				Gentsch				Krall				Ludemann				Schaar				Zdrenyk				date				ratio				CHF
2001			n. a.				n. a.				957				22,965				n. a.				n. a.				53,030				974			Jun 11, 12					1:01				26.50
2001			n. a.				n. a.				0				605				n. a.				n. a.				0				0			Jan 13, 07					1:01				26.50
2002			n. a.				n. a.				1,791				2,613				n. a.				n. a.				4,123				1,791			Oct 01, 12					1:01				27.59
2002			n. a.				n. a.				1,792				3,857				n. a.				n. a.				4,123				1,792			Apr 01, 13					1:01				18.00
2003			n. a.				n. a.				4,423				10,208				n. a.				3,012				9,456				4,423			Oct 01, 13					1:01				15.07
2003			n. a.				n. a.				3,385				5,974				n. a.				2,037				5,649				2,213			Apr 01, 14					1:01				16.09
2004			n. a.				n. a.				1,515				9,781				n. a.				8,958				9,852				3,583			Oct 01, 14					1:01				16.28
2004			n. a.				n. a.				6,059				9,781				n. a.				1,856				2,463				896			May 01, 15					1:01				8.64
2004			n. a.				n. a.				5,216				23,677				n. a.				6,388				8,479				3,085			Jun 22, 15					1:01				8.64
2005			n. a.				n. a.				23,642				33,394				n. a.				25,231				33,488				18,663			Oct 01,15					1:01				11.60
2005			n. a.				n. a.				24,039				33,955				n. a.				25,654				34,050				18,976			Apr 01, 16					1:01				13.05
2006			27,947				n. a.				18,761				26,500				n. a.				20,391				27,064				15,830			Oct 01, 16					1:01				16.10
2006			28,158				23,629				18,904				26,702				25,992				20,546				27,269				15,951			Apr 01, 17					1:01				15.20
Total			56,105				23,629				110,484				210,012				25,992				114,073				219,046				88,177

Options have an exercise price equal to the market value of the shares or ADSs on the date of grant, vest 25% immediately on the grant date and 25% each year thereafter, and have a 10.5-year term.

The strike price of all options outstanding prior to the Rights Offering in 2004 was adjusted in 2005 in order to account for the dilution of the value of the options as a result of the Rights Offering. The reduction in the strike price maintains the same Black-Scholes value of the option before and after the Rights Offering and does not reflect any other decrease in the share price.

Total aggregate compensation of all officers of the GEC in 2006 was USD 6.4 million (CHF 8.0 million). This total includes base salary and cash awards made under short- and long-term incentive plans paid during 2006, and the estimated value of other compensation-related items.

Two members of the GEC, Peter Boller and Terry G. Clarke, gave up their functions during 2006. In line with contractual obligations a total of USD 1.0 million (CHF 1.2 million) (including share awards) was paid to these individuals in 2006. No further payments were made to former members of the GEC.

GEC members held shares and options at the end of December 2006. 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 92 and 96 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 Board of Directors. 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. The General Meeting is convened by the Board of Directors 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 Board of Directors 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 as defined by the Board of Directors are authorized to take part. In view of the Ordinary General Meeting 2007, all shareholders registered on May 8, 2007 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 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.

1.		An alteration of the purpose of Converium.
2.		The creation of super-voting shares.
3.		Restrictions on the transfer of registered shares and the removal of such restrictions as well as restrictions to vote and the removal of such restrictions.
4.		An authorized or contingent increase of share capital.
5.		An increase of share capital by conversion of capital surplus, by contribution in kind or for the purpose of an acquisition of assets and the grant of special rights.
6.		A restriction or exclusion of the subscription right or advance subscription right.
7.		A change of Converium’s registered office.
8.		The dissolution of Converium without liquidation.

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.

Persons not explicitly declaring themselves to be holding the shares in their own name and for their own account (“nominees”) are registered in the share register as shareholders with voting rights without further inquiry up to a maximum of 5% of the nominal share capital of the Company ¹. Over this limit of 5% the Board of Directors is authorized to register nominees as shareholders with voting rights only if the respective nominee discloses the name, address and the shareholdings of the persons for their account he holds 0.5% or more of the nominal share capital of the Company. The Board of Directors may enter into agreements with such nominees with regard to disclosure requirements, the representation of such shares, and the exercise of the respective 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 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 Board of Directors provide for additional benefits in the case of a change of control other than stated below.

Upon a take-over situation all outstanding options and shares granted to the members of the GEC or other staff would vest immediately. Furthermore in such a situation the employment agreements with the members of the GEC provide for a severance payment in the amount of an annual base salary and 100% of the GEC member’s personal Annual Incentive Plan target in case the employment agreement is terminated by the employer (or under certain circumstances – i. e. in case of a constructive termination – by the GEC member) within 12 months after the completion of a take-over situation.

1

On April 11, 2006 the Annual General Meeting amended Art. 5 of the Articles of Incorporation of Converium Holding AG and simplified the entry of Nominees in the share register.

