Half Yearly Report

RNS Number : 3284L

Catlin Group Limited

09 August 2013

 



FOR IMMEDIATE RELEASE

9 August 2013                                                                                                                   Release 2013-9

CATLIN GROUP LIMITED ANNOUNCES FINANCIAL RESULTS
FOR SIX MONTHS ENDED 30 JUNE 2013

HAMILTON, Bermuda - Catlin Group Limited ('CGL': London Stock Exchange), the international specialty property/casualty insurer and reinsurer, announces its financial results for the six months ended 30 June 2013.

Highlights: Strong Underwriting Reflected in 88.9% Combined Ratio

·   Strong underwriting performance

§ US$441 million in net underwriting contribution (30 June 2012: US$443 million), despite US$99 million in net catastrophe losses (30 June 2012: nil)

§ 43 per cent of net underwriting contribution produced by non-London/UK underwriting hubs (30 June 2012: 35 per cent)

§ 88.9 per cent combined ratio

§ Good underwriting conditions for most classes of business: 1.6 per cent increase in average weighted premium rates across portfolio (0.4 per cent increase for catastrophe-exposed classes; 2.4 per cent increase for non-catastrophe classes)

·   10 per cent increase in gross premiums written

·   0.4 per cent annualised total investment return

§ US$16 million in total investment return as a result of US$76 million in mark-to-market reductions in the value of  the fixed income portfolio (30 June 2012: US$87 million total investment return)

§ Investment portfolio is positioned to benefit over longer term from rising interest rates

·   US$145 million profit before tax; US$118 million net income to common stockholders

·   5 per cent increase in interim dividend to 10.0 pence (15.5 US cents)

US$m		30 June 2013	30 June 2012
Gross premiums written		3,299	3,010
Net premiums written		2,437	2,258
Net premiums earned		1,913	1,711
Net underwriting contribution1		441	443
Total investment return		16	87
Net income before income taxes		145	231
Net income to common stockholders		118	184
Earnings per share (US dollars)		$0.34	$0.53
Interim dividend per share (pence)		10.0p	9.5p
Interim dividend per share (US cents)		15.5¢	14.7¢
Loss ratio		54.6%	51.6%
Expense ratio2		34.3%	34.7%
Combined ratio2		88.9%	86.3%
Total investment return (annualised)		0.4%	2.0%
Return on net tangible assets (annualised)3		10.3%	17.5%
Return on equity (annualised)3		8.1%	13.6%
	30 June 2013	30 June 2012	31 Dec 2012
Total assets	$15,046	$14,241	$14,041
Investments and cash	$8,541	$8,465	$8,774
Total stockholders' equity	$3,491	$3,397	$3,512
Net tangible assets (excluding non-controlling preferred stock)	$2,288	$2,197	$2,304
Unearned premiums	$3,323	$2,983	$2,552
Net tangible assets per share (sterling)4	£4.22	£4.00	£4.05
Net tangible assets per share (US dollars)4	$6.41	$6.28	$6.56
Book value per share (sterling)4	£5.35	£5.11	£5.14
Book value per share (US dollars)4	$8.13	$8.02	$8.32

1     Net underwriting contribution is defined as net premiums earned less losses and loss expenses and policy acquisition costs.

2     The expense ratio and the combined ratio include policy acquisition costs and most administrative expenses.  These ratios exclude profit-related bonuses, share option scheme costs and certain other Group corporate costs.

3     Returns on net tangible assets and equity exclude non-controlling preferred stock and are calculated by reference to opening balances. 

4     Book value and net tangible assets per share exclude non-controlling preferred stock and treasury shares.

Stephen Catlin, Chief Executive of Catlin Group Limited, said:

"Catlin produced another strong underwriting performance during the first half of 2013. Our attritional loss ratio remains low, and our net underwriting contribution matched last year's record amount, despite incurring nearly US$100 million in additional catastrophe claims in this year's first half.

"Our global underwriting infrastructure continues to produce profitable growth. The share of our gross premiums written - and more importantly net underwriting contribution - produced by the non-London/UK underwriting hubs continues to grow. We see further promising opportunities ahead.

Our reported investment performance suffered due to mark-to-market reductions in the value of our fixed income portfolio caused by rising interest rates. The decrease in profits before tax compared with a year ago is the result of these movements. Catlin's investment returns will ultimately benefit from higher interest rates.

"We continue to benefit from our leadership position as we renew and retain business. That, along with our focus on fundamentals - disciplined underwriting and superior service to clients and brokers - will serve Catlin well in all types of market environments in the years ahead."

- ends -

For more information contact:

Media Relations:
James Burcke,	Tel:	[phone]
Head of Communications, London	Mobile:	[phone]
	E-mail:	[e-mail]
Liz Morley, Maitland	Tel:	[phone]
	E-mail:	[e-mail]
Investor Relations:
William Spurgin,	Tel:	[phone]
Head of Investor Relations, London	Mobile:	[phone]
	E-mail:	[e-mail]

Notes to editors:

1.   Catlin Group Limited, headquartered in Bermuda, is an international specialist property/
casualty insurer and reinsurer that underwrites worldwide through six underwriting hubs. Catlin shares are traded on the London Stock Exchange (ticker symbol: CGL). More information about Catlin can be found at www.catlin.com.

2.   Detailed information regarding Catlin's operations and financial results for the six months ended 30 June 2013 is attached, including management commentary and unaudited consolidated financial statements.

3.   Catlin management will make a presentation to investment analysts at 10am BST today at the Group's London office.  The presentation will be broadcast live on the Group's website (www.catlin.com).  The webcast will also be available on demand later today.

4.   Catlin's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ('US GAAP'). The Group reports in US dollars.

5.   Rates of exchange at 30 June 2013 - balance sheet: £1=US$1.52 (31 December 2012: £1=US$1.62; 30 June 2012: £1=US$1.57); income statement (average rate): £1=US$1.55 (31 December 2012: £1=US$1.59; 30 June 2012: £1=US$1.58).

6.   Earnings per share are based on weighted average shares outstanding of 354 million during the period ended 30 June 2013.  Book value per share is based on 357 million shares outstanding at 30 June 2013. Shares outstanding exclude Treasury Shares held in trust.

7.   Catlin has established operating hubs in London, Bermuda, the United States, the Asia-Pacific region, Europe and Canada. Through these hubs, Catlin works closely with policyholders and their brokers. The hubs also provide Catlin with product and geographic diversity. Altogether, Catlin operates more than 50 offices in 22 countries.

8.   Catlin's underwriting units are rated 'A' by A.M. Best and Standard & Poor's.

9.   Catlin is the title sponsor of the Catlin Seaview Survey, a major scientific expedition that is documenting the composition and health of coral reefs around the world. During 2012 the Survey investigated the Great Barrier Reef off Australia, whilst during 2013 it is studying coral reefs near Bermuda, in the Caribbean and elsewhere in the world. The scientific data gathered by the Catlin Seaview Survey is intended to strengthen the understanding of how climate change and other environmental changes are likely to affect ocean ecosystems. More information is available at www.catlinseaviewsurvey.com.

Catlin Group Limited

Chief Executive's Review for the Six Months Ended 30 June 2013

Catlin produced another good underwriting performance during the first half of 2013, as net underwriting contribution of US$441 million fell just short of the record set in the first half of 2012 (30 June 2012: US$443 million). The attritional loss ratio of 50.9% demonstrated the Group's continued focus on disciplined underwriting.

However, Catlin's pre-tax profitability was impacted by the rise in interest rates during May and June, which resulted in significant mark-to-market reductions in the Group's fixed income portfolio. Net investment return in the first half of 2013 amounted to only US$9 million (30 June 2012: US$83 million).  Due to the reduced investment return, net income before income taxes decreased by 37 per cent to US$145 million (30 June 2012: US$231 million).

The table below compares the Group's underwriting performance, net investment return and profits before tax in the first half of each year since 2007.

US$m	Attritional loss ratio	Net underwriting contribution	Net investment return	Net income/(loss) before income taxes
30 June 2013	50.9%	441	9	145
30 June 2012	50.0%	443	83	231
30 June 2011	50.0%	(91)	115	(201)
30 June 2010	50.7%	227	137	86
30 June 2009	54.0%	246	195	240
30 June 2008	52.5%	310	54	150
30 June 2007	53.5%	277	131	190

Whilst rising interest rates reduced Catlin's investment return and profitability when measured on a GAAP basis, Catlin's investment performance - when measured in economic terms - was solid during the first half. The positive contribution of the investment portfolio combined with the reduction in discounted value of liabilities resulting from higher interest rates increased the Group's economic value. The impact on discounted liabilities is not recognised in the GAAP measurement of the Group's financial position.

We have noted for the past several years that the volatile economic environment, including an unprecedented period of low interest rates, would eventually have a profound impact on insurers' profitability.  In the current environment, it is impossible for insurers such as Catlin to achieve anywhere near the level of investment return that was once considered normal without assuming undue levels of risk. The good news is that sustained increases in US interest rates may be on the horizon, and the Group's investment portfolio is positioned to benefit over the long term from such a scenario.

Dividends and Shareholder Value

The Board of Directors has declared an interim dividend of 10 pence per share (15.5 US cents), payable on 20 September 2013 to shareholders of record on 23 August 2013. This represents a 5 per cent increase over the 2012 interim dividend of 9.5 pence per share (14.7 US cents).

