financial statements.

     As a result of changes in our geographic contribution of taxable income as well as changes in the amount of our non-taxable income and expense, the relationship between our reported income before tax and our income tax expense may change significantly from one period to the next. For more information about our income tax expenses, see Note 11 to our consolidated financial statements.

Regulatory and Legislative Environment

     Our business is subject to regulation in all of the jurisdictions in which we operate. Regulation includes compliance with applicable laws covering operating and reporting requirements, monitoring of solvency and reserves and asset valuation. Changes in government policy or taxation also may affect our results of operations. In addition, political, judicial and legislative developments could broaden the intent and scope of coverage of existing policies written by our clients, which may result in additional liabilities for reinsurers. See “Item 4. — Information on the Company — B. Business Overview — Regulation.”

Results of Operations

     The table below presents summary income statement data for the years ended December 31, 2003, 2002 and 2001.

     The table below shows the reconciliation between pre-tax income and pre-tax operating income. We use pre-tax operating results to measure performance, as these measures focus on the underlying fundamentals of our operations without the influence of realized gains and losses from the sale of investments, which are driven by the timing of the disposition of investments and not by our operating performance.

Pre-Tax Operating Income (Loss)

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Converium Consolidated Net Income

     Converium reported net income of $185.1 million for the year ended December 31, 2003, an improvement of $78.3 million as compared to net income of $106.8 million for 2002. The increase is due to continued improvements in the non-life underwriting results, as well as pre-tax net realized capital gains in 2003 versus pre-tax net realized capital losses in 2002.

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Developments on our Guaranteed Minimum Death Benefit (GMDB) book were offset by an overall improved non-life combined ratio.

     Converium reported pre-tax operating income (defined as pre-tax income or loss excluding pre-tax net realized capital gains or losses, amortization of goodwill and restructuring costs) of $206.0 million for the year ended December 31, 2003, an improvement of $138.3 million as compared to pre-tax operating income of $67.7 million for 2002. The improvement in pre-tax operating income was due to significant premium growth and an overall improved non-life combined ratio.

     For the year ended December 31, 2003, gross premiums written increased 19.5%, net premiums written increased 15.2% and net premiums earned increased 16.1%. The growth was spread across most lines of business and resulted from increased rates and increasing the share of clients’ business upon renewing existing business or writing new business.

     In 2003, we recorded $31.3 million of net positive development on prior years’ loss reserves. In 2002, our results were impacted by losses from the European floods of $51.1 million (net of reinstatement premiums of $3.1 million) and the recognition of a $148.5 million provision for net adverse development on prior years’ reserves. Our non-life combined ratio was 97.9% for the year ended December 31, 2003 as compared to 103.7% in the same period of 2002.

     Converium recorded pre-tax net realized capital gains of $18.4 million for the year ended December 31, 2003 as compared to pre-tax net realized capital losses of $10.3 million for the same period of 2002. The pre-tax net realized capital gains in 2003 included $27.4 million of impairment charges on our equity portfolio as compared to $48.3 million of impairment charges in 2002.

     Converium’s effective tax rate was 17.5% for the year ended December 31, 2003, compared to a benefit of 86.1% in 2002. The 2002 consolidated tax benefit reflects a one-time benefit of $21.3 million as the result of a ruling received from the Swiss tax authorities regarding a tax loss carryforward.

Converium Consolidated Premiums

     Gross premiums written for the year ended December 31, 2003 increased $688.1 million, or 19.5% compared to the same period of 2002. Net premiums written for 2003 increased $504.8 million, or 15.2% compared to 2002. For the year ended December 31, 2003, we retained 90.6% of our gross premiums written, compared to 94.0% in 2002. Our net retention ratio decreased principally due to the purchase of increased retrocessions to reduce peak exposures associated with our increased participation in the Global Aerospace Underwriting Managers Limited (GAUM) pool.

     The increases in non-life net premiums written predominately reflect the continued improved market conditions, new client relationships in certain key markets and the expansion of shares of business with existing clients. During 2003, we took advantage of growth opportunities in the Standard Property & Casualty Reinsurance segment, where net premiums written grew by $193.4 million, or 13.3% for the year. This was due to increased penetration in all lines of business, but predominantly within property and motor. At December 31, 2003, the Specialty Lines segment grew by $256.6 million or 16.5%, driven by strong growth in agribusiness, workers’ compensation, credit and surety, and professional liability and other special liability lines. The Life & Health Reinsurance segment grew by $54.8 million or 17.4%, driven by growth in accident and health business in North America and in Continental Europe.

     Net premiums earned for the year ended December 31, 2003 increased $511.0 million, or 16.1% compared to 2002. Net premiums earned increased at a higher rate than net premiums written due to the seasonality of certain business within our portfolio.

Converium Consolidated Net Investment Income and Net Realized Capital Gains (Losses)

     Investment results are an important part of our overall profitability. Our net investment income was $233.0 million for the year ended December 31, 2003, representing a decrease of $18.8 million, or 7.5% as compared to the same period of 2002. The decrease reflects lower investment income yields offset by an increase in invested assets from operating cash flows.

     Our average total investment income yield was 3.5% for the year ended December 31, 2003, as compared to 4.1% for the same period in 2002. Yields are calculated based on the average of beginning and ending investment balances (including cash and cash equivalents). The decrease in yield in 2003 is due to sustained lower interest rates worldwide. In addition, we positioned our fixed income portfolios to a shorter duration in anticipation of a potential interest rate increase. We paid fees in the amount of $8.0 million and $6.1 million to our asset managers and custodians in 2003 and 2002, respectively, including other investment related costs.