28 |

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 Meeting on April 11, 2006 PricewaterhouseCoopers Ltd was re-appointed for another one-year term as Converium’s auditors. The current lead audit engagement partner assumed the mandate on May 27, 2003. The fees for services rendered, excluding expenses, related to the year 2006 are:

		CHF				(USD)
Audit fees
(including fees related to the restatement)			10,011,000				(7,994,000	)
Audit-related fees			499,000				(398,000	)
Tax advisory services			173,000				(138,000	)
Other non-audit services			22,000				(18,000	)
Total fees			10,705,000				(8,548,000	)

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 2006 the Audit Committee met nine times physically and held one conference call 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, 2006. 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 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 BoD then nominates the external auditor for election by the shareholders’ meeting.

Responsibility of the Audit Committee for Risk Assessment and Risk Management

Converium’s Organizational By-laws allocate responsibility for the discussion of guidelines and policies governing the process by which Risk Assessment and Risk Management is undertaken to the Finance and Risk Committee and not to the Audit Committee as provided by the NYSE governance rules.

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 Committee must have a written charter

The main duties and responsibilities of the Nomination and Remuneration Committee are defined in the Organizational By-laws. Converium’s Nomination and Remuneration Committee does not have a separate written charter. The Organizational By-laws are available on the internet at www.converium.com. Converium has no separate Corporate Governance Committee. The BoD addresses corporate governance issues that are not especially assigned to one of the Committees.

Separate reports of the BoD 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:

Investor Relations		Transfer Agent & Registrar
Marco Circelli Head of Investor Relations Converium AG General Guisan-Quai 26 P. O. Box 8022 Zurich, Switzerland Phone +41 44 639 91 31 E-mail marco.circelli@converium.com		For American Depository Shares (ADS) traded on the New York Stock Exchange: The Bank of New York Corporate Trust Office 101 Barclay Street New York, NY 10286, USA Phone +1 646 885 33 00
Shareholder contact		Auditors
Livia Gallati Shareholder Services Converium Holding AG Dammstrasse 19 6301 Zug, Switzerland Phone +41 44 639 93 35 E-mail shareholder. services@converium.com		PricewaterhouseCoopers Ltd Birchstrasse 160 8050 Zurich, Switzerland Phone +41 58 792 44 00
Media Relations
Beat Werder Head of Public Relations Converium AG General Guisan-Quai 26 P. O. Box 8022 Zurich, Switzerland Phone +41 44 639 90 22 E-mail beat.werder@converium.com

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Financial statements

32 |

Selected financial and other data

We have prepared our financial statements included in this annual report in accordance with accounting principles genenerally accepted in the United States of America (“US GAAP”).

The following selected financial data highlights information that is derived from our financial statements found later in this annual report.

Income statement data (Restated ¹)

(USD million, except per share information)
Year ended December 31		2006				2005				2004				2003				2002
																		Restated 1
Revenues
Gross premiums written			1,980.9				1,955.0				3,492.2				3,113.2				2,402.7
Net premiums written			1,852.0				1,783.1				3,255.9				3,297.8				2,406.0
Net premiums earned			1,811.7				2,254.8				3,098.5				3,262.2				2,081.0
Net investment income			260.4				257.8				227.5				155.7				138.3
Net realized capital gains (losses)			18.9				31.3				31.2				–3.1				–34.2
Income from continuing operations before taxes			255.5				50.2				21.0				260.6				100.0
Income from continuing operations			215.0				34.1				25.6				244.3				82.0
(Loss) income from discontinued operations			–157.9				34.6				–608.1				–66.4				12.4
Net income (loss)			57.1				68.7				–582.5				177.9				94.4
Earnings (loss) per share
Average number of shares (millions)			146.2				146.4				63.4				39.8				39.9
Basic earnings (loss) per share:
from continuing operations			1.47				0.23				0.40				6.14				2.06
from discontinued operations			–1.08				0.24				–9.59				–1.67				–1.16
Total basic earnings (loss) per share			0.39				0.47				–9.19				4.47				0.90
Diluted earnings (loss) per share:
from continuing operations			1.45				0.23				0.40				6.06				2.02
from discontinued operations			–1.07				0.23				–9.49				–1.65				–1.14
Total diluted earnings (loss) per share			0.38				0.46				–9.09				4.41				0.88
Balance sheet data
Total invested assets			5,765.3				6,634.3				7,786.2				7,502.0				6,117.3
Total assets			10,523.0				11,825.9				14,187.3				13,126.9				10,675.0
Reinsurance liabilities			7,036.9				8,200.8				9,898.9				8,428.6				6,986.7
Debt			194.1				391.2				391.1				393.1				392.9
Total liabilities			8,677.0				10,172.5				12,452.5				11,198.9				9,079.8
Total shareholders’ equity			1,846.0				1,653.4				1,734.8				1,928.0				1,595.2
Book value per share
Book value per share			12.63				11.29				11.86				48.47				39.97
Segment data
Net premiums written by segment:
Standard Property & Casualty Reinsurance			816.9				739.0				1,377.4				1,299.9				974.2
Specialty Lines			729.4				737.7				1,565.3				1,743.4				1,201.8
Life & Health Reinsurance			305.7				306.4				313.2				254.5				230.0
Total net premiums written			1,852.0				1,783.1				3,255.9				3,297.8				2,406.0
Non-life combined ratio			96.3	%			107.0	%			105.7	%			93.4	%			99.9	%

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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”.

