Best Affirms Catlin, Syndicate 2003 ‘A’ Ratings

April 8, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) of Bermuda-based Catlin Insurance Company Ltd. (CICL) (Bermuda) and its Syndicate Rating of Lloyd’s Syndicate 2003. Both ratings have a “stable” outlook.

Commenting on CICL, Best said “The rating reflects the company’s strong capitalisation and profitable expected performance. An offsetting factor is CICL’s expected rapid growth in 2004.” Best noted that the “company is a wholly owned subsidiary of Catlin Group Limited (CGL), a Bermudian holding company. CGL is the ultimate owner of Catlin Underwriting Agencies Limited (CUAL), Lloyd’s managing agency of Lloyd’s Syndicate 2003.”

The rating agency said it “expects CICL’s risk-adjusted capitalisation to remain strong at year-end 2004, supported by additional capital of approximately USD 182 million from CGL’s initial public offering completed in April 2004 and strong retained earnings for the year. CICL is expected to continue to generate additional capital internally to support its underwriting without recourse to external sources in the immediate future.”

It also indicated that it “expects CICL to continue its early record of low reported combined ratios, subject to normal loss experience. Although it is more difficult to forecast CICL’s loss ratio because of new accounts that will be written, A.M. Best believes that a loss ratio of less than 65 percent is achievable in 2004 (compared with a loss ratio of 57 percent in 2003).” Best also said it “believes the company’s expense ratio will remain low in 2004 at under 17.5 percent (up from 10 percent in 2003), as resources are gradually built up to support increased business volumes.”

Concerning the problem CICL may have due to its rapid growth, Best said it “expects CICL’s gross premium written to increase by over 150 percent in 2004 to over $650 million. This will include two new accounts that have not previously been written within CGL. These are an account of professional indemnity, directors and officers liability, general liability and financial institution business written by CICL’s U.K. branch (13 percent of 2004 expected gross written premium) and a structured risk account written in Bermuda (8 percent).”

Best noted that the “ultimate performance of these accounts is less predictable than CICL’s core business reinsuring or writing business in conjunction with the CUAL syndicates. The rapid growth will also inevitably challenge CICL’s management resources.”

Commenting on Syndicate 2003’s ratings, Best noted that the “A” rating “reflects the syndicate’s strong anticipated underwriting performance, its capital flexibility and the excellent profile it has in the London market, in addition to the financial strength of the Lloyd’s market rating, which underpins the security of all Lloyd’s syndicates.”

As an offsetting factor Best noted that there is a “possibility of more volatile returns in the future, following the cessation of a whole account stop loss reinsurance in 2004. The rating is based on A.M. Best’s specific syndicate criteria.”

Best also indicated that it expects a strong underwriting performance with profits in the 10-15 percent range for 2002. It also noted the syndicate’s capital flexibility and the benefit of being supported by CGL and the excellent business profile it employs, which has established a “pattern of writing no more than 12.5 percent of gross written premium within a single business class.”

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