Best Assigns ‘A’ Ratings to Catlin Insurance (U.K.)

March 23, 2005

A.M. Best Co. announced that it has assigned a financial strength rating of “A” (Excellent) and an issuer credit rating of “a” to Catlin Insurance Company (UK) Ltd. with a stable outlook.

“The ratings reflect the company’s adequate prospective risk-adjusted capitalisation, strong anticipated operating performance and support from its ultimate parent, Catlin Insurance Company Ltd. (CICL) (Bermuda),” said Best. “An offsetting factor is Catlin UK’s reliance upon reinsurance.”

Best noted that Catlin UK is a newly established company and will underwrite the UK business formerly written by CICL’s UK branch. A novation of all branch business to Catlin UK is anticipated for June 2005.

It also indicated that “CICL provides explicit support for Catlin UK in the form of a 60 percent quota share treaty. An implicit supporting factor also reflected in the rating is the integral part that Catlin UK plays in the Catlin group’s strategy, with Catlin UK likely to account for over 25 percent of the consolidated gross written premium of Catlin Group Limited (CGL) (Bermuda). Additionally in 2005, Catlin UK will share common management and systems with CGL.

“Based upon an initial capital injection from CICL of GBP 68 million (USD 129 million) and estimated growth in net premium to GBP 110 million (USD 211 million) for the full year 2006, A.M. Best believes that Catlin UK is likely to maintain an adequate level of risk-adjusted capital. Factored into this analysis are substantial increases in reserving risk as Catlin UK builds up its reserves on long-tail business (over 40% increase in net outstanding claims anticipated in 2006).”

Best also said that it “anticipates strong earnings of approximately GBP 12 million (USD 23 million) in 2005 and 2006. Despite a high operational expense ratio (above 35 percent estimated for 2006) driven by the company’s high reinsurance ceded, A.M. Best believes underwriting performance is likely to keep the combined ratio below 90 percent in 2005 and 2006. Underwriting performance will be supported by adequate market conditions for the business Catlin UK will write and the Catlin group’s strong profile.”

As an “offsetting factor” Best noted Catlin UK’s “high dependence on reinsurance, with more than half of all premiums written being ceded. However, over 80 percent of premium ceded will be an internal group cession to CICL.”

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