Overview

Converium Holding AG and subsidiaries (“Converium” or the “Company”) is an international reinsurer whose business operations are recognized for innovation, professionalism and service. As a multi-line reinsurer, we pursue a strategy of profitable organic growth with a geographic emphasis on Europe, Asia-Pacific, Central and South America and the Middle East and a distinct focus on global specialty lines. In addition, we underwrite and manage US-originated business through Converium AG, Zurich, with a focus on shorter-tail lines. We actively seek to develop efficient and effective reinsurance solutions to complement our target clients’ business plans and needs. We focus on core underwriting skills and on developing close client relationships while honoring our and our clients’ relationships with intermediaries.

Converium currently manages its business 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 corporate functions as well as expenses not allocated to the operating segments. In addition to reporting segment results individually, management also aggregates results for Standard Property & Casualty Reinsurance and Specialty Lines into non-life business, as management considers this aggregation meaningful in understanding the performance of Converium.

We offer a broad range of non-life and life reinsurance products. In non-life reinsurance, our lines of business include General Third Party Liability, Motor, Personal Accident (assumed from non-life insurers), Property, Agribusiness, Aviation & Space, Credit & Surety, Engineering, Marine & Energy, Professional Liability and other Special Liability and Workers’ Compensation. In Life & Health Reinsurance, our lines of business include Life and Disability reinsurance, including quota share, surplus coverage and financing contracts and Accident & Health.

In December 2001, Converium was formed through the restructuring and integration of substantially all of the third party assumed reinsurance business of Zurich Financial Services (“ZFS”) through a series of transactions.

On December 13, 2006, Converium sold its North American operations to National Indemnity Company, a Berkshire Hathaway company, for a total consideration of USD 295.0 million comprising of USD 95.0 million in cash and USD 200.0 million in assumption of debt. Converium has not provided any guarantee or indemnity in respect of the reserves of the North American operations. The transaction was approved by the Insurance Department of the State of Connecticut. Our North American operations were previously reported as the principal component of a separate segment, the Run-Off segment. Converium’s financial results of the North American business, including prior period amounts, have been reclassified to discontinued operations. For further details regarding the sale of the North American operations, see Note 2 to the consolidated financial statements.

During the course of 2006, Converium interacted frequently with Standard & Poor’s (S & P) and A.M. Best. On February 28, 2007, S & P’s ratings services raised its long-term counterparty credit and insurer financial strength ratings on Switzerland-based reinsurer Converium AG and its long-term insurer financial strength ratings on guaranteed operating entities Converium Rückversicherung (Deutschland) AG and Converium Insurance (U.K.) Ltd to “A—” from “BBB+”. At the same time, S & P removed these ratings from CreditWatch, where they had been placed with positive implications on October 17, 2006. The outlook on all entities is stable.

Scor ownership

On February 26, 2007, Converium’s Board of Directors publicly noted the announcement by SCOR, for a public tender offer of Converium shares at price of 0.5 SCOR share for each Converium share plus a cash payment of CHF 4 in order to purchase the remaining publicly owned share capital of Converium. Converium’s Board of Directors has rejected the unsolicited proposal.

As a general practice, contracts, including contracts of reinsurance, may include change in control provisions which may allow termination of a particular contract upon a change of control situation occurring. Such clauses are subject to the law and jurisdiction of the individual contract. If exercised, such a clause could have a material adverse impact on the Company’s financial condition. Material contracts which could potentially be impacted in a change of control situation include the aviation pool membership and shareholding in GAUM, the MDU business and Converium’s shareholding in MDUSL as well as the ZIC and ZIB Quota Share Retrocession Agreements. A certain number of employment contracts as well as certain of Converium’s compensation plans also have provisions governing this event.

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

Results of operations

(USD million)
Year ended December 31		2006				2005				2004
Pre-tax operating income from continuing operations			236.4				52.5				-0.1
Net realized capital gains (losses)			18.9				31.3				31.2
Amortization of intangible assets			—				-21.5				-9.9
Restructuring costs			0.2				-12.1				-0.2
Income from continuing operations before taxes			255.5				50.2				21.0
Income from continuing operations			215.0				34.1				25.6
(Loss) income from discontinued operations			-157.9				34.6				-608.1
Net income (loss)			57.1				68.7				-582.5

For the year ended December 31, 2006, we reported income from continuing operations of USD 215.0 million compared with USD 34.1 million for the same period in 2005. Our 2006 figures demonstrate the quality of our underlying book of business, the absence of any major catastrophic events, as well as a satisfactory net investment income. The significant increase in profit is driven by an improvement in the non-life combined ratio from 107.0% in 2005 to 96.3% in 2006. In addition, our results were positively impacted by the net favorable impact of prior accident years on the technical result of USD 52.1 million, resulting from net favorable development of prior years’ loss reserves of USD 102.8 million, which were offset by reductions in premiums and other expenses of USD 50.7 million.

The (loss) income from discontinued operations comprises of the sale of the North American operations (discontinued business), which were sold to the National Indemnity Company. In 2006, loss from discontinued operations was USD 157.9 million, consisting of a total transaction loss of USD 190.1 million which was recognized upon the completion of the sale on December 13, 2006. This was offset by income from operations of discontinued business of USD 32.2 million.