Since the Group's initial public offering in 2004, the interim dividend per share has increased by 163 per cent (adjusted for the impact of the 2009 Rights Issue).

Net tangible assets per share increased by 6 per cent over the past 12 months to £4.22.  In dollar terms, net tangible assets per share rose by 2 per cent to $6.41. However, Catlin believes that dividends paid constitute an important part of shareholder value; the total of the 29.5 pence (46.0 US cents) in dividends paid by the Group during the past 12 months plus net tangible assets per share increased by 13 per cent in sterling and 9 per cent in US dollars compared with net tangible assets at 30 June 2012.

Financial Review

Premiums

Gross premiums written during the six months ended 30 June 2013 increased by 10 per cent to US$3.3 billion (30 June 2012: US$3.0 billion).  Gross premiums written by the London/UK underwriting hub were virtually flat, whilst gross premiums written by the Group's other business segments - US, Bermuda and International (comprising the Europe, Asia-Pacific and Canada underwriting hubs) increased significantly.  Further analysis of the gross premiums written by each segment appears in the Underwriting Review.

Net premiums earned increased by 12 per cent to US$1.9 billion (30 June 2012: US$1.7 billion).  Net premiums earned increased by a greater margin than gross premiums written partly due to written premium growth in the second half of 2012 earning during the first half of 2013.  

Net investment return

Total investment return, excluding investment expenses, was 0.4 per cent on an annualised basis and amounted to US$16 million (30 June 2012: US$87 million). After deducting investment expenses, net investment return amounted to US$9 million (30 June 2012: US$83 million).

The low level of investment return was driven by mark-to-market reductions in the Group's fixed income portfolio arising from increases in interest rates in May and June. Detailed commentary regarding the Group's investment performance can be found in the Investment Review.

Net losses on foreign currency

The Group sustained net losses on foreign currency amounting to US$12 million (30 June 2012: US$7 million loss). The largest component of this loss was the translation of Australian dollar balances relating to the Catlin Syndicate at Lloyd's.

Losses and loss expenses

Losses and loss expenses increased by 18 per cent to US$1 billion (30 June 2012: US$882 million). Included in first-half 2013 losses and loss expenses are US$126 million in catastrophe and large single-risk losses, net of reinsurance but gross of reinstatement premiums (30 June 2012: US$57 million).

Releases from prior year loss reserves amounted to US$56 million, equal to 1 per cent of opening reserves (30 June 2012: US$30 million or 1 per cent). The release is comparable with releases from prior-year reserves during the first six months of previous years, as shown in the table below.

US$m	Reserve release in first half	First-half reserve release as % of  opening reserves	Total reserve release for year
2012	30	1%	139
2011	0	0%	103
2010	29	1%	144
2009	39	1%	94
2008	72	2%	118
2007	15	1%	139

The loss ratio for the period amounted to 54.6 per cent (30 June 2012: 51.6 per cent).

Policy acquisition costs, administrative and corporate expenses

The expense ratio decreased to 34.3 per cent (30 June 2012: 34.7 per cent). An analysis of the major components of the expense ratio is shown in the table below.

	30 June 2013	30 June 2012
Policy acquisition costs	22.3%	22.5%
Administrative expenses - non-controllable	1.6%	1.3%
Administrative expenses - controllable	10.4%	10.9%
	34.3%	34.7%

Non-controllable expenses include Lloyd's charges and similar costs. The increase in non-controllable expenses relates primarily to a provision for Canadian goods and service taxes. Corporate expenses - which include profit-related bonuses, employee share schemes and certain Group corporate costs - are not included in the expense ratio. Corporate expenses decreased by 16 per cent to US$63 million (30 June 2012: US$76 million) due to smaller provisions for profit-related bonuses and employee share schemes, in line with the Group's decreased profitability during the period.

Income tax expense

The US$5 million in income tax expense during the period is based on the Group's full-year profit forecast, split between operating jurisdictions (30 June 2012: US$25 million).  The effective tax rate during the first half was 3.3 per cent (30 June 2012: 11.0 per cent).

Net income to common stockholders

The Group produced net income before income taxes amounting to US$145 million (30 June 2012: US$231 million). Net income to common stockholders, after income taxes and dividends to non-controlling preferred stockholders, was US$118 million (30 June 2012: US$184 million).

The table below analyses the major components of net income to common stockholders.

US$m	30 June 2013	30 June 2012
Net underwriting contribution	441	443
Total investment return	16	87
Administrative expenses - controllable	(198)	(186)
Administrative expenses - non-controllable	(31)	(23)
Corporate expenses	(63)	(76)
Financing and other	(8)	(7)
Foreign exchange	(12)	(7)
Profit before tax	145	231
Income tax expense	(5)	(25)
Net income	140	206
Non-controlling preferred stock dividend	(22)	(22)
Net income to common stockholders	118	184

The Group produced an annualised return on net tangible assets of 10.3 per cent (30 June 2012: 17.5 per cent).  The annualised return on equity amounted to 8.1 per cent (30 June 2012: 13.6 per cent).

Stockholders' equity

Total stockholders' equity of US$3.5 billion at 30 June 2013 was virtually unchanged compared with 31 December 2012 and represented an increase of 3 per cent compared with US$3.4 billion at 30 June 2012. Movements in stockholders' equity during the first half of 2013 are analysed in the table below:

US$m
Total stockholders' equity - 1 January 2013	3,512
Net income	140
Other comprehensive income	(41)
Common share dividends	(110)
Non-controlling preferred stock dividends	(22)
Other	12
Total stockholders' equity - 30 June 2013	3,491

Capital

The Group's capital position is similar to that reported at 31 December 2012. A full disclosure regarding the capital position will be provided with the full-year results, which has been the Group's practice.

The Group has put in place a number of strategic third-party capital arrangements. Catlin's flexible capital structure has allowed it to easily introduce these arrangements, which the Group believes benefit both Catlin and the counterparties.

Three Special Purpose Syndicates were established at Lloyd's for 2012 that provide whole-account quota share reinsurance to the Catlin Syndicate 2003. Two of the Special Purpose Syndicates expanded their capacity for 2013, increasing the total capacity supplied by 20 per cent compared with 2012. The Special Purpose Syndicates and their capacities for 2013 are shown in the table below.

Syndicate number	Counterparty		2013 syndicate capacity £m
2088	China Reinsurance (Group) Corporation		50
6111	Lloyd's Names		86
6112	Everest Reinsurance Company		29
			165

Translated to US dollars, the aggregate capacity of the special purpose syndicate amounted to US$251 million for 2013.

The Group recognised US$13 million in commissions and fees in the first half relating to the Special Purpose Syndicates (30 June 2012: US$5 million).

The Group also has in place Adverse Development Cover that provides protection against the deterioration, subject to limits, of loss reserves relating to the Group's 2010 and prior underwriting years. The purchase of this coverage improves the efficiency of the Group's capital.

Underwriting Review

Rating environment

The rating environment remained attractive across most classes of business during the first half of 2013.

Average weighted premium rates across the Group's portfolio of business increased by 1.6 per cent during the six months ending 30 June 2013 (30 June 2012: 5.1 per cent).  Average weighted premium rates for catastrophe-exposed classes rose by 0.4% during the period (30 June 2012: 9.5 per cent), whilst average rates for non-catastrophe classes increased by 2.4 per cent (30 June 2011: 2.2 per cent).

The following table shows the movements in the Group's rate index for the overall portfolio as well as for catastrophe-exposed and non-catastrophe business classes from 1999 through 30 June 2013.

	H1 2013	2012	2011	2010	2009	2008	2007	2006
Catastrophe classes	284%	283%	261%	250%	253%	230%	251%	256%
Non-catastrophe classes	197%	192%	189%	189%	193%	187%	190%	200%
All business classes	223%	220%	211%	208%	211%	200%	209%	217%
		2005	2004	2003	2002	2001	2000	1999
Catastrophe classes		205%	207%	213%	193%	135%	107%	100%
Non-catastrophe classes		205%	208%	200%	175%	135%	103%	100%
All business classes		204%	206%	204%	181%	135%	105%	100%

Note: Index = 100% at 31 December 1999; index values are at 31 December except for 2013

The rate index for catastrophe business classes and the index for all classes of business were at all-time highs at 30 June 2013.

Rates for catastrophe excess of loss reinsurance rose in aggregate at 1 January 2013, the most significant renewal date for the Group, but rates came under pressure during 1 April, 1 June and 1 July renewals. The table below shows rate movements for Property Catastrophe Excess of Loss reinsurance at key renewal dates during 2013.

Renewal date	US  business	Non-US business	Weighted average
1 January 2013	4%	0%	2%
1 April 2013	(1%)	(1%)	(1%)
1 June 2013	(9%)	0%	(8%)
1 July  2013	(5%)	(3%)	(4%)

The table below shows changes in average weighted premium rates for each of the Group's six product groups during the first six months of 2013 and 2012.

	30 June 2013	30 June 2012
Aerospace	(7%)	(4%)
Casualty	8%	6%
Energy/Marine	1%	3%
Property	3%	6%
Reinsurance	0%	8%
Specialty/War & Political Risk	(1%)	(2%)

Average weighted premium rates for various classes of US Casualty business continued to rise during the first half of 2013.

Premium volume

The table below shows the development of the gross premiums written by reporting segment during the first six months of 2013 and prior periods, along with an estimate of gross premiums written for the full year 2013.

