Interim Management Statement

RNS Number : 0151S

Catlin Group Limited

14 November 2011

 



CATLIN GROUP LIMITED
INTERIM MANAGEMENT STATEMENT

HAMILTON, Bermuda - Catlin Group Limited ('CGL'; London Stock Exchange), the international specialty property/casualty insurer and reinsurer, has today issued its interim management statement.

Highlights

·   10.5 per cent increase in average weighted premium rates for catastrophe-exposed business during the third quarter

·   Year-to-date catastrophe losses amounting to US$670 million, net of all protections and reinstatement premiums

§ Deterioration in losses arising from first-half catastrophe events, in line with market experience

§ Three new catastrophe events in second half

·   2.7 per cent year-to-date total investment return

·   49 per cent of total gross premiums written by non-London/UK underwriting hubs

·   Gross premiums written by London/UK hub largely flat

·   12 per cent increase in gross premiums written at 30 September 2011

US$m	30 September 2011	30 September 2010	Per cent change
Gross premiums written	3,676	3,280	12%
Net premiums earned	2,681	2,349	14%
Investments and cash	8,393	7,945	6%
Total investment return to 30 September	2.7%	2.9%	--

Rating Environment

Average weighted premium rates for catastrophe-exposed business increased by 10.5 per cent during the third quarter of 2011, following on from the rate increases at 1 June and 1 July as reported in the Group's first-half 2011 financial results. Average weighted premium rates for non- catastrophe business were broadly flat during the third quarter.

Claims and Operating Expenses

The Group reported in its first-half 2011 financial results that it had sustained an estimated US$534 million in catastrophe losses, net of reinsurance and reinstatements, as at 30 June. The Group has sustained deterioration in its estimate of the first-half catastrophe losses, in line with market experience.

During the second half of 2011, the Group has sustained losses from three new catastrophe events:

·    The severe flooding in Copenhagen, Denmark, in July;

·    Hurricane Irene, which caused damage in portions of the Caribbean, United States and Canada in August; and

·    The ongoing flooding in Thailand.

Catlin estimates that catastrophe losses from events in 2011, including an early estimate of losses arising from the Thai floods, amount to US$670 million, net of reinsurance and reinstatements. This estimate includes recoveries in excess of US$50 million from the Group's Catastrophe Aggregate reinsurance protection, in line with the recovery scenarios provided in the first-half financial results statement.

If there is deterioration in losses arising from any of the catastrophe events that have occurred so far in 2011, the Group anticipates that approximately 90 per cent of the deterioration will be recovered from the Catastrophe Aggregate programme.  Likewise, the Group anticipates that it will recover a substantial proportion of losses from any additional catastrophe events occurring in 2011, once the deductibles applicable to these events are satisfied.

Operating expenditures remained in line with expectations during the period ended 30 September 2011.

Investment Management

Total cash and investments amounted to US$8.4 billion at 30 September 2011, a 5 per cent increase compared with US$8.0 billion at 31 December 2010 and a 6 per cent increase compared with US$7.9 billion at 30 September 2010.

Total investment income for the period ended 30 September 2011 was US$221 million (30 September 2010: US$223 million). The year-to-date total investment return was 2.7 per cent at 30 September 2011 (30 September 2010: 2.9 per cent). The investment return is calculated after valuing all investments on a mark-to-market basis.

The Group's investment performance by major asset category during the period ended 30 September 2011 is analysed in the table below:

US$m	Average allocation during period	Total return US$m	Total return %
Fixed income	5,272	188	3.6%
Cash and short-term investments	2,812	20	0.7%
Funds	162	1	0.6%
Fixed income overlays	11	12	NM
	8,257	221	2.7%

The Group continues to maintain a defensive asset allocation and liquidity levels in the light of continued uncertainty in investment markets.

Fixed income investments performed well during the third quarter, given a significant decrease in interest rates. Government/agency bonds and agency mortgage-backed securities contributed to a strong investment result in volatile markets, where negative macro-economic news and fiscal concerns dominated investor sentiment.

Early in the third quarter, the Group decided to reduce exposure to the corporate bond sector and implemented a credit hedge on a portion of the remaining corporate bond portfolio.