Net income from operations of discontinued business was USD 32.2 million and USD 34.6 million for the years ended December 2006 and 2005, respectively compared with a net loss for the year ended December 2004 of USD 608.1 million. The positive results in 2005 reflect commutations after our North American operations were put into run-off in 2004. The net loss from discontinued operations in 2004 included the net adverse impact of prior year accident years on the technical result of USD 506.4 million and an impairment of goodwill of USD 94.0 million.

Our 2005 results were positively impacted by the net favorable impact of prior accident years on the technical result of USD 42.8 million, resulting from net favorable development of prior years’ loss reserves of USD 86.0 million, which were offset by the reductions in premiums and other expenses of USD 43.2 million as well as a satisfactory net investment income. However, our results were adversely impacted by significant natural catastrophe losses totaling USD 149.2 million from Winter Storm Erwin, the Continental European floods and the US hurricanes, which had an effect of 7.7 points on our 2005 non-life combined ratio of 107.0%.

The Company uses pre-tax operating results to measure the performance of our underlying reinsurance 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. We reported a pre-tax operating income from continuing operations of USD 236.4 million for the year ended December 31, 2006 as compared with a pre-tax operating income of USD 52.5 million for the same period in 2005.

We reported net realized gains on investments of USD 18.9 million and USD 31.3 million for the years ended December 31, 2006 and 2005, respectively. Net realized gains for 2006 largely reflect the sale of our holdings in Swiss direct real estate of
USD 130.1 million in gross proceeds which generated pre-tax realized gains of USD 18.7 million. Net realized capital gains for 2005 primarily related to the sale of equity securities which were driven by our asset reallocation, which generated proceeds of approximately USD 39.6 million. This positive impact was partially offset by USD 2.4 million related to the partial impairment of our 48% participation is SATEC, which we sold in December 2005.

For the year ended December 31, 2004, we reported income from continuing operations of USD 25.6 million, which was reflective of our Standard Property & Casualty and Life & Health Reinsurance underwriting results and the realization

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of net capital gains on our investment portfolio of USD 31.2 million. These positive impacts were adversely affected by several large natural catastrophe losses with a total net impact of USD 98.4 million. Further, we were impacted by net adverse impact of prior accident years on the technical result in the amount of USD 123.0 million, resulting from net adverse development of prior years’ loss reserves of USD 72.8 million, which included reductions in premiums and other expenses of USD 50.2 million. The resulting non-life combined ratio was 105.7% for the year ended December 31, 2004. In addition, we established a valuation allowance against the net deferred tax assets at Converium AG of USD 126.1 million. Pre-tax operating loss was USD 0.1 million for the year ended December 31, 2004.

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

Reinsurance results

Premiums written and earned

(USD million)
Year ended December 31		2006				2005				2004
Gross premiums written			1,980.9				1,955.0				3,492.2
Net premiums written			1,852.0				1,783.1				3,255.9
Net premiums earned			1,811.7				2,254.8				3,098.5

For the year ended December 31, 2006, gross premiums written increased by 1.3% and net premiums written increased by 3.9% showing a resilient franchise and visible progress made towards the Company’s turnaround in 2006. Net premiums earned have decreased due to the impact of the ratings downgrades in 2004.

For the year ended December 31, 2006, net premiums written in Standard Property & Casualty Reinsurance increased by USD 77.9 million, or 10.5%, Specialty Lines decreased by USD 8.3 million, or 1.1% and net premiums written in the Life & Health Reinsurance segment decreased by USD 0.7 million, or 0.2%. On a consolidated basis we ceded 6.5% and 8.8% of our gross premiums written for the years ended December 31, 2006 and 2005, respectively.

Losses, loss expenses and life benefits
(USD million)
Year ended December 31		2006				2005				2004
Losses, loss expenses and life benefits			–1,187.8				–1,720.1				–2,395.0
Non-life loss ratio (to net premiums earned)			65.1	%			77.4	%			77.6	%

Our losses, loss expenses and life benefits incurred decreased for the year ended December 31, 2006 as compared with the same period of 2005 due to a reduction in overall business volume, the absence of any major catastrophic events as well as net favorable development of prior years’ loss reserves. The results for the year ended December 31, 2005 were impacted by the effects of natural catastrophes, which added 7.7 points to the non-life loss ratio. The results for the year ended December 31, 2004 were similarly impacted by natural catastrophes which added 3.5 points to the non-life loss ratio.

Development of prior years’ loss reserves

For the year ended December 31, 2006, we reported net favorable development of prior years’ loss reserves of USD 102.8 million. The Standard Property & Casualty Reinsurance segment was positively impacted by net favorable development of prior years’ loss reserves of USD 54.1 million primarily related to the Property and General Third Party Liability lines of business of USD 45.1 million and USD 24.6 million, respectively, partially offset by net adverse development of prior years’ loss reserves related to the Motor line of business of USD 16.5 million. The Specialty Lines segment was positively impacted by net favorable development of prior years’ loss reserves of USD 48.7 million primarily related to the lines of business: Aviation & Space and Engineering of USD 34.9 million and USD 16.2 million, respectively, partially offset by net adverse development of prior years’ loss reserves related to the Professional Liability and other Special Liability line of business of USD 17.6 million.