     We had net realized capital gains for the year ended December 31, 2003 of $18.4 million, compared to net realized capital

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losses of $10.3 million for the year ended December 31, 2002. Included in the 2002 realized amounts were gains on the restructuring of the fixed maturities portfolio of $62.9 million, offset by losses on the restructuring of the equity portfolio of $48.2 million, and losses realized on the sale of WorldCom fixed income investments of $15.8 million.

     We recorded $27.4 million and $48.3 million of impairment charges during 2003 and 2002, respectively, primarily on our equity portfolio. To continue to adhere to emerging asset impairment standards, beginning in the second quarter of 2003, we revised our impairment policy to also record as realized capital losses any declines in value of equity securities over a period of more than twelve months. The same policy applies to fixed maturities securities when the decline in value is attributable to the deteriorating credit-worthiness of the issuer. This resulted in additional impairment charges of $3.4 million in 2003.

Converium Consolidated Other Income (Loss)

     Other income for the year ended December 31, 2003 was $2.7 million as compared to other losses of $1.2 million for the year ended December 31, 2002. Other income (loss) includes interest income on reinsurance deposits, interest expense on funds held under reinsurance contracts, fee income, write-off of uncollectible balances and results from private equity funds.

Converium Consolidated Losses, Loss Adjustment Expenses and Life Benefits

     Our losses, loss adjustment expenses and life benefits incurred increased $182.2 million, or 7.3% in 2003 versus an increase of $191.5 million or 8.3% in 2002. The non-life loss and loss adjustment expense ratio was 71.5% in 2003 as compared to 78.2% in 2002. Our reported losses, loss adjustment expenses and life benefits have been impacted by the following loss events:

      Net reserve development: In 2003, there was $31.3 million net positive development on prior years’ loss reserves, consisting of positive development of $49.4 million in the Standard Property & Casualty Reinsurance segment, offset by $18.1 million of adverse development in the Specialty Lines segment. Risk diversification is a basic risk management tool in the insurance and reinsurance industry; as a multi-line reinsurer there are always likely to be reserve adjustments at the line of business level. Our book of business is broadly diversified by line of business as well as balanced by region and by the expected duration of its claims obligations.

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

      Guaranteed Minimum Death Benefit (GMDB) Business: In addition to the non-life reserve development described above, the Life & Health Reinsurance segment strengthened reserves on a closed block of variable annuity business by $20.5 million (to net $56.0 million) and $15.6 million in 2003 and 2002, respectively. As a result of the strong performance of the U.S. stock markets, the GMDB’s net amount at risk further decreased to $809.7 million and $1,243.0 million at December 31, 2003 and 2002, respectively. Although Converium feels that its currently carried reserves for its GMDB exposure are adequate, it has exercised the call option it negotiated in the third quarter of 2003 to access additional reinsurance protection of up to $75.0 million. This decision was made in light of the current volatility and the valuation of the equity markets in the United States. The annual expense associated with this protection is expected to be less than $0.5 million per year. Based on information available today, this additional reinsurance protection adequately addresses potential adverse deviations to the key assumptions i.e., mortality risks, lapse rate risks, surrenders, and investment risks, such as equity market performance and volatility, incorporated in Converium’s models.

      Impact of aviation and space business: Our aviation and space business contributes substantially to the profitability of the Specialty Lines’ segment. Related to this business, we had net premiums written of $341.8 million and $365.3 million and a net non-life technical result (defined as net premiums earned minus losses and loss adjustment expenses and underwriting acquisition costs) of $126.0 million and $64.3 million in 2003 and 2002, respectively. There were no large losses, defined as those in excess of $10.0 million or more of net incurred losses to us, in either 2003 or 2002.

      Impact of property catastrophe business: A substantial portion of our property catastrophe business is written on an excess of loss basis. Related to this business, we had gross premiums written of $194.7 million and $172.9 million and a net non-life technical result (defined as net premiums earned minus losses and loss adjustment expenses and underwriting acquisition costs) of $74.4 million and $60.4 million in 2003 and 2002, respectively. Included in the net technical results are the following large natural catastrophe losses, defined as those in excess of $10.0 million or more of net incurred losses to us: Typhoon Maemi ($15.4 million) and the Algerian Earthquake ($10.6 million) in 2003 and the European floods in 2002 ($51.1 million).

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      Asbestos and environmental exposures: As of December 31, 2003 and 2002, we had reserves for environmental impairment liability and asbestos-related claims of $45.8 million and $44.6 million, respectively. Our survival ratio (calculated as the ratio of reserves held, including IBNR, over claims paid over the average of the last three years) for asbestos and environmental reserves was 13.6 years at December 31, 2003, compared to 13.5 years at December 31, 2002.

     During 2003 and 2002, there was no additional development in net reserves for the September 11 ^th terrorist attacks (as losses are capped at $289.2 million by Zurich Financial Services or “ZFS”). In 2003 and 2002, the ultimate losses related to Enron declined $17.2 million and $5.2 million, respectively.

Converium Consolidated Underwriting Acquisition Costs

     Underwriting acquisition costs primarily relate to commissions on treaty and individual risk business. Our underwriting acquisition costs increased $136.5 million or 20.5% in 2003 versus an increase of $158.6 million or 31.2% in 2002. This increase is mainly related to the increase in net premiums earned. The non-life underwriting expense ratio for the years ended December 31, 2003 and 2002 was 22.0% and 21.1%, respectively.

Converium Consolidated Operating and Administration Expenses

     Operating and administration expenses increased 14.1% in 2003 and 18.4% in 2002. These increases primarily arose from expenditures to support the growth in operations. Operating and administration expenses were also impacted in 2003 and 2002 by the decrease of the U.S. dollar against the hardening European currencies. Despite the increase in operating and administration expenses, the non-life administration expense ratio remained stable at 4.4% in 2003 and 2002. This was due to continued strong premium growth relative to the growth in expenses.

