About the Litigation

The gravamen of this litigation is that the defendants issued a series of materially false and misleading statements that, among other things, materially overstated the earnings and overall financial condition of Converium Holding AG ("Converium" or the "Company"), by concealing a massive deficiency in Converium's loss reserves. SCOR is the successor to Converium which was at all relevant times a global reinsurance company with headquarters in New York City and Zurich, Switzerland. As a reinsurer, Converium was required to establish loss reserves to reflect its contractual obligation to pay future claims on the policies of the ceding insurers, which Converium, as a reinsurer, has contracted to cover. Loss reserves are established and periodically adjusted based on actuarial estimates, and Converium employed teams of internal actuaries to monitor loss reserves for each of its lines of business. Those business lines included property insurance, casualty insurance, automobile liability and life insurance, and were managed through Converium's three global divisions, each of which established its own loss reserves for each line of business: Converium Zurich, Converium Cologne and Converium North America. Loss reserves constituted the largest expense item on Converium income statement and, because the establishment of loss reserves offsets income, Converium's earnings were reduced commensurately by any increase in loss reserves. Accordingly, Lead Plaintiff alleged that, by failing to maintain adequate loss reserves during the Class Period, Converium was able to materially overstate its earnings and, thereby, mislead investors.

Specifically, as alleged in the Consolidated Amended Class Action Complaint (the "Complaint"), Converium was spun-off from its parent, Zurich Financial Services ("ZFS") in a December 11, 2001 initial public offering (the "IPO"). The Converium IPO was the largest initial public offering of a reinsurance company in history, and yielded gross proceeds of approximately $1.756 billion, of which ZFS received approximately $1.67 billion. Prior to the IPO, an independent actuarial consulting firm identified a reserve deficiency at Converium's North American division of approximately $350 million. Despite being informed of that deficiency, the Company proceeded with the IPO without sufficiently increasing its loss reserves. Thereafter, and throughout the period from January 7, 2002 to September 2, 2004 (the "Class Period"), the Complaint alleges that the Company and its senior officers touted Converium's continuously improved financial condition while concealing a growing reserve deficiency in North America. After a second independent actuarial consultant determined that the reserve deficiency had grown to approximately $437 million as of year-end 2002, the Company engaged in a scheme to conceal that deficiency by "novating" or transferring millions of dollars in poorly performing contracts from North America to Converium's Zurich division and by reorganizing the Company to no longer report financial results by geographic division.

Ultimately, the Company was unable to continue concealing its reserve deficiency and, on July 20, 2004, announced that Converium would take a charge of at least $400 million to increase its reserves. That disclosure caused the price of Converium's American Depositary Shares ("ADSs"), which traded on the New York Stock Exchange, to collapse nearly 50%. Subsequent disclosures by the Company revealed that the charge would be more than $500 million, and drove the price of Converium's ADSs down further. On September 2, 2004, Standard & Poor's announced a downgrade of the Company's credit rating in response to the reserve increase. Shortly thereafter, Converium put its North American business into runoff.

In October 2004, the first of several securities class action complaints were filed in the District Court for the Southern District of New York against Converium, ZFS, and certain of Converium's officers and Directors. On July 14, 2005, Judge Mukasey of the District Court for the Southern District of New York appointed the Public Employees' Retirement System of Mississippi ("Mississippi") as Lead Plaintiff in the Converium securities fraud litigation, together with Avalon Holdings, Inc. ("Avalon"), a private institutional investor. The Court also approved Mississippi's and Avalon's selection of three law firms, Bernstein Litowitz Berger & Grossmann LLP, Spector Roseman & Kodroff, PC and Cohen Milstein Hausfeld & Toll, P.L.L.C. as Lead Counsel for the Class. Lead Counsel conducted an extensive investigation of the action, which included interviews with the former Converium employees who had been directly involved with the establishment of the Company's loss reserves - which are the focus of the litigation.

On September 23, 2005, Mississippi and Avalon filed the Complaint based upon the detailed facts developed through Lead Counsel's investigation. The Complaint alleges violations of the Securities Exchange Act of 1934 by Converium, and its CEO Dirk Lohmann, CFO Martin Kauer, and North America CEO Richard Smith, as well as by Zurich Financial Services, Converium's parent company prior to its IPO. In addition to these Exchange Act claims, which had been asserted in the complaints filed prior to the appointment of Mississippi and Avalon as Lead Plaintiffs, the Complaint also asserts claims under the Securities Act of 1933 against Converium, Zurich, Lohmann, Kauer, Smith and the Company's current and former directors. In addition, the Complaint asserts claims under the Securities Act against UBS AG and Merrill Lynch International, which served as co-lead underwriters on Converium's IPO.