36 |

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

For the year ended December 31, 2005, we recorded net favorable development of prior years’ loss reserves of USD 86.0 million. The Standard Property & Casualty Reinsurance segment was positively impacted by net favorable development of prior years’ loss reserves of USD 30.7 million primarily related to the Property line of business of USD 73.3 million, partially offset by net adverse development of prior years’ loss reserves within the Motor and General Third Party Liability lines of business of USD 25.0 million and USD 23.4 million, respectively. The Specialty Lines segment was positively impacted by net favorable development of prior years’ loss reserves of USD 55.3 million primarily related to the Aviation & Space line of business of USD 57.5 million.

For the year ended December 31, 2004, we recorded net adverse development of prior years’ loss reserves of USD 72.8 million. The Standard Property & Casualty Reinsurance segment was negatively impacted by net adverse development of prior years’ loss reserves of USD 11.3 million primarily related to adverse development within the Motor line of business of USD 78.7 million, which was partially offset by net favorable development of prior years’ loss reserves related to the Property line of business of USD 77.8 million. The Specialty Lines segment was negatively impacted by net adverse development of prior years’ loss reserves of USD 61.5 million primarily related to adverse developments of the Professional Liability and other Special Liability and Engineering lines of business of USD 116.1 million and USD 13.7 million, respectively, partially offset by net favorable development of prior years’ loss reserves related to: Credit & Surety (USD 30.2 million), Aviation & Space (USD 24.6 million) and Workers’ Compensation (USD 16.4 million) lines of business.

Impact of property catastrophe losses

The year ended December 31, 2006 exhibited insignificant natural catastrophe activity with total incurred losses of USD 10.5 million. There were no individual large losses, defined as those in excess of USD 10.0 million or more of net incurred losses to us.

This was in contrast to the year ended December 31, 2005, which exhibited significant natural catastrophe resulting in large losses totaling USD 149.2 million: Winter Storm Erwin (USD 32.5 million), Continental European floods (USD 24.8 million), Hurricane Katrina (USD 33.2 million), Hurricane Rita (USD 14.1 million) and Hurricane Wilma (USD 44.6 million). These natural catastrophes added 7.7 points to the non-life loss ratio of 77.4% for the year ended December 31, 2005. Excluding these events, our non-life loss ratio for the year would have been 69.7%.

In 2004, our large natural catastrophe losses included hurricanes in the US and the Caribbean, the Japanese typhoons and the tsunami in the Indian Ocean, with a total net impact of USD 98. 4 million. These natural catastrophes added 3.5 points to the non-life loss ratio of 77.6% for the year ended December 31, 2004. Excluding these events, our non-life loss ratio for the year would have been 7 4.1%.

Guaranteed Minimum Death Benefit (GMDB) business

For the years ended December 31, 2006, 2005 and 2004 there were no additional reserving actions required for the GMDB book of business. As a result of the positive performance of the US stock markets, GMDB’s net amount at risk further decreased to USD 353.9 million at December 31, 2006 from USD 478.2 million at December 31, 2005.

September 11^th terrorist attacks

The September 11^th terrorist attacks in the United States represented one of the largest loss events in the insurance industry’s history. In 2001, we recorded gross losses and loss expenses of USD 692.9 million arising out of the terrorist attacks (including losses from our subsequently sold North American operations). These losses are capped through an agreement with ZFS. Our recorded losses and loss expenses, net of retrocessional recoveries and the cap from ZFS through its subsidiaries, were reduced from USD 289.2 million to USD 231.0 million, following the sale of our North American operations. We will be exposed to the risk of non-payment of ZFS’ units and we are exposed to credit risk from these subsidiaries of ZFS. We are not exposed to potential non-payments by retrocessionaires for these events in excess of the cap. In 2006, 2005 and 2004, there was no additional development in net reserves for the September 11^th terrorist attacks.

Asbestos and environmental exposures

As of December 31, 2006 and 2005, we had reserves for environmental impairment liability and asbestos-related claims of USD 49.2 million, respectively, for each year. 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 13.8 years at December 31, 2006 and 14.1 years at December 31, 2005.

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Acquisition costs and operating and administration expenses

(USD million)
Year ended December 31		2006				2005				2004
Acquisition costs			–482.1				–537.4				–753.9
Operating and administration expenses			–148.6				–163.5				–153.8
Non-life acquisition costs ratio (to net premiums earned)		25.9%					22.9	%			24.5	%
Non-life administration expense ratio (to net premiums written)		5.3%					6.7	%			3.6	%

Acquisition costs primarily relate to commissions on treaty and individual risk business. For the year ended December 31, 2006 our acquisition costs decreased as compared with the same period of 2005 primarily as a result of the reduction of our overall business volume. Our non-life acquisition costs ratio increased for the year ended December 31, 2006 primarily driven by a relatively low acquisition cost ratio in 2005 due to the receipt of reinsurance premiums to close (“RITC”) on our Lloyd’s participations on which there were no acquisition costs.

For the year ended December 31, 2005 our acquisition costs decreased and our non-life acquisition cost ratio remained relatively stable compared with the same period of 2004. Acquisition costs decreased as a result of the reduction in overall business volume; however premiums were still being earned from business written in prior underwriting years. Offsetting this decrease was a shift in our mix of business from non-proportional to proportional, which generally carried higher acquisition costs.