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

Converium Consolidated Interest Expense

     Interest expense for the year ended December 31, 2003 was $31.0 million compared to $16.4 million in 2002. Interest expense on our Senior Notes was $14.2 million in each year. The increase in 2003 was mainly due to $16.5 million in interest expense on our $200.0 million 8.25% guaranteed subordinated notes issued in December 2002.

Converium Consolidated Income Tax (Expense) Benefit

     Our income tax (expense) benefit was $(39.3) million and $49.4 million for the years ended December 31, 2003 and 2002, respectively. Our effective tax rate for 2003 was 17.5%, compared to a benefit of 86.1% in 2002. The 2002 consolidated tax benefit reflects a one-time benefit of $21.3 million as the result of a ruling received from the Swiss tax authorities regarding a tax loss carried forward.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Converium Consolidated Net Income (Loss)

     Converium reported pre-tax operating income of $67.7 million for the year ended December 31, 2002, an improvement of $528.8 million as compared to the pre-tax operating loss of $461.1 million in 2001. Net income improved $474.2 million to $106.8 million for the year ended December 31, 2002.

     Our 2002 results were impacted by the recognition of a $148.5 million provision for net reserve development on prior years’ business, representing a movement of 3.6% of the net non-life reserves at December 31, 2001. In the Standard Property & Casualty Reinsurance segment, there were additional provisions of $62.2 million for the liability, motor and property lines. In the Specialty Lines segment, there were additional provisions of $86.3 million, primarily related to the commercial umbrella and medical errors and omissions liability lines of business. In addition, our results were also impacted by losses from the August 2002 European floods of $51.1 million (net of reinstatement premiums of $3.1 million), primarily from reinsurance contracts written in Germany, the Czech Republic, Austria and Italy.

     Our 2001 results were impacted by pre-tax losses of $289.2 million related to the September 11th terrorist attacks, net adverse development on prior years’ loss reserves of $123.6 million, $67.0 million in losses related to the Enron Chapter 11 reorganization and $28.5 million in ceded premiums for September 11th terrorist attacks and other coverages from Zurich

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Financial Services.

     Our net investment income increased 10.1% to $251.8 million for the year ended December 31, 2002 as compared to the same period for 2001. We recorded $10.3 million of pre-tax net realized capital losses on our investment portfolio, which included $48.3 million of impairment charges on our equity portfolio, as compared to $18.4 million of pre-tax net realized capital losses, including $82.5 million of impairment charges in 2001.

     The above results were affected by a tax benefit of $49.4 million in 2002 compared to a benefit of $169.9 million in 2001. The 2002 consolidated tax benefit reflects a one-time benefit of $21.3 million as the result of a ruling received from the Swiss tax authorities regarding a tax loss carryforward. The 2001 consolidated tax benefit results from pre-tax losses.

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

Converium Consolidated Premiums

     Gross premiums written for the year ended December 31, 2002 increased $654.6 million, or 22.7% compared to the same period for 2001. Net premiums written for 2002 increased $839.6 million, or 33.8% compared to 2001. The growth in net premiums written exceeded the growth in gross premiums written due to an increased retention rate in 2002 compared to 2001, and a ceded premiums charge in 2001 of $28.5 million related to coverage from Zurich Financial Services for the September 11th terrorist attacks. For the year ended December 31, 2002, we retained 94.0% of our gross premiums written, compared to 86.2% in 2001.

     The increase in net premiums written reflects the hardening market conditions that emerged during 2002. As described in the following discussion of results by business segment, Specialty Lines experienced the largest premium growth, with net premiums written increasing $586.9 million, or 60.6% over 2001. Standard Property & Casualty Reinsurance grew by $172.2 million, or 13.5%, and Life & Health Reinsurance grew by $80.5 million, or 34.4% in 2002 compared to 2001.

     Net premiums earned for the year ended December 31, 2002 increased $870.3 million, or 37.9% compared to 2001. Net premiums earned increased at a higher rate than net premiums written due to the growth and seasonality of certain business within our portfolio.

Converium Consolidated Net Investment Income and Net Realized Capital Losses

     Investment results are an important part of our overall profitability. Our net investment income was $251.8 million for the year ended December 31, 2002, representing an increase of $23.1 million, or 10.1% as compared to the same period for 2001.

     The increase is primarily from an increase in invested assets due to our additional capitalization in late 2001 and the investment of cash flows from operating activities during 2002. Our average total investment income yield was 4.1% for the year ended December 31, 2002 as compared to 4.3% in 2001. The decline in 2002 reflects lower interest rates worldwide relative to 2001. Yields are calculated based on the average of beginning and ending investment balances (including cash and cash equivalents). We paid fees in the amount of $6.1 million and $4.7 million to our asset managers and custodians in 2002 and 2001, respectively.

     Our average total investment return was 2.2% for the year ended December 31, 2002 as compared to 4.6% for 2001. The average total investment return in 2002 and 2001 included the effect of foreign currency on the change in net unrealized capital gains and losses of $(50.3) million and $(1.2) million, respectively. While the effect was fairly insignificant for 2001, in 2002, this lowered the average total investment return by 0.8%.

     We had net realized capital losses for the year ended December 31, 2002 of $10.3 million, compared to net realized capital losses of $18.4 million in 2001. Included in the 2002 realized amounts were gains on the restructuring of the fixed maturities portfolio of $62.9 million, offset by losses on the restructuring of the equity portfolio of $48.2 million, and losses realized on the sale of WorldCom fixed income investments of $15.8 million.

     We recorded $48.3 million of impairment charges on our equity portfolio for the year ended December 31, 2002, compared to $82.5 million for 2001. The decline in 2002 reflects the restructuring of our portfolios, whereby certain unrealized losses were realized.