On December 23, 2005, defendants moved to dismiss the complaint on a variety of substantive and procedural grounds. On February 17, 2006, Lead Plaintiffs filed a brief in opposition to those motions, and contemporaneously moved to strike certain exhibits the defendants had submitted in support of their motions.

On March 1, 2006, Converium restated its December 31, 2000 financial statements acknowledging that the Company, at the time of the IPO, overstated its pre-tax income by nearly $100 million. In response, Mississippi and Avalon, on April 21, 2006, filed a motion seeking leave to file a Second Amended Class Action Complaint incorporating new allegations against the Company arising out of the restatement. Judge Mukasey took no action on that motion, or on the pending motions to dismiss.

In September 2006, the case was reassigned to Southern District of New York Judge Denise Cote. Judge Cote held a case status conference on November 16, 2006, and subsequently issued an order allowing Lead Plaintiffs to make several changes to the proposed Second Amended Complaint. The revisions made to the proposed Second Amended Complaint include adding eight additional underwriters of Converium's initial public offering as defendants, adding as Named Plaintiff an individual whose case was consolidated with Lead Plaintiffs' action, and dropping claims against two defendants (who remain defendants under other causes of action).

On December 1, 2006, Lead Plaintiffs filed a motion seeking leave to file the second amended complaint. On December 28, 2006, Judge Cote issued an opinion which granted in part and denied in part defendants' motions to dismiss the original Complaint. In issuing this opinion, Judge Cote ruled that Lead Plaintiffs' motion to file the Second Amended Class Action Complaint was moot. In the motion to dismiss ruling, Judge Cote sustained the Exchange Act claims asserted against Converium and the Officer Defendants, with the exception of those claims arising out of the statements made in connection with the IPO. Judge Cote dismissed the claims arising under the Securities Act, holding that all such claims were barred by the applicable statute of limitations.

On January 12, 2007, Lead Plaintiffs filed a motion for reconsideration of the dismissal of the Securities Act claims and of the Exchange Act claims arising out of the statements made in connection with the IPO. On April 9, 2007, Judge Cote entered an order granting in part Lead Plaintiffs' motion for reconsideration. Specifically, Judge Cote granted the request to reconsider the dismissal of the Exchange Act claims, but denied the motion as to the Securities Act claims. With regard to the Exchange Act claims, the Court noted that certain additional arguments raised in Defendants' motions to dismiss the Exchange Act claims, which the Court had not addressed in its initial ruling on those motions, remain to be ruled upon. On September 14, 2007, Judge Cote ruled on Lead Plaintiffs' Exchange Act claims regarding the statements made in connection with the IPO, denying Defendants' motion to dismiss with regard to those statements.

Contemporaneous with the briefing on Lead Plaintiffs' motion for reconsideration, Lead Counsel conducted extensive discovery relating to the claims and the underlying events and transactions alleged in the Complaint, including the review of nearly four million pages of documents produced by Defendants and third parties and the deposing of approximately twenty-seven fact witnesses.

On September 4, 2007, Judge Cote preliminarily approved a $30 million settlement between the Class and Converium's former parent company ZFS.

On September 28, 2007, Lead Plaintiffs moved to certify the plaintiff class. On October 19, 2007, Defendants opposed Lead Plaintiffs' motion. On November 2, 2007, Lead Plaintiffs replied to Defendants' opposition. On March 6, 2008, Judge Cote issued an opinion and order which partially granted Lead Plaintiffs' motion, certifying a plaintiff class that includes all domestic purchasers of Converium shares on the SWX Swiss Exchange ("SWX") and Converium American Depositary Shares ("ADSs") on the New York Stock Exchange ("NYSE"), as well as foreign purchasers of ADSs on the NYSE. Foreign purchasers who bought shares of Converium on the SWX were excluded from the class on the basis that there was insufficient evidence of subject matter jurisdiction over their claims. Judge Cote also certified Mississippi as Class Representative, but found that Avalon could not serve as a class representative or as co-Lead Plaintiff because it was a foreign purchaser on the SWX. Judge Cote also moved the starting date of the Class Period from December 11, 2001 to January 7, 2002 on the grounds that the market in Converium shares did not become fully capable of absorbing and reflecting all available information about the Company until after the end of the "quiet period" that followed Converium's December IPO. On March 20, 2008, Mississippi and Avalon moved for reconsideration of the Court's ruling as to the excluded foreign purchasers in light of additional evidence, uncovered in discovery, of subject matter jurisdiction over their claims. On March 26, 2008, Mississippi and Avalon moved the Court for leave to file a second amended complaint.

On July 25, 2008, Mississippi and Avalon filed a motion for preliminary approval of the Settlements. That motion seeks approval of the settlement with SCOR and the revised terms of the settlement with ZFS.

On August 11, 2008, Judge Cote preliminarily approved the proposed settlement.

Please click here to view the settlement documents, court orders and significant pleadings.