S&P Upgrades Catlin’s Subsidiaries Ratings to ‘A’; Outlook Stable

December 15, 2009

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on the following core subsidiaries of Bermuda-based Catlin Group Ltd. to ‘A’ from ‘A-‘:
— Bermuda-based Catlin Insurance Co. Ltd.
— U.S.-based Catlin Specialty Insurance Co.
— U.S.-based Catlin Insurance Co. Inc.
— U.K.-based Catlin Insurance Co. (U.K.) Ltd.

The outlook on all of the entities is stable.

S&P also raised its long-term subordinated debt rating on the preferred shares issued by Catlin Insurance Co. Ltd. to ‘BBB+’ from ‘BBB’, as well as its Lloyd’s Syndicate Assessment (LSA) on the core, wholly owned Catlin Underwriting Agencies – Syndicate 2003 to ‘4’ from ‘4-‘. The outlook is also stable.

“The upgrades primarily reflect our opinion of the group’s improved financial profile,” explained credit analyst Matthew Day. “We believe that the company’s capital position has improved, and will prove resilient to the growth expectations of the group,” he added. We also expect the planned derisking of the investments to benefit the group’s capital position and reduce the potential level of earnings volatility prospectively.

S&P also indicated that the ratings and the LSA “reflect Catlin’s strong competitive position, strong operating performance, strong capitalization, and strong enterprise risk management (ERM). These strengths are offset, however, by the inherent challenge of maintaining growth momentum.”

The stable outlook reflects S&P’s expectation that Catlin’s management team “will maintain the current strategy. We expect capital adequacy to be maintained at least at the strong level, primarily through Catlin’s retained earnings.”

The rating agency added, however, that, having attained its current scale and market profile in the London market,” there is a risk that Catlin may find it difficult to retrench as quickly or as far as might be warranted by market conditions in certain lines of business, but it has a track record of good cycle management.”

S&P said it “expects the group operating performance to be strong, with a combined ratio below 95 percent in 2009 and 2010, and a return on revenue of greater than 12 percent.

A rating downgrade is unlikely, due to the increasingly robust capital base, the strong ERM, and the focus on controlling the asset and liability exposure,” S&P added. “Future upward rating actions are unlikely at this point in the group’s evolution, due to the execution risks associated with the growth of international operations.”

Source: Standard & Poor’s – www.standardandpoors.com

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