Converium Consolidated Other Loss

     Other loss for the years ended December 31, 2002 and 2001 was $1.2 million and $5.8 million, respectively. The other loss in 2002 represents write-offs of certain uncollectible reinsurance recoverables, offset by interest income on reinsurance

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deposits and interest relating to a dispute settlement. The other loss in 2001 is primarily due to interest expense on funds held under reinsurance contracts and losses from investments in private equity funds.

Converium Consolidated Losses, Loss Adjustment Expenses and Life Benefits

     Our losses, loss adjustment expenses and life benefits incurred increased $191.5 million, or 8.3% in 2002 as compared to 2001. The non-life loss and loss adjustment expense ratio was 78.2% in 2002, compared to 99.9% in 2001. Our reported losses, loss adjustment expenses and life benefits have been impacted by the following loss events:

      Net reserve development: In 2002, Converium strengthened reserves for prior years by $148.5 million. Throughout the year, increased loss experience related to prior years continued to emerge, which resulted in an in-depth actuarial reserve analysis of certain lines of business. This resulted in an additional $148.5 million provision for losses, primarily related to underwriting years 1997 through 2000. In the Standard Property & Casualty Reinsurance segment, there were additional provisions of $62.2 million for the liability, motor and property lines. In the Specialty Lines segment, there were additional provisions of $86.3 million, primarily related to the commercial umbrella and medical errors and omissions liability lines of business.

     In 2001, Converium strengthened reserves for prior years by $123.6 million. Converium retained an actuarial consulting firm to perform an independent review of non-life net reserves as of December 31, 2000. This review reflected certain information that became available after the issuance of the December 31, 2000 financial statements, including most fourth quarter 2000 and some first quarter 2001 reports from ceding companies, who typically report on a one-quarter lag. Based on the independent review and Converium’s own evaluations of these new developments, additional provisions of $123.6 million, net of reinsurance, were recorded in 2001, principally related to accident years 2000 and prior at Converium Reinsurance (North America) Inc. In the Standard Property & Casualty Reinsurance segment, there were additional net provisions of $46.6 million, primarily for the motor and property lines of business. In the Specialty Lines segment, there were additional net provisions of $77.0 million, primarily related to the excess and surplus, commercial umbrella and marine and energy lines of business, offset by positive development in aviation and space.

      Guaranteed Minimum Death Benefit (GMDB) Business : In 2002, following the ongoing downturn of the international equity markets, Converium’s Life & Health Reinsurance segment reported losses of $6.5 million, including paid claims of $12.5 million and reserve strengthening of $15.6 million for a closed block of variable annuity business in order to align the reserves to the expected future life benefits. In 2001, Converium’s Life & Health Reinsurance segment reported losses of $17.7 million, including reserve strengthening of $13.4 million on this business.

      Impact of aviation and space business: Our aviation and space business contributes substantially to the profitability of the Specialty Lines’ segment. Related to this business, we had net premiums written of $365.3 million and $182.8 million and a net non-life technical result (defined as net premiums earned minus losses and loss adjustment expenses and underwriting acquisition costs) of $64.3 million and $(167.9) million in 2002 and 2001, respectively. Included in the 2001 net technical result are net losses from the September 11th terrorist attacks of $168.7 million. There were no large losses, defined as those in excess of $10.0 million or more of net incurred losses to us, in 2002.

      Impact of property catastrophe business: A substantial portion of our property catastrophe business is written on an excess of loss basis. Related to this business, we had gross premiums written of $172.9 million and $148.1 million and a net non-life technical result (defined as net premiums earned minus losses and loss adjustment expenses and underwriting acquisition costs) of $60.4 million and $29.8 million in 2002 and 2001, respectively. Included in the net technical results are the following large natural catastrophe losses, defined as those in excess of $10.0 million or more of net incurred losses to us: the European floods in 2002 ($51.1 million) and the El Salvador earthquake in 2001 ($14.2 million).

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

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of Zurich Financial Services’ units and we are exposed to credit risk from these subsidiaries of Zurich Financial Services.

     During 2002, there was no additional development in net reserves for the September 11th terrorist attacks (as losses are capped at $289.2 million by Zurich Financial Services).

      Enron Chapter 11 reorganization: In December 2001, Enron Corp. announced that it and certain of its subsidiaries had filed voluntary petitions for Chapter 11 reorganization in the United States. Converium recorded incurred losses of $67.0 million pre-tax ($48.0 million after-tax) for the year ended December 31, 2001, representing Converium’s aggregate limits under existing reinsurance contracts in connection with Enron. These exposures result principally from credit and surety and, to a lesser extent, liability lines of business. The losses Converium may ultimately incur, and the timing of any loss payment, will be affected by numerous factors including the actions of third parties, possible judicial rulings and other contingencies. In 2002, the ultimate losses related to Enron declined $5.2 million.

      Asbestos and environmental exposures: As of December 31, 2002 and 2001, we had reserves for environmental impairment liability and asbestos-related claims of $44.6 million for both years. 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 13.5 years at December 31, 2002, compared to 13.8 years at December 31, 2001.

Converium Consolidated Underwriting Acquisition Costs

     Underwriting acquisition costs primarily relate to commissions on treaty and individual risk business. Our underwriting acquisition costs increased 31.2% in 2002 over 2001. This increase is mainly related to the increase in net premiums earned. The non-life underwriting expense ratio for the years ended December 31, 2002 and 2001 was 21.1% and 23.4%, respectively.

Converium Consolidated Operating and Administration Expenses

     Operating and administration expenses increased 18.4% in 2002 over 2001. This increase primarily arose from increases due to additional headcount and related overhead costs, including information technology, needed to support business growth, as well as an increased cost level required for new functions and departments required as an independent company. Operating and administration expenses were also impacted in 2002 by the decrease of the U.S. dollar against the hardening European currencies. Various costs related to the initial public offering increased operating and administration expenses in 2001. Despite the increase in operating and administration expenses, the non-life administration expense ratio declined to 4.4% in 2002, compared to 6.0% in 2001. This decline was due to strong premium growth.