Operating and administration expenses decreased for the year ended December 31, 2006 as compared with the same period in 2005 resulting from the 2005 cost management measures. The decrease in administration costs reflects lower average staffing levels, the non-recurrence of the expenses associated with staff retention plans in 2005, the closure of some of our smaller offices in 2005 as well as the full amortization of some of our internal software systems in 2005. Accordingly, the non-life administration expense ratio decreased for the year ended December 31, 2006 as compared with the same period of 2005.

In 2005, operating and administration expenses increased as compared with 2004 primarily due to expenditures relating to the restatement that occurred during 2005 / 2006 and costs resulting from staff retention plans. The non-life administration expense ratio increased in 2005 as compared with 2004 resulting from the measures referred to above as well as from the sharp decrease in premium volume in 2005 compared with 2004.

Investment results

(USD million)
Year ended December 31						2006				20051				20041
Investment income
Fixed maturities							152.5				153.8				112.9
Equity securities							5.6				5.8				13.2
Funds Withheld Asset							52.1				62.6				75.1
Other, net of expenses							50.2				35.6				26.3
Net investment income							260.4				257.8				227.5
Average net investment income yield (pre-tax)							4.2	%			4.2	%			3.9	%
Net realized capital gains (losses)							18.9				31.3				31.2
Total investment results							279.3				289.1				258.7
Average total investment income yield (pre-tax)							4.5	%			4.7	%			4.5	%
Change in net unrealized gains (losses) (pre-tax)							25.1				–15.2				8.0
Total investment return (pre-tax)							304.4				273.9				266.7
Average total investment return (pre-tax)							5.0	%			4.5	%			4.6	%
Average total invested assets (including cash and cash equivalents)							6,147.4				6,139.1				5,799.9

38 |

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

Investment results are an important part of our overall profitability. Our net investment income increased by USD 2.6 million, or 1.0% for the year ended December 31, 2006 as compared with the same period in 2005. The average total invested assets remained largely unchanged. However, the lower income contribution from the Funds Withheld Asset which was attributable to the declining balance on this asset, was more than offset by higher investment income from short-dated investments reflected in other investment income, due to generally higher yields as a result of an inverted yield curve environment. Our net investment income increased by USD 30.3 million, or 13.3% for the year ended December 31, 2005 as compared with the same period in 2004. The increase largely resulted from growth in total invested assets during 2005, and a reallocation from equity securities into income generating fixed maturities securities. We paid fees in the amount of USD 8.1 million, USD 9.8 million and USD 11.6 million to our asset managers and custodians in 2006, 2005 and 2004, respectively, including other investment-related costs. Our average net investment income yield (pre-tax) was 4.2% for the year ended December 31, 2006 as compared with 4.2% and 3.9% for the same periods in 2005 and 2004, respectively.

An increasing component of net investment income arises from income received on business written on a funds withheld basis such as certain Lloyd’s transactions. As these assets are reported under funds held by reinsureds and do not form part of the average total invested assets, while the investment income from these funds held by reinsureds is included in our net investment income, there is an increase of 0.2 points for 2006 in the reported average net investment income yield (pre-tax). Excluding this effect, the average net investment income yield (pre-tax) would have been 4.0%, 3.9% and 3.7% for the years ended December 31, 2006, 2005 and 2004, respectively.

Our average total investment income yield (pre-tax) was 4.5% for the year ended December 31, 2006 as compared with 4.7% for 2005 and 4.5% for 2004. Yields are calculated based on the average of beginning and ending total invested asset balances (including cash and cash equivalents). The total investment income yield was slightly lower in 2006 as compared with 2005. In 2006, net realized gains were predominately driven by the sale of Swiss direct real estate holdings, while realized gains on equity securities were offset by realized losses on fixed maturities securities and impairment. The 2005 and 2004 yields were positively impacted by realized gains resulting from the sale of equity securities to adjust our asset allocation in order to reduce investment portfolio risks. In addition, our average total investment income yield (pre-tax) was negatively impacted by USD 11.7 million, USD 9.2 million and USD 6.2 million of impairment charges during 2006, 2005 and 2004, respectively.

Our average total investment return (pre-tax) was 5.0% for the year ended December 31, 2006 as compared with 4.5% and 4.6% for the same periods in 2005 and 2004, respectively. Our 2006 total investment return was positively impacted by the strong performance of equity securities markets and hedge funds, which also resulted in positive changes in unrealized gains. Additionally, the sale of our North American operations reduced total unrealized losses by USD 26.5 million. This positive development was partially offset by the lower valuation on fixed maturities securities due to yield curve shifts. In 2005, the change in net unrealized gains 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.

Other

(USD million)

Year ended December 31

2006

2005

2004

Other loss

–0.5

–21.9

–4.7

Interest expense

–16.7

–17.2

–18.7

Amortization of intangible assets

—

–21.5

–9.9

Restructuring costs

0.2

–12.1

–0.2

Income tax (expense) benefit

–40.5

–16.1

4.6

Other loss: Other loss was USD 0.5 million for the year ended December 31, 2006 as compared with USD 21.9 million and USD 4.7 million for the same periods in 2005 and 2004, respectively. Other loss in 2006 includes increased interest income from business written on a funds held basis and lower costs of USD 19.9 million incurred from our Lloyd’s participations compared with USD 24.0 million in 2005. Additionally, 2006 includes an income of USD 5.3 million due to the recovery on a balance previously written off. Other loss for the year ended December 31, 2005 includes a USD 9.0 million

charge related to our strategic alliance with MDU, (See Note 17 for further information) and a charge of USD 2.4 million related to our investment in SATEC.

