Best Affirms Catlin’s Ratings

September 26, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Bermuda-based Catlin Insurance Company Limited (CICL), as well as Catlin Insurance Company (UK) Ltd. Catlin Insurance Company, Inc. (CICI) and Catlin Specialty Insurance Company.

Best also affirmed the ICR of “bbb” of Catlin Group Limited (CGL), which is based in Bermuda, and is the ultimate parent company of CICL, Catlin UK, CICI and Catlin Specialty, and the rating of “bbb” on the $600 million preferred stock issued by CICL.

In addition Best said it has affirmed the ICR of “bbb” of UK-based Catlin Underwriting and the debt ratings of “bbb-” of the $27 million subordinated floating rate note and the €7 million [$10.3 million] subordinated floating rate note issued by Catlin Underwriting.

The outlook for all of the ratings remains stable.

Best said it “believes that CICL will maintain excellent consolidated risk-adjusted capitalization in 2008, supported by good retained earnings.” Best’s analysis of CICL’s consolidated risk-adjusted capitalization, indicated that the “retained earnings will largely offset the net impact of premium income growth of approximately 15 percent in 2009, emanating from the cessation of third party Names participation on Lloyd’s Syndicate 2003 [See related ratings announcement, below] (through a 12.5 percent quota share reinsurance arrangement on the 2007 and 2008 years of account).”

Best also indicated that it “anticipates good consolidated pre-tax profits in 2008, albeit lower than the $571 million achieved in 2007. Good underwriting performance is anticipated, despite a higher consolidated combined ratio than the 81 percent achieved in 2007, as a result of the softening rating environment and the impact of hurricanes Gustav and Ike.

“Underwriting results are likely to be supported by CICL’s prudent reserves and comprehensive reinsurance program, in addition to the group’s strong underwriting framework, which embeds the use of actuarial support and technical models to sustain pricing discipline.

“However, investment income in 2008 is likely to be adversely affected by the impact of weak economic conditions on investment markets. The consolidated operating expense ratio is expected to be higher than the 35 percent achieved in 2007, as expansion in the U.S. and international markets continues. However, the group is expected to benefit from further operating cost synergies arising from the acquisition of Wellington Underwriting Plc (WU) in 2006.”

In conclusion Best noted that the Catlin Group continues to enhance its profile (post acquisition of WU) through the growth of its U.S. subsidiaries and the expansion of its offices within the international market. “This strategy is likely to give the group access to business that would not typically be placed in the London or Bermudan market.”

However, Best expressed some concerns over the pace of Catlin’s growth in the U.S., which “comes at a time when market conditions are deteriorating.”

Source: A.M. Best –

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