     We fully charge the cost of options to operating expense under the fair value approach of SFAS No. 123, “Accounting for Stock-Based Compensation”, and recorded compensation expense of $5.8 million and $3.5 million in 2002 and 2001, respectively, in connection with our stock option plans.

Converium Consolidated Interest Expense, Amortization of Goodwill and Restructuring Costs

     Our interest expense for the year ended December 31, 2002 was $16.4 million compared to $24.2 million in 2001. Interest expense on our Senior Notes was $14.2 million in each year. The decrease in 2002 versus 2001 is principally due to short-term borrowings from Zurich Financial Services, which had a high average amount outstanding during 2001.

     At January 1, 2002 we adopted SFAS 142, “Goodwill and Other Intangible Assets,” which prohibits the amortization of goodwill. Amortization of goodwill in 2001 was $7.8 million. Restructuring costs were $50.0 million in 2001 and were incurred relating to our initial public offering and related Formation Transactions. No restructuring costs were incurred during 2002.

Converium Consolidated Income Tax Benefit

     Our income tax benefit was $49.4 million and $169.9 million for the years ended December 31, 2002 and 2001, respectively. Our effective tax rate for 2002 was a benefit of 86.1%, compared to an “expected” weighted average tax benefit rate of 24.9%. This rate was derived by calculating the weighted average of the expected statutory income tax in relation to the income (loss) generated in the various territories in which we operate. Our 2002 taxes reflect a one-time benefit of $21.3 million as the result of a ruling received from the Swiss tax authorities regarding a tax loss carryforward. Other differences include the impact from currency translation adjustments and changes in tax rates. Our effective tax rate was 31.6% in 2001.

Results of Operations by Operating Segment

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     Converium’s business is now organized around three operating segments: Standard Property & Casualty Reinsurance, Specialty Lines and Life & Health Reinsurance, which are based principally on global lines of business. In addition to the three segments’ financial results, the Corporate Center carries certain administration expenses, such as costs of the Board of Directors, the Global Executive Committee, and other global functions. To measure the financial performance of our operating segments, we define segment income as income before other income (loss), interest expense, amortization of goodwill, restructuring costs and income taxes.

     Converium’s financial results for 2003 were primarily driven by profitable growth in Standard Property & Casualty Reinsurance and Specialty Lines, the continued solid performance in non-life underwriting as well as the current conditions in the capital markets. The following discusses Converium’s segment results for the years ended December 31, 2003, 2002 and 2001. A reconciliation of segment results to income before taxes is as follows:

Standard Property & Casualty Reinsurance

     The table below presents information regarding the results of operations of our Standard Property & Casualty Reinsurance segment for the years ended December 31, 2003, 2002 and 2001.

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Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Standard Property & Casualty Reinsurance Segment Income

     Standard Property & Casualty Reinsurance reported a segment income of $183.7 million in 2003 compared to a segment income of $55.8 million in 2002. The increase in segment income was primarily attributable to:

Standard Property & Casualty Reinsurance Premiums

     For the year ended December 31, 2003, gross premiums written increased 16.4% to $1,795.4 million, net premiums written increased 13.3% to $1,645.6 million and net premiums earned increased 16.7% to $1,629.9 million.

     For the year ended December 31, 2003, premium growth in Standard Property & Casualty Reinsurance by line of business included:

The above increases reflect strong market conditions and were offset by a decrease in net premiums written in other miscellaneous standard lines.

Standard Property & Casualty Reinsurance Net Investment Income and Net Realized Capital Gains (Losses)

     Standard Property & Casualty Reinsurance reported net investment income and net realized capital gains of $101.5 million for the year ended December 31, 2003, which was higher by $3.4 million, or 3.5%, compared to net investment income and net realized capital losses of $98.1 million for the same period of 2002. The investment results and return for 2003 were positively impacted by the recovery of the global capital markets.

Standard Property & Casualty Reinsurance Losses and Loss Adjustment Expenses

     Standard Property & Casualty Reinsurance had losses and loss adjustment expenses incurred of $1,113.6 million in 2003, an increase of $48.6 million, or 4.6% over 2002. The non-life loss and loss adjustment expense ratio was 68.3% in 2003 as compared to 76.3% in 2002. This improvement resulted from overall solid results in the property line of business, as 2003 was absent any major catastrophe activity.

     In 2003, segment income was increased by $49.4 million from positive developments of prior years’ reserves. Net positive

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development of prior years’ loss reserves on property lines of $113.5 million (primarily from the 2002 year) was partially offset by net adverse development of the motor and general third party liability lines of $64.1 million (primarily from 2001 and prior years). The Standard Property & Casualty Reinsurance segment’s book of business is broadly diversified by line of business as well as balanced by region and by the expected duration of its claims obligations.

     In 2002, Standard Property & Casualty Reinsurance experienced $51.1 million (net of reinstatement premiums of $3.1 million) in losses from the European floods and $62.2 million in net adverse loss development on prior years’ business, primarily from the motor, general third party liability and property lines of business.

Standard Property & Casualty Reinsurance Underwriting Acquisition Costs

     Underwriting acquisition costs increased $52.7 million or 17.0% in 2003. This increase is mainly related to the increase in net premiums earned. The non-life underwriting expense ratio was 22.3% in 2003 as compared to 22.2% in 2002.

Standard Property & Casualty Reinsurance Operating and Administration Expenses

     Operating and administration expenses increased 11.6% in 2003. The increase primarily arose from expenditures to support the growth in operations. Operating and administration expenses were also impacted in 2003 and 2002 by the decrease of the U.S. dollar against the hardening European currencies. Despite the increase in operating and administration expenses, the non-life administration expense ratio was 4.3% in 2003, compared to 4.4% in 2002. This was due to continued strong premium growth relative to the growth in expenses.