US$m	London/UK	US	Bermuda	International	Group total
H1 2013	1,473	643	465	718	3,299
H1 2012	1,469	536	428	577	3,010
FY 20131	2,550	1,200	550	1,100	5,400
FY 2012	2,525	1,045	523	879	4,972
FY 2011	2,342	852	549	770	4,513
FY 2010	2,323	707	502	537	4,069
FY 2009	2,347	581	421	366	3,715
FY 2008	2,428	348	392	269	3,437

1    Estimate

The non-London/UK operating hubs produced 55 per cent of total gross premiums written (30 June 2012: 51 per cent).

Gross premiums written by Catlin's London/UK underwriting hub were largely unchanged.  Volume rose for Casualty and Property classes, but these increases in volume were offset by various factors, including the decisions to reduce Aerospace volume and not to renew certain Property Catastrophe contracts due to inadequate pricing.

The 20 per cent increase in gross premiums written by Catlin US was driven by growth in Casualty Specialty underwriting, Reinsurance classes and the continued development of Energy classes underwritten by the US hub.

Volume underwritten by the Bermuda hub rose by 9 per cent, primarily the result of increases in Property Catastrophe Pro-Rata business and rate increases on Marine Liability business.

Overall, gross premiums written by the International segment - which includes the Asia-Pacific, Europe and Canada underwriting hubs - increased by 24 per cent.  An analysis of the gross premiums written by the three underwriting hubs is shown in the table below.

	30 June 2013	30 June 2012	30 June 2011	30 June 2010	30 June 2009
Europe	431	342	253	124	92
Asia-Pacific	209	170	159	118	68
Canada	78	65	59	45	27
Total	718	577	471	287	187

Gross premiums written by each of these hubs increased by at least 20 per cent during the first half.  The largest increase - 26 per cent - was produced by the Europe hub, as the business underwritten by Catlin Re Switzerland continued to grow as product offerings continue to expand.  The rise in International gross premiums written was also the result of increased direct business in classes such as General Liability and Aquaculture.

Underwriting performance

Loss ratio

The Group produced a loss ratio of 54.6 per cent for the first half of 2013 (30 June 2012: 51.6 per cent).  The components of the first-half loss ratio for the past five years are shown in the table below.

	30 June 2013	30 June 2012	30 June 2011	30 June 2010	30 June 2009
Attritional loss ratio	50.9%	50.0%	50.0%	50.7%	54.0%
Catastrophe losses	5.9%	0.0%	32.4%	9.3%	0.0%
Large single-risk losses	0.7%	3.4%	2.6%	6.7%	9.3%
Reserve release	(2.9%)	(1.8%)	0.0%	(1.8%)	(3.0%)
Reported loss ratio	54.6%	51.6%	85.0%	64.9%	60.3%

The attritional loss ratio rose slightly in the first half of 2013, although it remained at a level that reflects Catlin's continued focus on disciplined underwriting.

The catastrophe loss ratio of 5.9 per cent during the period arose from three events, all occurring in the second quarter: the floods in and around Calgary, Alberta; the widespread flooding in Central Europe and the devastating tornadoes in Oklahoma.  Combined, these events produced estimated losses totalling US$99 million, net of reinsurance and reinstatement premiums (US$112 million net of reinsurance but before reinstatement premiums). None of these events produced net losses in excess of US$50 million. The Group did not incur any catastrophe losses in the first half of 2012.

The Group incurred one large single-risk loss: a fire at a Wisconsin food processing facility that resulted in a loss of US$14 million, net of reinsurance and reinstatement premiums.  The Group incurred US$52 million of large single-risk losses, net of reinsurance and reinstatement premiums, during the first half of 2012.

The Group released US$56 million from prior-year loss reserves during the period, equivalent to 1 per cent of opening reserves (30 June 2012: US$30 million; 1 per cent).

Segmental performance

An analysis of underwriting results by reporting segment is contained in the table below.

US$m	London/UK	US	Bermuda	International	Group total
Six months ended 30 June 2013
Gross premiums written	1,473	643	465	718	3,299
Net premiums earned	902	410	233	368	1,913
Net underwriting contribution	253	63	72	53	441
Loss ratio	47.9%	65.2%	46.3%	64.4%	54.6%
Attritional loss ratio	47.2%	56.2%	36.6%	63.0%	50.9%
Six months ended 30 June 2012
Gross premiums written	1,469	536	428	577	3,010
Net premiums earned	865	359	198	289	1,711
Net underwriting contribution	288	65	71	19	443
Loss ratio	43.1%	62.5%	39.3%	72.0%	51.6%
Attritional loss ratio	46.9%	55.2%	35.2%	62.7%	50.0%

The London/UK underwriting hub continued to produce excellent results.  The increased loss ratio reflects the hub's share of the three catastrophe losses in the first half. Likewise, the increase in the loss ratio for Catlin Bermuda reflects catastrophe activity, although net underwriting contribution was steady.

The Oklahoma tornadoes and the fire at the Wisconsin food processing facility are primarily responsible for the increase in the US hub's loss ratio.

Despite the catastrophe losses arising from the European floods, the net underwriting contribution produced by the European hub rose by 63 per cent. This result was partly driven by increased GPW growth which has now earned.

The Group also analyses its performance by type of business written.  An analysis of underwriting performance by Catlin's six product groups is shown in the table below.

US$m	Gross premiums written	Net premiums earned	Underwriting contribution	Loss  ratio
Six months ended 30 June 20131
Aerospace	156	145	69	30.4%
Casualty	615	393	21	73.6%
Energy/Marine	484	290	69	52.7%
Property	337	240	49	51.7%
Reinsurance	1,443	769	190	54.7%
Specialty/War & Political Risk	264	198	76	39.8%
Six months ended 30 June 20121
Aerospace	169	129	32	48.7%
Casualty	502	329	(2)	81.3%
Energy/Marine	458	239	28	63.0%
Property	298	212	45	49.2%
Reinsurance	1,317	634	185	50.9%
Specialty/War & Political Risk	263	197	123	18.0%

1   Product group results exclude effects of Syndicate 2020 movements, special purpose syndicates, Adverse Development Cover and other items

Catlin continues to reduce its Aerospace volume due to the high levels of competition in the sector, particularly for Airline business. Despite this competition and the reduced volume, net underwriting contribution for the Aerospace product group increased by 116 per cent, due to a benign loss environment and prior-year reserve releases. 

Gross premiums written by the Casualty product group increased by 23 per cent, driven by the continued growth of the US Specialty Casualty portfolio, the UK Motor book of business and Casualty classes underwritten by the International hubs.  The improvement in the Casualty loss ratio and underwriting contribution reflects the losses arising from the grounding of the Costa Concordia sustained during the first half of 2012, along with continued rate increases for US Casualty business. Overall, rates for Casualty classes of business increased by 8 per cent in the first half (30 June 2012: 6 per cent increase).

Energy/Marine gross premiums written increased by 6 per cent, primarily due to the continued expansion of Catlin US's Energy and Energy Liability teams. However, growth was limited in many other Energy/Marine classes due to competitive market conditions produced by overcapacity.  Net underwriting contribution increased by nearly 150 per cent, in part due to prior-year reserve releases arising from the Marine Hull class and part due to the lack of large single-risk losses compared with the first half of 2012.

The 13 per cent growth in Property gross premiums written was driven in part by rate increases for Property Facultative and Non-Marine Binder business in response to losses from Windstorm Sandy in the second half of 2012.  The increase in the Property loss ratio was largely the result of losses arising from the Oklahoma tornadoes and the Calgary floods.

Gross premiums written for Reinsurance classes increased by 10 per cent.  The growth was driven by increased participation on structured risk programmes by Catlin Bermuda, the continued development of Catlin Re Switzerland and increased US Property Treaty business underwritten by Catlin US.  Underwriting performance was impacted by the three catastrophe events, although net underwriting contribution still increased by 3 per cent.

The volume of business underwritten by the Specialty/War & Political Risk business group was flat.  Growth within some business classes, such as Crisis Management and Equine, was offset by decreases in volumes in classes such as Asset Protection and Kidnap & Ransom due to increasingly competitive market conditions.  Whilst underwriting performance has deteriorated from 2012, Specialty/War & Political Risk results remain good, with a loss ratio of only 40 per cent.

Aggregate management

Catlin underwrites classes of catastrophe-exposed business. The Group uses sophisticated modelling tools to manage its most significant potential catastrophe threats from natural or man-made events.

Accumulation of risk is monitored and controlled against risk appetite limits in compliance with policy and procedures approved by the Group Board of Directors. A selection of modelled outcomes for the Group's most significant catastrophe threat scenarios is detailed below. The modelled outcomes represent the Group's modelled net loss after allowing for all reinsurances.  These modelled outcomes include adjustments for modelling deficiency and reductions in risk appetite limits for certain perils due to the increased uncertainty for losses from these sources.

Examples of catastrophe threat scenarios

Outcomes derived as at 1 April 2013 on a single loss basis  (i.e. net losses for individual threat scenarios are not additive)

US$m	Florida (Miami) Windstorm	California Earthquake	Gulf of Mexico Windstorm	European Windstorm	Japanese Earthquake
Estimated industry loss	125,000	78,000	112,000	31,000	51,000
Catlin Group
Gross loss	794	1,068	1,321	712	448
Reinsurance effect 1	(437)	(606)	(1,172)	(217)	(130)
Modelled net loss	357	462	149	495	318
Modelled net loss as a percentage of capital available for underwriting 2	12.3%	16.0%	5.1%	17.1%	11.0%

1    Reinsurance effect includes the impact of both inwards and outwards reinstatements.

2    Capital available for underwriting amounted to US$2.9 billion at 31 December 2012, defined as total stockholders' equity (including non-controlling preferred stock), less intangible assets net of associated deferred tax.

