Best Affirms Catlin Group’s Ratings; Outlook Stable

August 8, 2014

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

Best also affirmed the ICRs of “bbb” of UK-based Catlin Underwriting (CU), a non-operating holding company, and Catlin Group Limited (CGL) (Bermuda), the ultimate parent company of the Catlin group.

In addition Best affirmed the debt ratings of “bbb” on $600 million 7.249 percent preferred stock issued by CICL, and “bbb-” on $27 million subordinated floating rate notes due 2036 and €7 million [$9.375 million] subordinated floating rate notes due 2035 issued by CU.

The outlook for all of the above ratings remains stable.

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, and assigned a positive outlook to both ratings. Best said the ratings of Lloyd’s Syndicate 2003 “reflect the financial strength of Lloyd’s, which underpins the security of all Lloyd’s syndicates.

“CICL’s ratings reflect its strong risk-adjusted capitalization, robust multi-carrier business model, well-diversified business mix and good operating performance.

“The ratings of Catlin UK and Catlin Re acknowledge the companies’ importance to the Catlin group. Catlin UK has benefited from explicit support in the form of capital contributions and intra-group reinsurance. Catlin Re is of central importance to the Catlin 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’s report also said the “group’s consolidated risk-adjusted capitalization is expected to remain at a strong level in 2014, supported by good retained earnings. Adverse development cover, initially purchased in 2012, remains in place, limiting the group’s exposure to unfavorable reserve development.

“A robust business profile is supported by multiple underwriting hubs and insurance carriers in the United Kingdom, Bermuda, the United States and other international markets, which provide access to a broad range of property/casualty business.”

Best noted that the “group has a strong competitive position in the London market, supported by the profile of Lloyd’s Syndicate 2003, which accounted for 56 percent of consolidated gross premium income in 2013. Prospective growth is expected to be weighted toward the domestic U.S. and other markets outside of Bermuda and London. The expense ratio is expected to improve over time as scale benefits are realized.”

Best estimates, however, that pre-tax profits in 2014 would be “slightly lower than the $432 million reported in 2013, subject to normal catastrophe activity for the rest of the year. ” Best also said it “expects a combined ratio between 90 percent and 95 percent (2013: 92 percent), reflecting limited rate deterioration, lower reserve releases and a positive contribution from a lower expense ratio. The contribution to profit from the return on the group’s conservative investment portfolio is likely to improve but remain modest, reflecting the low interest rate environment.”

As partial offsetting factors Best cited the “potential for earnings volatility due to exposure to catastrophe losses and an expense footprint that would require further expansion in order to be optimally utilized.”

In conclusion Best said: “Positive rating actions are unlikely in the near future for the Catlin group. Unexpected weak operating performance or 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 Lloyd’s, which currently has an FSR of ‘A’ (Excellent) and an ICR of ‘a+’ with a positive outlook.”

Source: A.M. Best

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