The war of words between SCOR and Converium gathers pace, as the Swiss reinsurer fights to maintain its independence...

In February SCOR announced its intentions to acquire the remaining 67.1% of Converium that it doesn’t already own. The offer was met with little enthusiasm and ever since, Converium has been fighting to maintain independence from its French rival.

Both sides disagree over the outcomes of a possible merger and take every opportunity to pick errors in each others cases. Converium recently raised the heat by filing a lawsuit alleging that SCOR had unlawfully excluded its US shareholders from the deal. In its defense, SCOR said that it had complied with all applicablelegal provisions.

The issue hinges on a stark difference of opinion. Converium refuses to acknowledge that SCOR’s “dynamic lift” plan offers better return targets than its “standalone roadmap”. In a move designed to convince its shareholders of the merits of pursuing a standalone strategy,

Converium brought forward the release of its financial results and in April announced a tripling of income for the first quarter of 2007.

“These results modestly strengthen Converium’s defense against SCOR,” said William Hawkins, analyst with KBW.

“Converium's board of directors is vehemently opposed to the offer, saying it significantly undervalues the operation

Chairman and CEO Denis Kesler, confident that reinsurance clients value diversification and multiline reinsurance solutions, hopes to form a single company that ranks as one of the top five global multi-line reinsurance companies. And on 26 April, this plan was endorsed by SCOR’s shareholders.

Converium’s board of directors is vehemently opposed to the offer, saying it significantly undervalues their operation. In turn, SCOR has dismissed this assessment, saying it “is more an expression of subjective opinion rather than the result of a thorough analysis and evaluation.”

SCOR’s financial outlook rating is unlikely to be positively affected by the acquisition. While Standard & Poor’s recently upgraded Converium’s long term financial strength rating to “A-”, the company is still rated in the “B” range by AM Best and Fitch, whereas SCOR is rated in the “A” range.

When Swiss Re bought GEIS last year, S&P put Swiss Re’s ratings on creditwatch negative which, it said, “reflected the execution risk associated with integrating a group of the size and complexity of GEIS, which has a lower rating than that of Swiss Re.” When the transaction was completed Swiss Re was downgraded from “AA” to “AA-”.

It’s unlikely that Converium can resist SCOR’s advances indefinitely, but only time will tell if the combined operation will be a success.