Standard Property & Casualty Reinsurance Combined Ratios

     Standard Property & Casualty Reinsurance’s combined ratio was 94.9% in 2003 and 102.9% in 2002. The improvement in the combined ratio was largely the result of overall solid results in the property line of business, as 2003 was absent of any major catastrophe activity.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Standard Property & Casualty Reinsurance Segment Income (Loss)

     Standard Property & Casualty Reinsurance reported segment income of $55.8 million in 2002 as compared to a segment loss of $147.3 million in 2001. The increase in segment income was primarily attributable to an improvement in the non-life loss ratio by 16.9 percentage points in 2002 over 2001. Losses in 2001 were primarily attributable to the September 11th terrorist attacks, with net losses in the amount of $108.5 million.

Standard Property & Casualty Reinsurance Premiums

     For the year ended December 31, 2002, gross premiums written increased 3.1% to $1,542.3 million, net premiums written increased 13.5% to $1,452.2 million and net premiums earned increased 14.4% to $1,396.7 million.

     For the year ended December 31, 2002, premium growth in Standard Property & Casualty Reinsurance by line of business included:

Standard Property & Casualty Reinsurance Net Investment Income and Net Realized Capital Losses

     Standard Property & Casualty Reinsurance reported net investment income and net realized capital losses of $98.1 million for the year ended December 31, 2002, which was higher by $11.9 million, or 13.8%, compared to net investment income and net realized capital losses of $86.2 million for the same period of 2001. The increase is primarily from an increase in net investment income on higher invested assets due to our additional capitalization in late 2001 and the investment of cash flows from operating activities during 2002.

Standard Property & Casualty Reinsurance Losses and Loss Adjustment Expenses

     Standard Property & Casualty Reinsurance’s losses and loss adjustment expenses incurred decreased $72.9 million, or

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6.4% in 2002. The non-life loss and loss adjustment expense ratio was 76.3% in 2002 as compared to 93.2% in 2001. The decrease of 16.9 percentage points for the year ended December 31, 2002 was largely attributable to the losses reported in 2001 related to the September 11th terrorist attacks, with net losses of $108.5 million.

     In 2002, Standard Property & Casualty Reinsurance experienced $51.1 million (net of reinstatement premiums of $3.1 million) in losses from the European floods and $62.2 million in net adverse loss development on prior years’ business, primarily from the motor, general third party liability and property lines of business.

     In 2001, Standard Property & Casualty Reinsurance strengthened reserves for prior years by $46.6 million, primarily for the motor and property lines of business. The strengthening was principally related to accident years 2000 and prior.

Standard Property & Casualty Reinsurance Underwriting Acquisition Costs

     Underwriting acquisition costs increased $70.8 million or 29.5% in 2002. This increase is mainly related to the increase in net premiums earned. The non-life underwriting expense ratio was 22.2% in 2002 as compared to 19.6% in 2001.

Standard Property & Casualty Reinsurance Operating and Administration Expenses

     Operating and administration expenses decreased 16.9% in 2002. The decrease was primarily due to relatively small growth in premium in 2002 compared to 2001, as well as more functions and services were allocated to the Corporate Center in 2002. The non-life administration expense ratio was 4.4% in 2002, compared to 6.0% in 2001, reflecting this decrease.

Standard Property & Casualty Reinsurance Combined Ratios

     Standard Property & Casualty Reinsurance’s combined ratio was 102.9% in 2002 compared to 118.8% in 2001. The higher combined ratio in 2001 primarily resulted from losses related to the September 11th terrorist attacks.

Specialty Lines

     The table below presents information regarding results of operations of our Specialty Lines segment for the years ended December 31, 2003, 2002 and 2001.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Specialty Lines Segment Income

     Specialty Lines reported segment income of $115.2 million in 2003 compared to a segment income of $56.0 million in 2002. In addition to the positive results for 2003, the cash flow generated by the continuing growth in longer tail lines increased total invested assets. Therefore, a substantial part of this segment’s expected profitability will emerge as investment income in future periods. The increase in segment income was primarily attributable to:

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     These improvements were somewhat offset by an increase of 1.6 percentage points in the underwriting expense ratio in 2003, from 20.0% in 2002 to 21.6% in 2003. The 2002 ratio was lowered as a result of a cumulative catch-up on one of our retrocessionaires and certain aviation business.

Specialty Lines Premiums

     For the year ended December 31, 2003, gross premiums written increased 22.5% to $2,022.0 million, net premiums written increased 16.5% to $1,811.9 million and net premiums earned increased 14.1% to $1,663.6 million.

     Specialty Lines’ growth was spread across most lines and primarily resulted from increased rates, increasing the share of clients’ business upon renewing existing business or writing new business.

     For the year ended December 31, 2003, premium growth in Specialty Lines included:

     The above increases were offset by a decrease in net premiums written in the aviation and space line of business resulting from an increase in ceded premiums for external reinsurance protection, principally associated with Converium’s increased participation in the GAUM pool, and softening markets as a result of recent low loss activity.

Specialty Lines Net Investment Income and Net Realized Capital Gains (Losses)

     Specialty Lines reported net investment income and net realized capital gains of $132.4 million for the year ended December 31, 2003, an increase of $7.1 million, or 5.7%, compared to net investment income and net realized capital losses of $125.3 million for the same period of 2002. The investment results and return for 2003 were positively impacted by the recovery of the global capital markets.

Specialty Lines Losses and Loss Adjustment Expenses

     Specialty Lines’ losses and loss adjustment expenses incurred increased $74.1 million, or 6.4% in 2003. The non-life loss and loss adjustment expense ratio was 74.6% in 2003 as compared to 80.0% in 2002, a decrease of 5.4 percentage points. This decrease was mostly due to lower reserve development in 2003.

