Best Affirms Catlin Insurance Companies Ratings; Outlooks Stable

September 2, 2011

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of ‘a’ of Bermuda-based Catlin Insurance Company Limited (CICL), Catlin Insurance Company (UK) Ltd. and Catlin Re Switzerland Ltd.

Best has also affirmed the debt rating of ‘bbb’ on $600 million preferred stock issued by CICL, as well as the ICR of ‘bbb’ of Catlin Underwriting (CU) and debt ratings of ‘bbb-‘ on $27 million subordinated floating rate notes and €EUR 7 million [$9.97 million] subordinated floating rate notes issued by CU.

In addition Best affirmed the FSR of ‘A’ (Excellent) and ICR of ‘a+’ of Lloyd’s Syndicate 2003, which is managed by Catlin Underwriting Agencies Limited, as well as the ICR of ‘bbb’ of the Bermuda-based Catlin Group Limited (CGL), the ultimate parent company of the Catlin group.

The outlook for all of the ratings remains stable.

The ratings of syndicate 2003 reflect the “financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates,” said Best. In addition the syndicate benefits from the financial flexibility provided by CGL.

“Catlin UK and Catlin Re benefit from the explicit support provided by CICL, through its provision of capital to support growth. Since the beginning of 2011, the intra-group reinsurance, which was previously provided by CICL, has been underwritten by the Bermuda-based branch office of Catlin Re.”

In Best’s analysis the Catlin group’s consolidated risk-adjusted capitalization is “expected to remain strong, despite anticipated deterioration during 2011, due to premium growth and a reduction in retained earnings.

“At year-end 2011, consolidated shareholders’ funds are expected to be modestly lower than the $3.4 billion reported at year-end 2010, taking into account estimated catastrophe losses in the first half of the year of $534 million (net of reinsurance and reinstatements). The impact of large losses in the second half of 2011 on earnings and capital is likely to be limited by recoveries from the group’s worldwide catastrophe aggregate reinsurance program. The aggregate deductable on the program has been substantially eroded by first half 2011 losses.”

For 2011 Best expects that the Catlin Group will “report a consolidated pre-tax profit, albeit materially lower than the $406 million reported in 2010. An underwriting loss is anticipated, reflecting the group’s exposure to catastrophes in the first half of the year, including the earthquakes in New Zealand and Japan, the Australian floods and the U.S. tornadoes and assuming average catastrophe experience in the second half of 2011.

“The group’s attritional loss ratio is expected to improve, in spite of strong competition in core business lines. Investment income from the group’s conservative portfolio of cash and fixed income investments is likely to be lower, due to low interest rates and the absence of the investment gains that supported performance in 2010.”

Best’s report described the Catlin group as maintaining “a robust business profile, supported by its well-diversified portfolio of property/casualty risks. Underwriting hubs in the United Kingdom, Bermuda, United States and international (Europe, Asia-Pacific, Canada, Guernsey and South America) markets provide access to a broad range of business. The group continues to benefit from its strong competitive position in the London market, supported by the profile of syndicate 2003, which represents approximately 65 percent of consolidated gross premium income.”

In conclusion Best noted that in 2011, “Catlin has reduced gross premiums written from its UK/London hub in response to price competition for London market wholesale business, while locally placed U.S. and international business has remained the main focus of growth.

“Further expansion of the group’s U.S. casualty portfolio is expected;” However Best indicated that it “believes it will be difficult to grow this business profitably given prevailing soft market conditions and economic uncertainties.”

Source: A.M. Best

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