The insurance industry has been hit hard in the aftermath of 11 September, the Asian tsunami and US class actions, giving Converium’s legal team some tough challenges. By Joanne Harris

It has been an interesting year for insurers and reinsurers across the world. First came hurricanes sweeping the Caribbean and Florida, leaving a swathe of destruction in their wake. Then, on Boxing Day, came the tragic news of the Asian tsunami. Both sets of natural disasters bumped up the cost to the insurance industry, with losses estimated at around $9bn (£4.83bn) for the hurricanes and a little less than $4bn (£2.14bn) after the tsunami.

For Swiss reinsurer Converium, the disasters will have cost around $150m (£80.4m) all told. But the company says that the losses will not affect its capitalisation and the outlook appears fair.

It was a different story just a few months ago. Converium was being described by newspapers as “troubled” and “struggling”, and class actions had been filed against it in the US.

The actions are in preliminary proceedings and it is back to business for senior legal counsel Andrew Deighton and his six legal colleagues at Converium’s Zurich headquarters.

Deighton joined the company a year before its initial public offering (IPO) on the Swiss Stock Exchange in December 2001. Prior to the move, Deighton was a partner at insurance specialist Barlow Lyde & Gilbert (BLG). BLG had a relationship with Zurich Financial Services, which was planning to unbundle its various reinsurance businesses. Given the chance, Deighton moved in-house and maintains that he does not regret it.

He joined a team preparing the IPO, which ultimately split the Zurich reinsurance businesses into three pieces: one apiece in Cologne and the US, with the largest part in Zurich.

The process took place during one of the toughest periods for insurers and reinsurers, straddling the catastrophic events of 11 September. Converium was floated exactly three months after the World Trade Centre was destroyed, on 11 December 2001.

In the next year, Deighton was sent to London to set up a branch of Converium in the historic capital of insurance. Working mostly alone, but with support on a sale and purchase agreement from Dechert, Deighton gained regulatory approval for Converium Insurance UK Limited.

Converium moved into Lloyd’s at the same time, through a corporate member, using what Deighton calls “innovative funding solutions”. The company ended up being somewhat of a guinea pig for the Financial Services Authority (FSA), which had recently revamped its insurance regulation capacity. Deighton explains that, among other things, Converium’s establishment at Lloyd’s involved applying some of the FSA’s consultative papers on insurance.

Deighton sought legal opinions on the formation of the London business from Freshfields Bruckhaus Deringer, Conyers Dill & Pearman in Bermuda, Dutch firm Loyens & Loeff and Converium’s usual Swiss advisers Schellenberg Wittmer.

London was finally set up with £50m of capital, which increased to £60m with new business. It writes principally marine and aviation insurance. Deighton visits the UK regularly, taking legal advice when necessary from Kendall Freeman and Barlow Lyde & Gilbert.

Converium’s worldwide operations weathered 11 September well (although the group suffered losses of $289.2m (£155.1m) from terrorist attacks) and 2002 and 2003 were both strong years financially.

Then, last July, Converium’s own hurricane hit. The company announced it was being forced to increase reserves in its US business. The increases affected business written between 1997 and 2001 – prior to the IPO – and meant that the company lost $800,000 (£428,900) of capital in a matter of weeks.

The news was potentially catastrophic, and with analysts downrating the company and shareholders’ interests taken into account, radical action had to be taken. By September the decision had been taken to put Converium’s US business into run-off.

At the beginning of October, several plaintiffs’ firms in the US filed class actions against Converium due to the drop in share prices caused by the run-off.

Converium, however, succeeded in raising $420m (£225.2m) through a capital increase, selling nearly 100 per cent of shares through rights of purchase and clearing the way for a positive third-quarter announcement in October.

Converium’s small and multinational legal team – comprising three Swiss lawyers, two from the UK and one apiece from France and Germany – relies on external counsel for specific skills, as well as “comfort and general support”, as Deighton puts it. He says it is good to be able to call someone else for a second opinion, although the company does as much as possible in-house.

Deighton says he likes the challenge and variety of being in-house, and that even after his years at BLG and the four at Converium, he still has to start from scratch on some things.

“I’m in the thick of things in a business sense,” Deighton adds. “I’m more than ‘just a lawyer’.”

Like many in-house counsel, Deighton would recommend the role to others, saying: “I’d encourage young lawyers to spend some time in-house, for example on secondment, to get the real client focus. Converium is my client but I also have to think about Converium’s customers.”

Andrew Deighton
Senior legal counsel

Organisation Converium
Sector Reinsurance
Turnover $185m (£99.2m)
Employees 700 worldwide
Legal capability Seven
Senior legal counsel Andrew Deighton
Reporting to General counsel Christian Felderer
Main law firms Bär & Karrer, Barlow Lyde & Gilbert, Kendall Freeman, Schellenberg Wittmer and Willkie Farr & Gallagher