It is likely that your catalyst is contaminated, and is not storing oxygen, which is what the O2 sensor based catalyst monitor measures. It does this by comparing the front O2 sensor signal to the rear. If the catalyst is storing oxygen, the rear O2 sensor voltage should not switch very often (go from + to - voltage). If the rear is switching, it means that your catalyst is passing oxygen through-hence the loss of efficiency code.

Reasons for this vary. Burning too much oil can poison a catalyst. Some fuel, for example canada or maybe Mexico, can poison catalysts designed for the USA because of additives. If you had a dead cylinder for a while, and didn't fix it, the misfire could have fried the cat. Also, if you ran excessively rich or lean, you could have over-heated the cat and cooked it.

The good news is that there is (in the USA) a government mandated 80,000 mile warranty on the catalyst. The bad news is that if you are over 80,000 miles, you will need to spend ~$500 on a new catalyst. Which you probably should do, as you are polluting the air as long as you drive with a dead cat.

Ummmm, I'm going to go out on a limb here and say that it is coming on because your catalyst efficiency is below it's threshold. I know, I know "what a smart a$$" Seriously though, the front O2 sensor flucuates as the mixture goes lean and then rich, the exhaust gas goes through the catalytic converter and all of the excess oxygen is used up in the process so there should not be much coming out the other side and this results in a relatively flat reading out of the rear sensor. So, if the front sensor flucuates up and down as it should and the cat is working as it should the rear sensor should have very little rise and fall in it's signal. Should it start to flucuate too much and mirror the front sensor then the control unit will log a code that indicates that the catalyst is run down and not doing it's job. There is an open recall campaign on the S&V 40 O2 sensors right now as they have been having contamination problems with them. Usually a catalyst efficiency code means you have a bad cat and that is all there is to it but if the code being set is dependent upon the relationship of one sensor reading to the other and the front one is bad then anything could happen. Take it by your local Volvo dealer and see if you can't soak them for a little free emissions warranty work.

Good Luck, Mark