Best Affirms Catlin Group and Subs ‘A’ Ratings; Outlook Stable

September 14, 2012

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 the Bermuda-based Catlin Insurance Company Limited (CICL), Catlin Insurance Company (UK) and Catlin Re Switzerland Ltd.

Best also 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 debt rating of “bbb” on $600 million preferred stock issued by CICL.

In addition Best affirmed the ICR of “bbb” and the debt ratings of “bbb-” on $27 million subordinated floating rate notes and €7 million [$9.119 million] subordinated floating rate notes issued by Catlin Underwriting (CU), 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,” Best explained. Tthe syndicate also 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. In addition, Catlin Re is strategically important to the group as the provider of significant intra-group reinsurance protection and as the platform for expansion of the group’s reinsurance business in Europe.”

Best noted that the Catlin group’s consolidated risk-adjusted capitalization “deteriorated in 2011, due to premium growth and a reduction in retained earnings following major catastrophe losses. This year, risk-adjusted capitalization has recovered, supported by the purchase of additional reinsurance, including adverse development cover. At year-end 2012, consolidated shareholders’ funds are expected to be modestly higher than the $3.3 billion reported at year-end 2011.”

Best also said that a “higher pre-tax profit is expected in 2012 (2011: $71 million). An improvement in the combined ratio to approximately 95 percent from 103 percent is anticipated, assuming a return to normal catastrophe loss experience. CGL’s worldwide catastrophe aggregate program, from which the group made significant recoveries in 2011, remains in place in 2012.

“However, investment income from the group’s conservative portfolio of cash and fixed income securities is likely to be lower this year, due to low interest rates and the absence of the investment gains that supported performance in 2011.”

The ratings report described the Catlin group as maintaining “a robust business profile, supported by its well-diversified portfolio of property and casualty risks. Underwriting hubs in the United Kingdom, Bermuda, United States and other international markets, including Europe, Asia-Pacific, Canada, Guernsey and South America, 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 almost 60 percent of consolidated gross premium income. [IJ Ed. Note: It is also the syndicate with the largest capacity at Lloyd’s].

In addition Best said it expects the group “to achieve growth in premium written of over 10 percent in 2012, with locally placed US and international business remaining the main focus of its business expansion. Growth is expected to be driven by rate increases in loss-affected classes and the development of new opportunities in classes where pricing is improving.

“Positive rating actions are unlikely in the near future for the Catlin group, whereas unexpected weak operating performance or a deterioration in its risk-adjusted capitalization could lead to negative rating pressure.

“A factor that may lead to positive or negative rating actions for Lloyd’s Syndicate 2003 is a change in the ratings of the Lloyd’s market, which currently has an FSR of ‘A’ (Excellent) and an ICR of “a+” and has a stable outlook.”

Source: A.M. Best

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