Limitations

The modelled outcomes in the table above are mean losses from a range of potential outcomes.  Significant variance around the mean is possible. Catlin understands that modelling is an inexact science and undertakes mitigating actions against this model uncertainty.  Modelling is used to inform and complement the views of both underwriting and actuarial teams.

Investment Review

Annualised total return on Catlin's average cash and investments of US$8.7 billion during the period ended 30 June 2013 amounted to 0.4 per cent. Total investment return amounted to US$16 million (30 June 2012: US$87 million).

Cash and investments increased by 1 per cent to US$8.54 billion at 30 June 2013 (30 June 2012: US$8.47 billion; 31 December 2012: US$8.77 billion).

The performance of the Group's major categories of assets at 30 June 2013 is analysed in the table below.

US$m	Allocation at 30 June 2013	Average allocation during period	Average allocation during period %	Total return	Total return during period %
Fixed income1	5,495	5,520	64%	(33)	(0.6%)
Cash & short-term investments	2,509	2,611	30%	7	0.3%
Other invested assets	537	538	6%	42	7.8%
Total	8,541	8,669	100%	16	0.2%

1    Includes fixed income derivatives

A breakdown of the Group's investment performance appears in the table below.

	30 June 2013	30 June 2012
Investment income	61	63
Net (losses)/gains on fixed maturities and short-term investments	(76)	21
Net gains on other invested assets	31	3
Total investment return	16	87

Rising interest rates in May and June resulted in US$76 million in mark-to-market reductions in the fixed income portfolio.  However, these reductions were offset by US$61 million in investment income and US$31 million in net gains on funds, equities and loans.

When measured on an economic basis, the positive contribution of the investment portfolio combined with the reduction in discounted value of liabilities resulting from higher interest rates added to the Group's economic value. The impact on discounted liabilities is not recognised in the GAAP measurement of the Group's financial position.

The duration of the total cash and investment portfolio was 1.8 years at 30 June 2013 (31 December 2012: 1.7 years), compared with the liability benchmark of 2.8 years (3.0 years for insurance liabilities). The duration of the fixed income portfolio was 2.7 years at 30 June 2013 (31 December 2012: 2.4 years). The yield to maturity on the fixed income portfolio improved to 1.5 per cent at 30 June 2013 (31 December 2012: 1.2 per cent).   The sensitivity of the portfolio to change in interest rates was stable at $1.5 million per basis point at 30 June 2013.

The Group's asset allocation at 30 June 2013 is shown in the table below.

	30 June 2013	31 Dec 2012
Fixed income	64%	64%
Cash and short-term investments	29%	30%
Other invested assets	7%	6%
	100%	100%

The percentage of cash and short-term instruments decreased marginally during the first half and stood at 29 per cent of total investment assets at 30 June 2013 (31 December 2012: 30 per cent).  Liquid assets - which the Group defines as cash, government securities and fixed income securities with less than six months to maturity - amounted to 55 per cent at 30 June 2013 (31 December 2012: 57 per cent).

The Group during the first half cautiously added risk in equities, loans and non-investment grade credit through its in-house special situations team and third-party managers in areas where attractive risk and liquidity premiums play to the strengths of Catlin's balance sheet. All risk positions are managed against and within a comprehensive set of market risk limits, independently overseen by the Group's Enterprise Risk Management team.

The Group's investment portfolio remains defensively positioned, liquid and high-quality. Ninety-six per cent of Catlin's fixed income investments were held in government/agency securities or instruments rated 'A' or higher at 30 June 2013 (31 December 2012: 97 per cent).  The ratings of the Group's fixed income investments are analysed in the table below.

30 June 2013	Government/ agency	AAA	AA	A	BBB	Non- investment grade	Assets US$m1
US government/agencies	13%	--	--	--	--	--	703
Non-US government/agencies	26%	--	--	--	--	--	1,430
Agency mortgage-backed securities	12%	--	--	--	--	--	668
Asset-backed securities	--	12%	--	*	*	*	717
Non-agency mortgage-backed securities	--	*	--	--	--	1%	49
Commercial mortgage-backed securities	--	--	--	*	*	1%	88
Covered bonds	--	8%	--	--	--	--	462
Corporate bonds	--	1%	11%	12%	*	1%	1,366
Total	51%	21%	11%	13%	1%	3%	5,483

*  Less than 0.5 per cent

1 Excludes fixed income derivatives

At 30 June 2013 the Group had no exposure to bonds issued by Portugal, Italy, Ireland, Greece or Spain.

Board of Directors

Kenneth Goldstein, who joined the Catlin Board as a Non-Executive Director in 2007, retired from the Board following the Annual General Meeting in May 2013. Ken brought unique insights to the Board from his many years as an insurance industry executive in the United States, and the Group expresses its thanks to Ken for his service to Catlin.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group are described on pages 42 to 45 of the Group's 2012 Annual Report and Accounts. The principal risks faced by the Group, as stated in the Annual Report, include:

·      Insurance risk

§ Underwriting risk for new business in a given planning period;

§ Underwriting risk for business already written but not yet earned; and

§ Reserving risk.

·      Other risk categories

§ Financial markets risk;

§ Liquidity risk;

§ Currency risk;

§ Credit risk; and

§ Operational risk.

These are still considered to be the most relevant risks and uncertainties at the date of this report, and further disclosure in this report is not considered necessary.  Any of these risks and uncertainties could have an impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ from expected and historic results.

Going concern

The Board is satisfied that the Company has adequate resources to continue in operation for the foreseeable future.  The Company's financial statements therefore continue to be prepared on a going concern basis.

Conclusion

Insurers and reinsurers currently face several common challenges. I have already commented on the low interest rate environment, which has made it much more difficult for Catlin and other insurers to produce investment returns equal to those in past years.  In addition, capital has continued to flow into the industry, especially for Property Catastrophe reinsurance, from both traditional and non-traditional sources.  Finally, brokers have established new facilities, especially in the London market, that provide guaranteed capacity on certain programmes for selected insurers, usually at the expense of others.

Catlin, however, is resilient to these challenges.  Our investment portfolio is structured so that increasing interest rates will benefit Catlin in the long term. Whilst rates for Property Catastrophe reinsurance decreased at 1 June and 1 July renewals due to increased market capacity, these rate cuts were not replicated across all classes of business that we write. In fact, rates are still rising in many classes of business.  Furthermore, average weighted premium rates for catastrophe-exposed business classes were at an all-time high at 30 June, and good underwriting opportunities remain across our portfolio. Finally, Catlin's established leadership position at Lloyd's limits the threat posed by the broker facilities.

Catlin is first and foremost an underwriting company. We have always stressed disciplined underwriting and superior service - particularly claims service - to clients and their brokers. Catlin will never sacrifice bottom-line profit for market share, and we believe that the widespread appreciation by brokers of our claims service sets us apart from competitors.

I believe our focus on fundamentals - along with our distinctive global infrastructure that is capable of producing further profitable growth - will serve Catlin well in all types of market environments in the years ahead. Our good underwriting performance in the first half of 2013 reaffirms this view.

Catlin continues to build a business for the future, and we look ahead with confidence.

Stephen Catlin

Chief Executive

8 August 2013

Catlin Group Limited

Consolidated Balance Sheets

As at 30 June 2013 and 2012 and 31 December 2012

(US dollars in millions)

	30 June 2013 (unaudited)	30 June 2012 (unaudited)	31 December 2012 (audited)
Assets
Investments     Fixed maturities, at fair value	$5,495	$5,670	$5,603
Short-term investments, at fair value	102	114	123
Other invested assets	537	357	574
Total investments	6,134	6,141	6,300
Cash and cash equivalents	2,407	2,324	2,474
Accrued investment income	34	40	37
Premiums and other receivables	2,503	2,251	1,838
Reinsurance recoverable on unpaid losses (net of bad debts)	1,425	1,274	1,400
Reinsurance recoverable on paid losses	107	84	103
Reinsurers' share of unearned premiums	746	601	466
Deferred policy acquisition costs	611	563	464
Intangible assets and goodwill	716	718	720
Unsettled trades receivable	102	24	4
Other assets	261	221	235
Total assets	$15,046	$14,241	$14,041
Liabilities and stockholders' equity
Liabilities
Reserves for losses and loss expenses	$6,684	$6,432	$6,686
Unearned premiums	3,323	2,983	2,552
Reinsurance payable	860	712	600
Accounts payable and other liabilities	317	303	371
Subordinated debt	91	91	92
Unsettled trades payable	105	100	43
Deferred tax liability (net)	175	223	185
Total liabilities	$11,555	$10,844	$10,529

The accompanying notes are an integral part of the consolidated financial statements.