     In 2003, segment income was decreased by $18.1 million from net adverse developments of prior years’ loss reserves. Adverse development on workers’ compensation and professional liability and other special liability lines of $120.3 million (primarily from 2000 and prior years) was largely offset by net positive development of prior years’ loss reserves on aviation and space of $102.2 million (primarily from the 2002 year). As a multi-line reinsurer, there are always likely to be reserve adjustments at the line of business level. The Specialty Lines segment’s book of business is broadly diversified by line of business as well as balanced by region and by the expected duration of its claims obligations.

     In 2002, Specialty Lines experienced $86.3 million in net adverse loss development on prior years’ business, primarily from the commercial umbrella and medical errors and omissions liability lines of business.

Specialty Lines Underwriting Acquisition Costs

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     Underwriting acquisition costs increased $67.8 million or 23.2% in 2003. This increase is mainly related to the increase in net premiums earned. The non-life underwriting expense ratio was 21.6% in 2003 as compared to 20.0% in 2002.

Specialty Lines Operating and Administration Expenses

     Operating and administration expenses increased $11.6 million or 17.0% in 2003. The increase primarily arose from expenditures to support the growth in operations. Operating and administration expenses were also impacted in 2003 and 2002 by the decrease of the U.S. dollar against the hardening European currencies. Despite the increase in operating and administration expenses, the non-life administration expense ratio was 4.4% in 2003, compared to 4.4% in 2002. This was due to continued strong premium growth relative to the growth in expenses.

Specialty Lines Combined Ratios

     Specialty Lines’ combined ratio was 100.6% in 2003 and 104.4% in 2002. The non-life loss ratio improved by 5.4 percentage points for the year ended December 31, 2003, versus the same period in 2002. This improvement was somewhat offset by an increase of 1.6 percentage points in the underwriting expense ratio in 2003.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Specialty Lines Segment Income (Loss)

     Specialty Lines reported segment income of $56.0 million in 2002 as compared to a segment loss of $277.2 million in 2001. The increase in segment income was primarily attributable to an improvement in the non-life loss ratio of 29.5 percentage points for the year ended December 31, 2002. Losses in 2001 were primarily attributable to the September 11th terrorist attacks, with net losses in the amount of $168.7 million, as well as losses related to the Enron Chapter 11 reorganization of $67.0 million.

Specialty Lines Premiums

     For the year ended December 31, 2002, gross premiums written increased 46.2% to $1,650.3 million, net premiums written increased 60.6% to $1,555.3 million and net premiums earned increased 70.0% to $1,458.0 million.

     Specialty Lines’ growth was spread across most lines and primarily resulted from increased rates, increasing the share of clients’ business upon renewing existing business or writing new business.

     For the year ended December 31, 2002, premium growth in Specialty Lines included:

Specialty Lines Net Investment Income and Net Realized Capital Losses

     Specialty Lines reported net investment income and net realized capital losses of $125.3 million for the year ended December 31, 2002, an increase of $17.0 million, or 15.7%, compared to net investment income and net realized capital losses of $108.3 million for the same period of 2001. The increase is primarily from an increase in net investment income on higher invested assets due to our additional capitalization in late 2001 and the investment of cash flows from operating activities during 2002.

Specialty Lines Losses and Loss Adjustment Expenses

     Specialty Lines’ losses and loss adjustment expenses incurred increased $228.2 million, or 24.3% in 2002. The non-life loss and loss adjustment expense ratio was 80.0% in 2002 as compared to 109.5% in 2001. The decrease of 29.5 percentage points for the year ended December 31, 2002 was largely attributable to the losses reported in 2001 related to the September

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11th terrorist attacks, with net losses in the amount of $168.7 million, as well as losses related to the Enron Chapter 11 reorganization of $67.0 million.

     In 2002, Specialty Lines experienced $86.3 million in net adverse loss development on prior years’ business, primarily from the commercial umbrella and medical errors and omissions liability lines of business. In 2001, Specialty Lines strengthened reserves for prior years by $77.0 million, primarily related to the excess and surplus, commercial umbrella and marine and energy lines of business, offset by positive development in aviation and space. The strengthening was principally related to accident years 2000 and prior.

Specialty Lines Underwriting Acquisition Costs

     Underwriting acquisition costs increased $45.6 million or 18.5% in 2002. This increase is mainly related to the increase in net premiums earned. The non-life underwriting expense ratio was 20.0% in 2002 as compared to 28.8% in 2001.

Specialty Lines Operating and Administration Expenses

     Operating and administration expenses increased 18.0% in 2002. This increase was driven by the large growth in premiums. The non-life administration expense ratio was 4.4% in 2002, compared to 6.0% in 2001, reflecting this premium growth.

Specialty Lines Combined Ratios

     Specialty Lines’ combined ratio was 104.4% in 2002 compared to 144.3% in 2001. The higher combined ratio in 2001 primarily resulted from losses related to the September 11th terrorist attacks and the Enron Chapter 11 reorganization.

Life & Health Reinsurance

     The table below presents information regarding results of operations of our Life & Health Reinsurance segment for the years ended December 31, 2003, 2002 and 2001.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Life & Health Reinsurance Segment Loss

     Life & Health Reinsurance reported segment loss of $11.9 million in 2003 compared to $6.5 million in 2002. The decrease in segment results in 2003 was primarily attributable to the development on a closed block of Guaranteed Minimum Death Benefit (GMDB) business.

