A.M. Best Affirms Ratings Of Catlin Group

August 7, 2014

Rating company 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. [Catlin UK] [United Kingdom] and Catlin Re Switzerland Ltd. [Catlin Re] [Switzerland].

A.M. Best also has affirmed the ICRs of “bbb” of Catlin Underwriting [CU] [United Kingdom], a non-operating holding company, and Catlin Group Limited [CGL] [Bermuda], the ultimate parent company of the Catlin group.

Concurrently, A.M. Best has affirmed the debt ratings of “bbb” on USD 600 million 7.249% preferred stock issued by CICL, and “bbb-” on USD 27 million subordinated floating rate notes due 2036 and EUR 7 million subordinated floating rate notes due 2035 issued by CU. The outlook for all the above ratings remains stable.

A statement from the ratings agency said, “The FSR of A [Excellent] and ICR of “a+” of Lloyd’s Syndicate 2003 [United Kingdom], which is managed by Catlin Underwriting Agencies Limited, have been affirmed. The outlook for both ratings is positive. 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 capitalisation, 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.

“The group’s consolidated risk-adjusted capitalisation 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 unfavourable 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. The group has a strong competitive position in the London market, supported by the profile of Lloyd’s Syndicate 2003, which accounted for 56% 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 realised.

“Pre-tax profits in 2014 are expected to be slightly lower than the USD 432 million reported in 2013, subject to normal catastrophe activity for the rest of the year. A.M. Best expects a combined ratio between 90% and 95% [2013: 92%], 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.

“Partly offsetting these strengths are 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 utilised.

“Positive rating actions are unlikely in the near future for the Catlin group. Unexpected weak operating performance or deterioration in its risk-adjusted capitalisation 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.”

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