	30 June 2013 (unaudited)	30 June 2012 (unaudited)	31 December 2012 (audited)
Stockholders' equity:
Common stock	$4	$4	$4
Additional paid-in capital	1,942	1,950	1,961
Treasury stock	(42)	(79)	(73)
Accumulated other comprehensive loss	(235)	(223)	(194)
Retained earnings	1,232	1,155	1,224
Total common stockholders' equity	2,901	2,807	2,922
Non-controlling interest in preferred stock of consolidated subsidiary	590	590	590
Total stockholders' equity	3,491	3,397	3,512
Total liabilities and stockholders' equity	$15,046	$14,241	$14,041

The accompanying notes are an integral part of the consolidated financial statements.

Approved by the Board of Directors on 8 August 2013.

Stephen Catlin

Director

Benjamin Meuli

Director

Catlin Group Limited

Consolidated Income Statements (Unaudited)

For the six months ended 30 June 2013 and 2012

(US dollars in millions, except per share amounts)

	2013	2012
Revenues
Gross premiums written	$3,299	$3,010
Reinsurance premiums ceded	(862)	(752)
Net premiums written	2,437	2,258
Change in net unearned premiums	(524)	(547)
Net premiums earned	1,913	1,711
Net investment return	9	83
Net losses on foreign currency	(12)	(7)
Other income	7	4
Total revenues	1,917	1,791
Expenses
Losses and loss expenses	1,045	882
Policy acquisition costs	427	386
Administrative and other expenses	292	285
Financing costs	8	7
Total expenses	1,772	1,560
Net income before income tax	145	231
Income tax expense	(5)	(25)
Net income	$140	$206
Non-controlling preferred stock dividend	(22)	(22)
Net income to common stockholders	$118	$184
Earnings per common share
Basic	$0.34	$0.53
Diluted	$0.32	$0.51

The accompanying notes are an integral part of the consolidated financial statements.

Catlin Group Limited

Consolidated Statements of Comprehensive Income (Unaudited)

For the six months ended 30 June 2013 and 2012

(US dollars in millions, except per share amounts)

	2013	2012
Net income to common stockholders	$118	$184
Other comprehensive (loss)/income, net of tax
Translation adjustments	(41)	3
Total other comprehensive (loss)/income	(41)	3
Comprehensive income to common stockholders	$77	$187

The accompanying notes are an integral part of the consolidated financial statements.

Catlin Group Limited

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

For the six months ended 30 June 2013 and 2012

(US dollars in millions)

	Common stock	Additional paid-in capital	Treasury stock	Accumulated other comprehensive loss	Retained earnings	Non- controlling preferred stock	Total stockholders' equity
Balance 1 January 2012	$4	$1,959	$(105)	$(226)	$1,076	$590	$3,298
Net income to common stockholders	-	-	-	-	184	-	184
Other comprehensive income	-	-	-	3	-	-	3
Stock compensation expense	-	15	-	-	-	-	15
Stock options and warrants exercised	-	2	-	-	-	-	2
Dividends	-	-	-	-	(105)	-	(105)
Distribution of treasury stock held by Employee Benefit Trust	-	(26)	26	-	-	-	-
Balance 30 June 2012	$4	$1,950	$(79)	$(223)	$1,155	$590	$3,397
Balance 1 January 2013	$4	$1,961	$(73)	$(194)	$1,224	$590	$3,512
Net income to common stockholders	-	-	-	-	118	-	118
Other comprehensive loss	-	-	-	(41)	-	-	(41)
Stock compensation expense	-	12	-	-	-	-	12
Dividends	-	-	-	-	(110)	-	(110)
Distribution of treasury stock held in Employee Benefit Trust	-	(31)	31	-	-	-	-
Balance 30 June 2013	$4	$1,942	$(42)	$(235)	$1,232	$590	$3,491

The accompanying notes are an integral part of the consolidated financial statements.

Catlin Group Limited

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended 30 June 2013 and 2012

(US dollars in millions)

	2013	2012
Cash flows provided by operating activities
Net income	$140	$206
Adjustments to reconcile net income to net cash provided by operations:
Amortisation and depreciation	10	10
Amortisation of net discounts on fixed maturities	24	29
Net losses/(gains) on investments	45	(24)
Changes in operating assets and liabilities:
Reserves for losses and loss expenses	119	(51)
Unearned premiums	819	862
Premiums and other receivables	(690)	(572)
Deferred policy acquisition costs	(156)	(165)
Reinsurance recoverable on unpaid losses	(46)	(82)
Reinsurance recoverable on paid losses	(6)	(55)
Reinsurers' share of unearned premiums	(292)	(314)
Reinsurance payable	277	297
Accounts payable and other liabilities	14	49
Deferred taxes	(3)	21
Other	(142)	10
Net cash flows provided by operating activities	113	221
Cash flows used in investing activities
Purchases of fixed maturities	(2,137)	(3,593)
Proceeds from sales of fixed maturities	1,956	3,773
Proceeds from maturities of fixed maturities	130	173
Net purchases, sales and maturities of short-term investments	15	-
Purchases of other invested assets	(278)	(255)
Proceeds from the sales and redemptions of other invested assets	347	82
Net purchases and sales of property and equipment	(14)	(23)
Net cash flows provided by investing activities	$19	$157

The accompanying notes are an integral part of the consolidated financial statements.

	2013	2012
Cash flows used in financing activities
Dividends paid on common stock	(110)	(105)
Dividends paid on non-controlling preferred stock	(22)	(22)
Net cash flows used in financing activities	(132)	(127)
Net increase in cash and cash equivalents	-	251
Effect of exchange rate changes	(67)	10
Cash and cash equivalents - beginning of period	2,474	2,063
Cash and cash equivalents - end of period	$2,407	$2,324
Supplemental cash flow information
Taxes paid	$11	$3
Interest paid	$2	$2
Cash and cash equivalents comprise the following:
Cash at bank and in hand	$1,174	$1,144
Cash equivalents	$1,233	$1,180

The accompanying notes are an integral part of the consolidated financial statements.

Catlin Group Limited

Notes to the Consolidated Financial Statements (Unaudited)

For the six months ended 30 June 2013 and 2012

1   General

Basis of presentation

Catlin Group Limited ('Catlin' or the 'Company') is a holding company incorporated on 25 June 1999 under the laws of Bermuda. Through its subsidiaries, which together with the Company are referred to as the 'Group', Catlin underwrites specialty classes of insurance and reinsurance on a global basis.

The unaudited interim consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America ('US GAAP') for interim financial statements.

New accounting pronouncements

Except as described below, the accounting policies applied are consistent with those set out in the consolidated financial statements for the year ended 31 December 2012. Certain insignificant reclassifications have been made to prior period amounts to conform to the 2013 presentation.

Effective 1 January 2013 the Group retrospectively adopted Financial Accounting Standards Board ('FASB') guidance requiring additional disclosures about financial instruments and derivative instruments that are either: (1) offset for balance sheet presentation purposes or (2) subject to an enforceable master netting agreement or similar arrangement, regardless of whether they are offset for balance sheet presentation purposes. These disclosures apply only to derivatives, repurchase and reverse repurchase agreements and securities borrowing and securities lending transactions. The adoption of this guidance affects disclosure only and did not result in any impact on the Group's financial position or results of operations. The additional disclosures required are contained in Note 5 - Fair value measurement and Note 3 - Investments.

2   Segmental information

The Group determines its reportable segments by underwriting hubs, consistent with the manner in which results are reviewed by management.

The four reportable segments are:

·    London/UK, which comprises direct insurance and reinsurance business originating in the United Kingdom;

·    Bermuda, which primarily underwrites reinsurance business;

·    US, which underwrites direct insurance and reinsurance business originating in the United States; and

·    International, which comprises the Group's Asia-Pacific, Europe and Canada underwriting hubs which provide a full complement of insurance and reinsurance services for their markets.

Net underwriting contribution by segment for the period ended 30 June 2013 is as follows:

(US dollars in millions)	London/ UK	Bermuda	US	International	Total
Gross premiums written	$1,473	$465	$643	$718	$3,299
Net premiums earned	902	233	410	368	1,913
Losses and loss expenses	(433)	(108)	(267)	(237)	(1,045)
Policy acquisition costs	(216)	(53)	(80)	(78)	(427)
Net underwriting contribution	$253	$72	$63	$53	$441

Net underwriting contribution by segment for the period ended 30 June 2012 is as follows:

(US dollars in millions)	London/ UK	Bermuda	US	International	Total
Gross premiums written	$1,469	$428	$536	$577	$3,010
Net premiums earned	865	198	359	289	1,711
Losses and loss expenses	(372)	(78)	(224)	(208)	(882)
Policy acquisition costs	(205)	(49)	(70)	(62)	(386)
Net underwriting contribution	$288	$71	$65	$19	$443

The effects of intra-Group reinsurance contracts are excluded from segmental revenue and results, as this is the basis upon which the performance of each segment is assessed.

The components of net underwriting contribution shown above are reported on the face of the Consolidated Income Statements. No other items of revenue or expense are managed on a segmental basis.

Assets are reviewed in total by management for the purpose of decision making. The Group does not allocate assets to the reporting segments.