Interest expense: Interest expense remained relatively stable for the year ended December 31, 2006 as compared with the same periods in 2005 and 2004. Interest expense primarily includes payment on the Guaranteed Subordinated Notes. See Note 11 for additional information on our outstanding debt.

Amortization of intangible assets: There was no amortization of intangible assets for the year ended December 31, 2006 compared with USD 21.5 million and USD 9.9 million for the same periods in 2005 and 2004, respectively. The amortization amounts in 2005 and 2004 relate to the intangible asset for Global Aerospace Underwriting Managers Limited (“GAUM”). The charge for 2005 increased due to the fact that the remaining useful life of the intangible asset was reassessed in the fourth quarter of 2004 to be less than one year which led to the accelerated amortization. For additional information on GAUM see Notes 7 and 17.

Restructuring costs: For the year ended December 31, 2006, we incurred a restructuring benefit of USD 0.2 million due to the release of restructuring accruals as compared with expenses of USD 12.1 million for the same period in 2005. In 2005, the reduction in overall business volume required organizational changes and an adjustment to our global cost base including employee terminations and closure of smaller offices. In 2004, we recorded restructuring costs of USD 0.2 million.

Income tax expense: We recorded an income tax expense of USD 40.5 million and USD 16.1 million for the years ended December 31, 2006 and 2005, respectively and an income tax benefit for the year ended December 31, 2004. Our global effective tax rate for continuing operations was 15.9% for the year ended December 31, 2006 as compared with 32.1% and (21.9)% for the same periods of 2005 and 2004, respectively. For the year ended December 31, 2006, Converium’s consolidated income tax expense of USD 40.5 million comprised of USD 10.3 million of current income tax expense and USD 30.2 million of deferred income tax expense. The current income tax portion reflects the net tax paying position of some affiliated companies. Due to the establishment of a full valuation allowance in 2004 against existing net deferred tax assets, our operations in Switzerland reported no income tax and no deferred income tax expense. For all other jurisdictions the Company applies the annual effective tax rate to calculate the income taxes on a jurisdiction-by-jurisdiction basis.

The 2005 consolidated income tax expense of USD 16.1 million comprised of a current income tax expense of USD 12.0 million and a deferred income tax expense of USD 4.1 million.

Converium will continue to monitor its tax position and regularly reassess the need for a full valuation allowance on its net deferred tax assets in Switzerland.

Business development

The following table compares Converium’s segment results for the years ended December 31, 2006, 2005 and 2004:

(USD million)
Year ended December 31		2006				2005				2004
Segment income (loss)
Standard Property & Casualty Reinsurance			204.6				45.9				88.3
Specialty Lines			98.9				108.9				–13.4
Life & Health Reinsurance			23.5				17.6				16.4
Corporate Center			–54.5				–49.5				–36.8
Total segment income			272.5				122.9				54.5

For the year ended December 31, 2006, we reported segment income of USD 272.5 million compared with USD 122.9 million for the same period in 2005. The increase mainly reflects the absence of any major catastrophic events, net favorable impact of prior accident years on the technical result of USD 52.1 million, resulting from net favorable development of prior years’ loss reserves of USD 102.8 million, which were offset by reductions in premiums and other expenses of USD 50.7 million and an improvement in the non-life combined ratio from 107.0% in 2005 to 96.3% in 2006.

Our 2005 results were adversely impacted by significant natural catastrophe losses totaling USD 149.2 million, primarily within our Standard Property & Casualty Reinsurance segment. Positively impacting the segment results was the net favorable impact of prior accident years on the technical result of USD 42.8 million, resulting from net favorable development of prior years’ loss reserves of USD 86.0 million, which were offset by the reductions in premium and other expenses of USD 43.2 million.

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

In 2004, segment results were negatively impacted by several large natural catastrophes totaling USD 98.4 million. Results were also impacted by the net adverse impact of prior accident years on the technical result of USD 123.0 million, resulting from net adverse development of prior years’ loss reserves of USD 72.8 million, which included reductions in premiums and other expenses of USD 50.2 million. The resulting non-life combined ratio was 105.7% for the year ended December 31, 2004.