     The Life & Health Reinsurance segment strengthened reserves on a closed block of variable annuity business by $20.5 million (to net $56.0 million) in 2003 and $15.6 million in 2002. As a result of the strong performance of the U.S. stock markets, the GMDB’s net amount at risk further decreased to $809.7 million and $1,243.0 million at December 31, 2003 and 2002, respectively. Although Converium feels that its currently carried reserves for its GMDB exposure are adequate, it has exercised the call option it negotiated in the third quarter of 2003, to access additional reinsurance protection of up to $75.0

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million. This decision was made in light of the current volatility and the valuation of the equity markets in the United States. The annual expense associated with this protection is expected to be less than $0.5 million per year. Based on information available today, this additional reinsurance protection adequately addresses potential adverse deviations to the key assumptions i.e., mortality risks, lapse rate risks, surrenders, and investment risks, such as equity market performance and volatility, incorporated in Converium’s models.

Life & Health Reinsurance Premiums

     For the year ended December 31, 2003, gross premiums written increased 18.4% to $406.5 million, net premiums written increased 17.4% to $369.5 million and net premiums earned increased 23.2% to $383.0 million.

     For the year ended December 31, 2003, premium growth in the Life & Health Reinsurance segment included:

Life & Health Reinsurance Net Investment Income and Net Realized Capital Gains (Losses)

     Life & Health Reinsurance reported net investment income and net realized capital gains of $17.5 million for the year ended December 31, 2003, which was lower by $0.6 million, or 3.3%, compared to net investment income and net realized capital losses of $18.1 million for the same period of 2002.

Life & Health Reinsurance Losses, Loss Adjustment Expenses and Life Benefits

     Life & Health Reinsurance had losses, loss adjustment expenses and life benefits incurred of $319.6 million, an increase of $59.5 million, or 22.9% in 2003. This increase mainly reflects the growth in the underlying business. The Life & Health Reinsurance segment strengthened reserves on a closed block of variable annuity business by $20.5 million (to net $56.0 million) and $15.6 million in 2003 and 2002, respectively.

Life & Health Reinsurance Underwriting Acquisition Costs

     Underwriting acquisition costs increased $16.0 million or 25.0% in 2003. This increase is mainly related to the increase in net premiums earned. The underwriting expense ratio was 20.9% in 2003 as compared to 20.6% in 2002.

Life & Health Reinsurance Operating and Administration Expenses

     Operating and administration expenses increased $1.5 million or 13.3% in 2003. The increase primarily arose from expenditures to support the growth in operations. Operating and administration expenses were also impacted in 2003 and 2002 by the decrease of the U.S. dollar against the hardening European currencies. Despite the increase in operating and administration expenses, the non-life administration expense ratio was 3.5% in 2003, compared to 3.6% in 2002. This was due to continued strong premium growth relative to the growth in expenses.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Life & Health Reinsurance Segment Loss

     Life & Health Reinsurance reported segment loss of $6.5 million in 2002 as compared to a loss of $17.7 million in 2001. The results included net losses related to the September 11th terrorist attacks of $12.0 million in 2001 and net development on a closed block of variable annuity business of $15.6 million in 2002 and $13.4 million in 2001.

Life & Health Reinsurance Premiums

     For the year ended December 31, 2002, gross premiums written increased 33.8% to $343.2 million, net premiums written increased 34.4% to $314.7 million and net premiums earned increased 43.2% to $310.8 million.

     For the year ended December 31, 2002, premium growth in the Life & Health Reinsurance segment included:

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Life & Health Reinsurance Net Investment Income and Net Realized Capital Losses

     Life & Health Reinsurance reported net investment income and net realized capital losses of $18.1 million for the year ended December 31, 2002 which was higher by $2.3 million, or 14.6%, compared to net investment income and net realized capital losses of $15.8 million for the same period of 2001. The increase is primarily from an increase in net investment income on higher invested assets due to our additional capitalization in late 2001 and the investment of cash flows from operating activities during 2002.

Life & Health Reinsurance Losses, Loss Adjustment Expenses and Life Benefits

     Life & Health Reinsurance’s losses, loss adjustment expenses and life benefits incurred increased $36.2 million, or 16.2% in 2002. This increase mainly reflects the growth in the underlying business. The results included net losses related to the September 11th terrorist attacks of $12.0 million in 2001 and net development on a closed block of variable annuity business of $15.6 million in 2002 and $13.4 million in 2001.

Life & Health Reinsurance Underwriting Acquisition Costs

     Underwriting acquisition costs increased $42.2 million or 193.6% in 2002. The underwriting expense ratio was 20.6% in 2002 as compared to 10.0% in 2001. In 2001, $10.6 million in commission benefits were recorded from the commutation of a large contract and a refunding of commissions from our strategic retrocessions, reducing the underwriting expense ratio by 4.9%.

Life & Health Reinsurance Operating and Administration Expenses

     Operating and administration expenses increased 130.6% in 2002. The increase was primarily due to the hiring of staff to support the growth in business. The administration expense ratio was 3.6% in 2002, compared to 2.1% in 2001.

Corporate Center

     The table below presents information regarding results of operations of our Corporate Center for the years ended December 31, 2003, 2002 and 2001. The Corporate Center carries certain administration expenses, such as costs of the Board of Directors, the Global Executive Committee, and other global functions.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Corporate Center Operating and Administration Expenses

     The Corporate Center reported operating and administration expenses of $34.3 million in 2003, compared to $30.3 million in 2002. The increases primarily arose from expenditures to support the growth in operations, and the weakening of the U.S. dollar.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Corporate Center Operating and Administration Expenses

     The Corporate Center reported operating and administration expenses of $30.3 million in 2002, compared to $7.3 million in 2001. Corporate Center charges in 2001 were low as global functions were just being established to prepare for the IPO in late 2001.

B. LIQUIDITY AND CAPITAL RESOURCES

     We operate a treasury function responsible for managing our banking relationships, capital raising activities, including equity and debt issues, our overall cash, cash pooling and liquidity positions and the payment of internal and external

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