3   Investments

Fixed maturities

The fair values of fixed maturities at 30 June 2013 and 2012 are as follows:

(US dollars in millions)	2013	2012
US government and agencies	$703	$823
Non-US governments	1,430	1,514
Corporate securities	1,828	1,877
Asset-backed securities	717	752
Mortgage-backed securities	805	684
Interest rate derivative contracts	12	11
Credit default derivative contracts	-	9
Total fixed maturities	$5,495	$5,670

Fixed maturities at 30 June 2013 and 2012, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

(US dollars in millions)	2013	2012
Due in one year or less	$450	$492
Due after one through five years	2,644	2,804
Due after five years through ten years	750	854
Due after ten years	117	64
	3,961	4,214
Asset-backed securities	717	752
Mortgage-backed securities	805	684
Interest rate derivative contracts	12	11
Credit default derivative contracts	-	9
Total fixed maturities	$5,495	$5,670

The Group did not have an aggregate investment with a single counterparty in excess of 10 per cent of total investments at 30 June 2013 and 2012.

Other invested assets

Other invested assets by category at 30 June 2013 and 2012 are as follows:

(US dollars in millions)	2013	2012
Hedge funds	$28	$89
Equity funds	58	32
Total investments in funds	86	121
Equity securities	252	192
Loan instruments	170	42
Equity market derivative contracts	-	2
Equity method investments	29	-
Total other invested assets	$537	$357

Hedge funds are a portfolio comprising nine individual hedge funds. The Group has issued redemption notices in respect of all hedge funds and received the majority of the proceeds. The balance will be paid on the completion of the final fund audit or the disposal of remaining investments.

Equity funds are a portfolio comprising four individual private equity funds, three of which were entered into in 2011 and one in 2013. The equity funds have initial investment periods of up to five years.

Equity securities comprise $179 million of quoted equity securities and $73 million of private equity.

Loan instruments comprise holdings in syndicated loans and other unquoted private debt.

There are unfunded commitments related to investments in funds of $40 million as at 30 June 2013 (30 June 2012: $42 million).

Equity method investments comprise investments over which the Group exercises significant influence. These investments are accounted for using the equity method. At 30 June 2013, the Group owned between 33.6 per cent and 50.0 per cent interests in these entities. The share of profit of equity method investments included within the Consolidated Income Statements was $1 million (2012: $nil million). In management's opinion the fair value of these investments is not less than their carrying value.

Net investment return

The components of net investment return for the periods ended 30 June 2013 and 2012 are as follows:

(US dollars in millions)	2013	2012
Investment income	$61	$63
Net (losses)/gains on fixed maturities and short-term investments	(76)	21
Net gains on other invested assets	31	3
Total investment return	16	87
Investment expenses	(7)	(4)
Net investment return	$9	$83

Restricted assets

The Group is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. These funds on deposit are available to settle insurance and reinsurance liabilities. The Group also has investments in segregated portfolios primarily to provide collateral for Letters of Credit ('LOCs'), as described in Note 12. Finally, the Group also utilises trust funds set up for the benefit of certain ceding companies generally as an alternative to LOCs.

The total value of these restricted assets by category at 30 June 2013 and 2012 are as follows:

(US dollars in millions)	2013	2012
Fixed maturities	$2,858	$2,894
Short-term investments	52	2
Cash and cash equivalents	868	888
Total restricted assets	$3,778	$3,784

4   Derivative financial instruments

The Group is exposed to certain risks relating to its ongoing business operations. Risks managed by using derivative instruments include interest rate risk, foreign exchange risk, credit risk and equity risk. Derivatives are also used as a tool for efficient portfolio management.

Interest rate risk

The investment portfolio is predominantly invested in cash and fixed income securities and so is exposed to interest rate risk. Interest rate option and swap contracts are entered into in order to manage the market risk associated with holding cash and fixed income securities and also to manage any duration mismatch between assets and liabilities.

Gains and losses on interest rate derivative contracts are included in net investment return together with related net gains or losses on fixed maturities in the Consolidated Income Statements. Interest rate derivative contracts' fair value is included in fixed maturities on the Consolidated Balance Sheets.

Credit risk

Part of the investment portfolio is invested in bonds and other debt investments and so is exposed to the default risk of the underlying issuers and also to mark to market fluctuations arising from the market's evaluation of this risk. Credit default option and swap contracts are entered into in order to manage the credit risk associated with holding these securities.

Gains and losses on credit default options are included in net investment return together with related net gains or losses on fixed maturities in the Consolidated Income Statements. Credit default derivative contracts' fair value is included in fixed maturities on the Consolidated Balance Sheets.

Equity risk

A portion of the investment portfolio is invested in equity securities and hedge funds. Equity market option and swap contracts are entered into to manage the market risk associated with holding these equity securities and for efficient portfolio management.

Gains and losses on equity market derivative contracts are included in net investment return together with related net gains or losses on other invested assets in the Consolidated Income Statements. Equity market derivative contracts' fair value is included in other invested assets on the Consolidated Balance Sheets.

Foreign exchange risk

During the period, the Group held various foreign currency derivatives to manage currency risk. Gains and losses on foreign exchange contracts are included in net gains or losses on foreign currency in the Consolidated Income Statements.

Impact of derivatives

The fair values of derivatives at 30 June 2013 and 2012 are as follows:

			2013			2012
(US dollars in millions)	Gross  amount of recognised assets	Gross  amount  offset in the  balance sheet	Net amount in the  balance  sheet	Gross amount of  recognised assets	Gross amount  offset in the balance sheet	Net amount  in the  balance sheet
Interest rate derivative contracts	$12	$-	$12	$11	$-	$11
Foreign exchange contracts	1	-	1	1	-	1
Credit default derivative contracts	1	(1)	-	9	-	9
Equity market derivative contracts	-	-	-	2	-	2
Total derivatives	$14	$(1)	$13	$23	$-	$23

Cash collateral related to derivatives not offset in the balance sheet was $4 million at 30 June 2013 (2012: $27 million).

The notional values of open derivatives at 30 June 2013 and 2012 are as follows:

	Notional value
(US dollars in millions)	2013	2012
Interest rate options	$200	$2,600
Interest rate swap contracts	350	500
Credit default swap option contracts	900	600
Credit default swap contracts	23	69
Equity market option contracts	2	5
Equity market swap contracts	-	70
Foreign exchange contracts	143	192

The net gains/(losses) on derivatives for the period ended at 30 June 2013 and 2012 are as follows:

(US dollars in millions)	2013	2012
Interest rate derivative contracts	$7	$(19)
Credit default derivative contracts	(7)	(3)
Equity market derivative contracts	(1)	(6)
Commodity market derivative contracts	-	1
Foreign exchange contracts	(1)	(4)
Net losses on derivatives	$(2)	$(31)

The derivatives contracts held by the Group at 30 June 2013 contain no contingent features related to the Group's credit risk.

During 2013, derivatives were used in the investment portfolio to manage tail risks, modify duration positioning and for efficient portfolio and risk capital management. The interest rate derivative contracts were used to shorten duration and provide protection against the tail risk of large falls in interest rates. The credit default derivative contracts provided protections for the credit risk in our portfolio. Equity market derivative contracts were utilised both for tail risk protection and efficient portfolio management. 

5   Fair value measurement

The FASB accounting guidance on fair value measurements and disclosures defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e. the 'exit price') in an orderly transaction between market participants at the measurement date. In determining fair value, management uses various valuation approaches, including market and income approaches. The FASB accounting guidance establishes a hierarchy for inputs used in measuring fair value that maximises the use of observable inputs and minimises the use of unobservable inputs by requiring that the most observable inputs be used when available. The three levels of the FASB accounting guideline on fair value measurements and disclosures hierarchy are described below.

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Group has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Assets utilising Level 1 inputs comprise US government securities and quoted exchange-traded instruments.

Level 2 - Valuations based on quoted prices in markets that are not active or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

Assets and liabilities utilising Level 2 inputs include: US agency securities; non-US government obligations, corporate and municipal bonds, residential mortgage-backed securities ('RMBS'), commercial mortgage-backed securities ('CMBS') and asset-backed securities ('ABS') to the extent that they are not identified as Level 3 items; over-the-counter ('OTC') derivatives (e.g. foreign exchange contracts and interest rate contracts); fixed-term cash deposits classified as short-term investments; private debt with readily available prices; and investments in funds with few restrictions on redemptions or new investors.

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect our own assessment of assumptions that market participants might use.

Assets utilising Level 3 inputs include: investments in funds with significant redemption restrictions; unquoted private equity and debt not qualifying as Level 2; collateralised debt obligations ('CDO'); and sub-prime securities, Alt-A securities and securities rated CCC and below, where the unobservable inputs reflect individual assumptions and judgments regarding ultimate delinquency and foreclosure rates and estimates regarding the likelihood and timing of events of defaults.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorised in Level 3. The Group uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between levels.

Assets and liabilities measured at fair value on a recurring basis

The table below shows the values at 30 June 2013 of assets and liabilities measured at fair value on a recurring basis, analysed by the level of inputs used.

(US dollars in millions)	Balance as at 30 June 2013	Level 1 inputs	Level 2  inputs	Level 3  inputs
Assets
US government and agencies	$703	$310	$393	$-
Non-US governments	1,430	-	1,430	-
Corporate securities	1,828	-	1,820	8
RMBS	717	-	660	57
CMBS	88	-	78	10
ABS	717	-	684	33
Interest rate derivative contracts	12	-	12	-
Total fixed maturities	5,495	310	5,077	108
Short-term investments	102	5	97	-
Other invested assets	508	179	148	181
Foreign exchange contracts	1	-	1	-
Total assets at fair value	$6,106	$494	$5,323	$289

The table below shows the values at 30 June 2012 of assets and liabilities measured at fair value on a recurring basis, analysed by the level of inputs used.