Standard Property & Casualty Reinsurance

(USD million)
Year ended December 31		2006				2005				2004
Gross premiums written			890.6				803.1				1,509.0
Net premiums written			816.9				739.0				1,377.4
Net premiums earned			775.6				880.8				1,392.2
Total investment results			109.6				119.9				104.4
Segment income			204.6				45.9				88.3
Loss ratio			56.9	%			82.8	%			72.0	%
Acquisition costs ratio			25.2	%			20.6	%			25.4	%
Administration expense ratio			5.4	%			5.9	%			3.8	%
Combined ratio			87.5	%			109.3	%			101.2	%
Retention ratio (net premiums written divided by gross premiums written)			91.7	%			92.0	%			91.3	%

Standard Property & Casualty Reinsurance reported a segment income of USD 204.6 million, USD 45.9 million and USD 88.3 million in 2006, 2005 and 2004 respectively. In addition to the overall reduction in business volume as a result of the ratings downgrades that occurred in 2004, segment income was primarily affected by the following:

–

The recognition of net favorable impact of prior accident years on the technical result of USD 38.6 million in 2006, resulting from net positive development of prior accident years’ loss reserves of USD 54.1 million, offset by reductions in premiums and other expenses of USD 15.5 million. The net favorable development of prior years’ loss reserves of USD 54.1 million in 2006 was primarily related to the Property and General Third Party Liability lines of business of USD 45.1 million and USD 24.6 million, respectively, partially offset by net adverse development of prior years’ loss reserves within the Motor line of business of USD 16.5 million.

–

A strong underwriting result within the property catastrophe and non-catastrophe book of business due to the absence of any major catastrophe losses in 2006.

–

In 2005, segment income was impacted by a number of large natural catastrophes. The Standard Property & Casualty segment experienced a total net impact of USD 78.4 million in losses from hurricanes in the United States (Hurricane Katrina: USD 25.6 million, Hurricane Rita: USD 11.2 million and Hurricane Wilma: USD 41.6 million).

–

In addition, in 2005, the Continental European floods in Switzerland, Germany, Austria and Romania and Winter Storm Erwin resulted in net pre-tax losses of USD 24.8 million and USD 32.5 million, respectively. The overall pre-tax effect from the natural catastrophes mentioned above was USD 135.7 million.

–

In 2005, offsetting these catastrophes, we recorded a net favorable impact of prior accident years on the technical result of USD 19.7 million, resulting from net favorable development of prior accident years’ loss reserves of USD 30.7 million offset by reductions in premiums and other expenses of USD 11.0 million.

The net favorable development of prior years’ loss reserves of USD 30.7 million was primarily related to the Property line of business of USD 73.3 million, partially offset by net adverse development of prior years’ loss reserves within the Motor and General Third Party Liability lines of business of USD 25.0 million and USD 23.4 million, respectively.

For the year ended December 31, 2006, gross premiums written increased 10.9% to USD 890.6 million, net premiums written increased 10.5% to USD 816.9 million and net premiums earned decreased 11.9% to USD 775.6 million. The decrease of net premiums earned in 2006 reflects the impact of the ratings downgrades in 2004 with significantly lower earned premiums from prior underwriting years.

For the year ended December 31, 2006, the increase in net premiums written in the Standard Property & Casualty Reinsurance segment by line of business included:

–

Property increased by 10.5% or USD 41.1 million to USD 431.7 million, primarily due to increased business; and

–

General Third Party Liability increased by 56.6% or USD 83.0 million to USD 229.7 million, reflecting additional Lloyd’s business as well as revisions of premium estimates in 2005.

These increases were partially offset by a decrease in the Motor line of business by 24.0% or USD 45.3 million to USD 143.1 million, reflecting this year’s closing of the 2003 Lloyd’s underwriting year as well as a decrease in the Personal Accident (assumed from non-life insurers) by 6.8% or USD 0.9 million to USD 12.4 million.

The decrease of the loss ratio from 82.8% in 2005 to 56.9% in 2006 reflects the absence of major catastrophe losses and the net favorable development of prior years’ loss reserves. The acquisition cost ratio was 25.2% in 2006 as compared with 20.6% for the same period of 2005. The increase is mainly driven by a relatively low acquisition cost ratio in 2005 due to the receipt of reinsurance premiums to close (“RITC”) on our Lloyd’s participations on which there were no acquisition costs.

Specialty Lines

(USD million)
Year ended December 31		2006				2005				2004
Gross premiums written			777.0				833.1				1,655.3
Net premiums written			729.4				737.7				1,565.3
Net premiums earned			723.7				1,059.2				1,387.6
Total investment results			140.5				140.5				135.1
Segment income (loss)			98.9				108.9				-13.4
Loss ratio			73.8	%			72.9	%			83.2	%
Acquisition costs ratio			26.6	%			24.9	%			23.6	%
Administration expense ratio			5.3	%			7.4	%			3.4	%
Combined ratio			105.7	%			105.2	%			110.2	%
Retention ratio (net premiums written divided by gross premiums written)			93.9	%			88.5	%			94.6	%

Specialty Lines reported segment income (loss) of USD 98.9 million, USD 108.9 million and USD (13.4) million in 2006, 2005 and 2004, respectively.

–

The large decrease of net premiums earned in 2006 reflects the impact of the ratings downgrades in 2004 with significantly lower earned premiums from prior underwriting years.

–

Offsetting the decrease in segment income in 2006 was the recognition of net favorable impact of prior accident years on the technical result of USD 13.5 million, resulting from net favorable development of prior accident years’ loss reserves of USD 48.7 million, offset by reductions in premiums and other expenses of USD 35.2 million. The net favorable development of prior years’ loss reserves of USD 48.7 million in 2006 primarily related to the lines of business: Aviation & Space and Engineering of USD 34.9 million and USD 16.2 million, respectively, partially offset by net adverse development of prior years’ loss reserves related to the Professional Liability and other Special Liability line of business of USD 17.6 million.