Best Affirms Catlin Group’s ‘A’ Ratings

September 2, 2009

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

Best also affirmed the ICR of “bbb” of the Bermuda Holding company, Catlin Group Limited (CGL), the ultimate parent company of the Catlin Group, and the debt rating of “bbb” on the $600 million preferred stock issued by CICL. In addition Best affirmed the ICR of “bbb” of UK-based Catlin Underwriting and the debt ratings of “bbb-” on the $27 million subordinated floating rate notes and €7 million [$9.95 million] subordinated floating rate notes issued by Catlin Underwriting. The outlook for all of the ratings remains stable.

Best said it “believes that the Catlin group’s consolidated risk-adjusted capitalization is likely to remain strong in 2009, supported by the $289 million rights issue undertaken in the first quarter of 2009 and solid retained earnings. The level of consolidated risk-adjusted capitalization is expected to be sufficient to support the group’s growth plans in the United States and the increase in underwriting risk, following the termination of a 12.5 percent quota share reinsurance arrangement between third party Names and the group’s Lloyd’s operation, Lloyd’s Syndicate 2003 (managed by Catlin Underwriting Agencies Limited.)” [See separate article at:].

Best foresees the Catlin group making an “excellent consolidated pre-tax profit in 2009, underpinned by solid underwriting performance and a positive investment return.” This compares to 2008, when the group reported a pre-tax loss of $12.6 million, owing to large investment losses and the impact of hurricanes Ike and Gustav.

The combined ratio is expected to improve in 2009 (assuming normal catastrophe activity) from the 96.1 percent achieved in 2008. In Best’s opinion “rate increases, predominantly for catastrophe-exposed classes of business, are likely to be offset by weak rating conditions for casualty lines, increased frequency in large single risk losses and the negative impact of the global economic environment on claims frequency.”

Best also indicated that it “expects prospective underwriting performance to continue to be supported by modest reserves releases and the group’s robust underwriting framework, which embeds the utilization of actuarial rating models to maintain pricing discipline.”

Catlin’s ratings “continue to reflect its strong profile in the Lloyd’s and London markets through syndicate 2003,” Best continued. “However, prospective growth is expected to emanate largely from the U.S. business, as the group focuses on improving its access to business that typically would not be underwritten in the London or Bermudian markets.”

While Best noted that this trend is likely to “improve the diversification of Catlin’s consolidated portfolio,” the rating agency also anticipates that Catlin will face “considerable challenges in developing profitable business in this market at a time when rates (particularly for U.S. casualty classes) remain weak.”

Source: A.M. Best –

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