(US dollars in millions)	Balance as at 30 June 2012	Level 1 inputs	Level 2  inputs	Level 3  inputs
Assets
US government and agencies	$823	$459	$364	$-
Non-US governments	1,514	-	1,514	-
Corporate securities	1,877	-	1,858	19
RMBS	544	-	492	52
CMBS	140	-	135	5
ABS	752	-	752	-
Interest rate derivative contracts	11	-	11	-
Credit default derivative contracts	9	-	9	-
Total fixed maturities	5,670	459	5,135	76
Short-term investments	114	-	114	-
Other invested assets	352	172	67	113
Foreign exchange contracts	1	-	1	-
Total assets at fair value	$6,137	$631	$5,317	$189

The changes in the period in balances measured at fair value on a recurring basis using Level 3 inputs were as follows:

(US dollars in millions	Total	RMBS	Corporate	CMBS	ABS	Other invested  assets
Balance, 1 January 2013	$233	$41	$16	$6	$24	$146
Total net gains income	20	1	6	1	-	12
Acquisitions	99	19	9	4	13	54
Disposals	(43)	(4)	(13)	(1)	(4)	(21)
Transfers out of Level 3	(20)	-	(10)	-	-	(10)
Balance, 30 June 2013	$289	$57	$8	$10	$33	$181
Amount of gains/(losses) relating to balances still held at period end	$9	$-	$(1)	$-	$-	$10

Corporate assets transferred out of Level 3 were the result of a credit upgrade during the year.  Other invested assets transferred out of Level 3 were the result of an exchange listing of a previous private equity holding.

The changes in the period ended 30 June 2012 in balances measured at fair value on a recurring basis using Level 3 inputs were as follows:

(US dollars in millions)	Total	RMBS	Corporate	CMBS	Other invested  assets
Balance, 1 January 2012	$167	$44	$-	$3	$120
Total net gains/(losses) in income	10	2	(2)	-	10
Acquisitions	53	21	21	4	7
Disposals	(43)	(17)	-	(2)	(24)
Transfers into Level 3	2	2	-	-	-
Balance, 30 June 2012	$189	$52	$19	$5	$113
Amount of gains/(losses) relating to balances still held at period end	$9	$2	$(2)	$-	$9

RMBS assets transferred into Level 3 were securities classified as sub-prime at 30 June 2012 but not at 31 December 2011.

Fair value of financial instruments

The following methods and assumptions are used by the Group in estimating the fair value of its financial instruments:

Fixed maturities and short-term investments

Fair values of fixed maturities and short-term investments are based on the quoted market price of these securities provided by either independent pricing services, or, when such prices are not available, by reference to broker or underwriting bid indications.

The Group's Level 3 fixed maturities consist of RMBS, CMBS, ABS and Corporate securities, for which pricing vendors and non-binding broker quotes are the primary source of the valuations. The Group compares the price to independent valuations, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value. Although the Group does not have access to the specific unobservable inputs that may have been used in the fair value measurements of RMBS, CMBS and ABS, we would expect that the significant inputs considered are prepayment rates, probability of default, loss severity in the event of default, recovery rates, liquidity premium and reinvestment rates. Significant increases or decreases in any of those inputs in isolation could result in a significantly different fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

Other invested assets

The fair value of investments in funds is based on the net asset value provided by the funds' administrators. The fair values of holdings in equity and loan instruments are based on the market price of these securities provided by independent pricing services, or, when such prices are not available, by reference to broker or underwriting bid indications provided by administrators and recent transactions, if any.

The Group's Level 3 other invested assets consist of investments in funds with significant redemption restrictions and unquoted private equity and debt, for which manager NAV statements are the primary source of the valuations. Although the Group does not have access to the specific unobservable inputs that may have been used in the fair value measurements, we would expect the significant inputs for private equity and debt to be discounted cash flows and valuations of similar sized peers. Significant increases or decreases in any of those inputs in isolation could result in a significantly different fair value measurement. 

Derivatives

The fair values of interest rate, foreign exchange, equity market and credit default derivative contracts are based on prices provided by independent pricing services.

Subordinated debt

Subordinated debt is carried at face value. At 30 June 2013, the fair value of the subordinated debt issued was $82 million, which compared to a carrying value of $91 million. The fair value of the subordinated debt is estimated by comparing the Group's non-controlling preferred stock and other peer group instruments to determine market required yields. As such, fair value of subordinated debt is classified as Level 2.

Other assets and liabilities

The fair values of cash and cash equivalents, premiums and other receivables, and accounts payable approximate their carrying value due to the immediate or short term maturity of these financial instruments.

6   Reserves for losses and loss expenses

The Group establishes reserves for losses and loss expenses, which are estimates of future payments of reported and unreported losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves is complex and imprecise, requiring the use of informed estimates and judgments. The Group's estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable, and would be reflected in earnings in the period in which the estimates are changed. Management believes that it has made a reasonable estimate of the level of reserves at 30 June 2013 and 2012.

The reconciliation of unpaid losses and loss expenses for the six months ended 30 June 2013 and 2012 is as follows:

(US dollars in millions)	2013	2012
Gross unpaid losses and loss expenses, beginning of period	$6,686	$6,467
Reinsurance recoverable on unpaid losses and loss expenses	(1,400)	(1,188)
Net unpaid losses and loss expenses, beginning of period	5,286	5,279
Net incurred losses and loss expenses for claims related to:
Current period	1,101	912
Prior periods	(56)	(30)
Total net incurred losses and loss expenses	1,045	882
Net paid losses and loss expenses for claims related to:
Current period	(789)	(194)
Prior periods	(205)	(814)
Total net paid losses and loss expenses	(994)	(1,008)
Foreign exchange and other	(78)	5
Net unpaid losses and loss expenses, end of period	5,259	5,158
Reinsurance recoverable on unpaid losses and loss expenses	1,425	1,274
Gross unpaid losses and loss expenses, end of period	$6,684	$6,432

The Group has reviewed its estimates of loss reserves and loss expenses for prior period insured events. The 2013 reserve for losses and loss expenses net of reinsurance recoveries decreased by $56 million.

Prior-year releases for the six months ended 30 June 2012 included $30 million of out-of-period adjustments, principally reflecting income on certain reinsurance commutations executed between 2009 and 2011. The impacts of these items were not material to any of the prior periods. Other changes in estimates of insured events in prior years due to movements in expected ultimate loss costs and in uncertainty surrounding the quantification of the net cost claim events had no effect.

7   Reinsurance

The Group purchases reinsurance to limit various exposures including catastrophe risks. Although reinsurance agreements contractually obligate the Group's reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge the primary liability of the Group. The effect of reinsurance and retrocessional activity on premiums written and earned is as follows:

			2013			2012
(US dollars in millions)	Premiums written	Premiums earned	Losses incurred	Premiums written	Premiums earned	Losses incurred
Direct		$1,571	$763	$1,614	$1,362	$679
Assumed	1,538	912	513	1,396	784	489
Ceded	(862)	(570)	(231)	(752)	(435)	(286)
Net premiums	$2,437	$1,913	$1,045	$2,258	$1,711	$882

The Group's reinsurance recoverable on unpaid and paid losses as at 30 June 2013 and 2012 is as follows:

(US dollars in millions)	2013	2012
Gross reinsurance recoverable	$1,561	$1,393
Provision for uncollectible balances	(29)	(35)
Net reinsurance recoverable	$1,532	$1,358

8   Taxation

Bermuda

Under current Bermuda law neither the Company nor its Bermuda subsidiaries are required to pay any taxes in Bermuda on their income or capital gains. Both the Company and its Bermuda subsidiaries have received undertakings from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, they will be exempt from taxation in Bermuda until March 2035.

United Kingdom

The Group also operates in the UK through its UK subsidiaries and the income of the UK companies is subject to UK corporation taxes. 

The Finance Bill 2013 introduced a reduction to the UK corporation tax rate from 23 per cent to 21 per cent from 1 April 2014 and to 20 per cent from 1 April 2015. Under US GAAP the effect of a reduction in corporation tax rates is not recognised until the bill has been enacted.  The Finance Bill was not enacted at the balance sheet date of 30 June 2013; therefore the effect of the prescribed tax rate reductions on the income tax expense and carrying value of the deferred tax liability has not been recognised in the half-yearly financial statements. The Bill was subsequently enacted when it received Royal Assent on 17^th July 2013; the effect of these rate changes will therefore be reflected in the full-year financial statements. This is expected to reduce the carrying value of the Group's deferred tax liability by approximately $24 million.

Income from the Group's operations at Lloyd's is also subject to US income taxes. Under a Closing Agreement between Lloyd's and the Internal Revenue Service (IRS), Lloyd's Members pay US income tax on US connected income written by Lloyd's syndicates. US income tax due on this US connected income is calculated by Lloyd's and remitted directly to the IRS and is charged by Lloyd's to Members in proportion to their participation on the relevant syndicates. The Group's Corporate Members are all subject to this arrangement but, as UK tax residents, will receive UK corporation tax credits for any US income tax incurred up to the value of the equivalent UK corporation income tax charge on the US income.

United States

The Group also operates in the United States through its subsidiaries, and their income is subject to both US state and federal income taxes. 

Switzerland

The Group also operates in Switzerland through its subsidiaries, and their income is subject to Swiss federal and cantonal taxes. 

Other international income taxes

The Group has a network of international operations, and they are also subject to income taxes imposed by the jurisdictions in which they operate, but they do not constitute a material component of the Group's tax charge.  

The Group is not subject to taxation other than as stated above. There can be no assurance that there will not be changes in applicable laws, regulations or treaties, which might require the Group to change the way it operates or become subject to taxation.

The income tax expense for the six months ended 30 June 2013 and 2012 is as follows:

(US dollars in millions)	2013	2012
Current tax expense	$3	$-
Deferred tax expense	2	25
Income tax expense	$5	$25

The Group records income taxes for the period based on the estimated effective annual rates for the years ending 31 December 2013 and 2012.

Unrecognised tax benefits

As at 30 June 2013, the Group's liability amount of uncertain tax benefits was $13 million (2012: $13 million). All unrecognised tax benefits would affect the effective tax rate if recognised. 

9    Stockholders' equity

The following sets out the number and par value of shares authorised, issued and outstanding as at 30 June 2013 and 2012:

	2013		2012
Common stock, par value $0.01
Authorised	500,000,000		500,000,000
Issued	361,886,898		361,445,993
Stock held by Employee Benefit Trust	(5,064,663)		(11,483,683)
Outstanding	356,822,235		349,962,310
Preferred stock issued by consolidated subsidiary, par value $0.01
Authorised, issued and outstanding	600,000		600,000

The following table outlines the changes in common stock issued during 2013 and 2012:

	2013	2012
Balance, 1 January	361,824,004	360,990,321
Exercise of stock options and warrants	62,894	455,672
Balance, 30 June	361,886,898	361,445,993

Treasury stock

Through an Employee Benefit Trust ('EBT'), the Group holds shares that will be used to satisfy Performance Share Plan ('PSP') and/or other employee share plan awards if and when they vest and become exercisable. The EBT has not purchased shares during 2013. The cost of shares held by the EBT of $42 million is shown as a deduction to the stockholders' equity.

Warrants

In 2002 the Company issued 20,064,516 warrants to purchase common stock. These were exercisable in whole or in part, at any time, until 4 July 2012 at a price per share of $4.37. During 2009 warrants increased by 874,829 in relation to the Rights Issue pursuant to anti-dilution provisions. During 2012, 1,416,944 warrants to purchase common stock were exercised and settled net for 445,073 shares of common stock. At 31 December 2012 there were no warrants outstanding as all warrants have lapsed.

Preferred stock

Catlin Insurance Company Limited ('Catlin Bermuda') is a consolidated subsidiary whose common stock is wholly owned by the Company. In 2007, Catlin Bermuda issued 600,000 non-cumulative perpetual preferred shares, par value of $0.01 per unit, with liquidation preference of $1,000 per unit, plus declared and unpaid dividends. Dividends at a rate of 7.249 per cent on the liquidation preference are payable semi-annually on 19 January and 19 July in arrears as and when declared by the Board of Directors, commencing on 19 July 2007 up to but not including 19 January 2017. Thereafter, if the stock has not yet been redeemed, dividends will be payable quarterly at a rate equal to 2.975 per cent plus the three-month LIBOR rate of the liquidation preference. Catlin Bermuda received proceeds of approximately $590 million, net of issuance costs. The preferred shares do not have a maturity date and are not convertible into or exchangeable into any of Catlin Bermuda's or the Group's other securities.

Dividends

Dividends on common stock

On 7 February 2013 the Board declared a dividend of 20.0 pence per share (31.3 cents per share), paid on 22 March 2013 to stockholders of record at the close of business on 22 February 2013. The total dividend paid for the 2012 financial year was 29.5 pence per share (46.0 cents per share).

Non-controlling preferred stock dividend

On 19 January 2013 Catlin Bermuda paid a dividend of $22 million to the stockholders of the non-cumulative perpetual preferred stock.

10   Employee stock compensation schemes

The Group has five employee schemes in place, of which the most significant is the Performance Share Plan ('PSP'), adopted in 2004. The Long Term Incentive Plan ('LTIP') was adopted in 2002 and the last awards were made in 2004. In addition, the Group also has three Employee Share Plans in place. The expense related to the Employee Share Plans is considered to be insignificant. These financial statements include the total cost of stock compensation for all plans, calculated using the fair value method of accounting for stock-based employee compensation.

In February 2013 a total of 7,772,167 options with $nil exercise price and 2,957,343 non-vested shares (total of 10,729,510 securities) were awarded to Group employees under the PSP. Up to half of the securities will vest in 2016 and up to half will vest in 2017, subject to certain performance conditions. 

The total cost of the plans expensed in the six months ended 30 June 2013 was $12 million (2012: $15 million).

11   Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to common stockholders by the weighted average number of common shares issued and outstanding during the period.

Diluted earnings per share is calculated by dividing the earnings attributable to common stockholders by the weighted average number of common shares issued and outstanding, adjusted to assume conversion of all dilutive potential common shares.

The Company has the following potentially dilutive instruments outstanding during the periods presented:

·       PSP;

·       LTIP;

·       warrants; and

·       employee share plans

Income to common stockholders is arrived at after deducting non-controlling preferred stock dividends of $22 million (2012: $22 million).

Reconciliations of the number of shares used in the calculations as at 30 June 2013 and 2012 are set out below. 

	2013	2012
Weighted average number of shares	353,515,294	347,707,587
Dilution effect of warrants	-	1,418,297
Dilution effect of stock options and non-vested shares	11,707,052	14,691,203
Weighted average number of shares on a diluted basis	365,222,346	363,817,087
Earnings per common share
Basic	$0.34	$0.53
Diluted	$0.32	$0.51

12   Commitments and contingencies

Legal proceedings

The Group is party to a number of legal proceedings arising in the ordinary course of the Group's business which have not been finally adjudicated. While the results of the litigation cannot be predicted with certainty, management believes that the outcome of these matters will not have a material impact on the results of operations or financial condition of the Group.

Concentrations of credit risk

Areas where significant concentration of risk may exist include investments, reinsurance recoverable, and cash and cash equivalent balances.

The cash balances and investment portfolio are managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single institution issue and issuers. Similar principles are followed for the purchase of reinsurance. The Group believes that there are no significant concentrations of credit risk associated with its investments or its reinsurers.

Letters of credit

The Group arranges letter of credit facilities to support its reinsurance business and for general corporate purposes.

As at 30 June 2013, the Group has access to the following letter of credit facilities:

·      A $450 million unsecured multi-bank facility available for utilisation by appointed members of the Group and guaranteed by the Company. As at 30 June 2013, $24 million of letters of credit were issued under this facility. The facility has a termination date of 31 December 2016.

·      A three-year $214 million unsecured multi-bank facility available for utilisation by appointed members of the Group and guaranteed by the Company. As at 30 June 2013, $214 million of letters of credit were issued under this facility. The facility has a termination date of 31 December 2013.

·      A bilateral facility available for utilisation by Catlin Bermuda, collateralised by pledged financial assets. As at 30 June 2013, $173 million of letters of credit were issued under this facility.

·      A bilateral facility available for utilisation by Catlin Re Switzerland, collateralised by pledged financial assets. As at 30 June 2013, $20 million of letters of credit were issued under this facility.

·      Two facilities available for utilisation by Catlin Bermuda and guaranteed by the Company for Funds at Lloyd's purposes. As at 30 June 2013, $200 million of letters of credit were issued under these facilities. The facilities have expiry dates of 31 December 2015 and 31 December 2016.

·      An Australian $50 million ($46 million) unsecured bilateral facility, available for utilisation by appointed members of the Group and guaranteed by the Company, for the purpose of providing collateral to Australian beneficiaries. As at 30 June 2013, Australian $48 million ($44 million) of letters of credit were issued under this facility. The facility has an expiry date of 30 June 2013.

·      A facility managed by Lloyd's, acting for the Syndicates. As at 30 June 2013, $8 million of letters of credit were issued under this facility.

·      Catlin US has letters of credit amounting to $1 million issued for the benefit of various parties.

13 Subsequent events

Non-controlling preferred stock dividend

The Board of Catlin Bermuda approved a dividend of $22 million to the shareholders of the non-cumulative perpetual preferred stock. This dividend was paid on 19 July 2013. 

Proposed dividend

The Board of Directors, on 8 August 2013, declared an interim dividend of 10.0 pence per share (15.5 cents) payable on 20 September 2013 to shareholders of record on 23 August 2013. The 2013 interim dividend represents a 5 per cent increase over the 2012 interim dividend of 9.5 pence per share (14.7 cents).

Management has evaluated subsequent events until 8 August 2013, the date of issuance of the financial statements.   

Catlin Group Limited

Independent Review Report to Catlin Group Limited

Introduction

We have been engaged by Catlin Group Limited ('the Company') to review the interim financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2013, which comprises the Consolidated Balance Sheets, Consolidated Income Statements, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Stockholders' Equity, Consolidated Statements of Cash Flows and related notes. We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with accounting principles generally accepted in the United States of America.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with accounting principles generally accepted in the United States of America and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

PricewaterhouseCoopers Ltd.

Bermuda

8 August 2013

Catlin Group Limited

Statement of Responsibility

The Directors confirm that to the best of our knowledge: 

·      The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements;

·      The Half-yearly Report includes a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

·      The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein). 

By order of the Board. 

Stephen Catlin 

Chief Executive

Benjamin Meuli

Chief Financial Officer

8 August 2013

 

END

 

 

IR UGUGCRUPWGMR