The Group has no exposure to government bonds issued by Greece, Ireland, Portugal, Spain and Italy. Eighty-five per cent of the Group's investments in non-US government exposure consist of investments in Canada, the UK, Germany and supranational institutions.

Gross Premiums Written

Gross premiums written increased during the period ended 30 September 2011 by 12 per cent to US$3.7 billion (30 September 2010: US$3.3 billion). The percentage increase using constant rates of exchange was 11 per cent. Net premiums earned increased by 14 per cent to US$2.7 billion (30 September 2010: US$2.3 billion). The percentage increase in net premiums earned was 13 per cent using constant rates of exchange.

The table below shows the breakdown of gross premiums written by underwriting hub during the period ended 30 September 2011:

US$m	30 September 2011	30 September 2010	Per cent change
London/UK	1,868	1,877	--
Bermuda	522	484	8%
US	666	530	26%
International (Asia, Europe and Canada)	620	389	59%
	3,676	3,280	12%

Gross premiums written by the London/UK underwriting hub were largely flat during the first nine months of 2010. The Group continues to reduce the volume of business underwritten in certain classes of business in the London wholesale market - such as Aviation and non-Motor Casualty business - in the light of sustained competitive conditions. However, gross premiums written by the London/UK hub have been increased by reinstatement premiums and increased rates for Property Catastrophe treaties following the significant catastrophe events.

Aggregate gross premiums written by Catlin's non-London underwriting hubs increased by 29 per cent during the first nine months of 2011 and accounted for 49 per cent of gross premiums written by the Group (30 September 2010: 43 per cent):

·     The 8 per cent increase in gross premiums written by the Bermuda underwriting hub reflects rate increases produced by the hub's catastrophe reinsurance portfolio following the catastrophe events, along with reinstatement premiums paid following these events.

·     The 26 per cent increase in gross premiums written by the US hub reflects continued development of new business resulting from Catlin's five-year investment in recruiting underwriting teams for its US operations. 

·     Gross premiums written by Catlin's International hubs (Asia-Pacific, Europe and Canada) increased by 59 per cent. The bulk of this growth was contributed by new reinsurance business written in the European hub following the successful start-up of Catlin Re Switzerland with effect from 1 January 2011. However, both the Asia-Pacific and Canada hubs reported growth in gross premiums written exceeding 25 per cent during the nine-month period. Development of existing Property/Agricultural Treaty portfolios contributed to the growth in the Asia-Pacific hub. The growth in the Canada hub was largely produced by new underwriting teams.

Gross premiums written by product group during the period ended 30 September 2011 are shown in the table below.

US$m	30 September 2011	30 September 2010	Per cent change
Aerospace	265	301	(12%)
Casualty	670	620	8%
Energy/Marine	559	500	12%
Property	388	356	9%
Reinsurance	1,481	1,180	26%
Specialty/War & Political Risk	326	323	1%

Note: Product group data exclude effects of Syndicate 2020 movements

Gross premiums written for Aerospace business classes decreased as the Group continues to reduce its portfolio of Airline and General Aviation risks, for which rate competition has continued.

The Group continues to reduce the volume of long-tail Casualty business underwritten as market condition for these classes of business continue to be competitive.  However, the Group has identified opportunities in shorter-tail Casualty classes, particularly outside of the London wholesale market, which accounts for the overall increase in Casualty gross premiums written.

Energy volumes have increased due to improved pricing following major losses during the first half of the year as well as an increase in Energy business written by Catlin US. Marine gross premiums written have risen due to increased Cargo opportunities.  

The increase in Property gross premiums written reflects improved market conditions following the first-half catastrophe events.

Likewise, a significant portion of the 26 per cent increase in Reinsurance gross premiums written is attributable to higher rates, reinstatement premiums and new business opportunities following the first-half catastrophes.  Also contributing to the increase is the new reinsurance business written by Catlin Re Switzerland beginning on 1 January 2011, as well as the expansion of the Group's Agricultural and Latin American treaty portfolios.

The nearly flat gross premiums written for Specialty/War & Political Risk business reflects continued selective underwriting of Political Risk and Credit business in the light of continued economic and political uncertainties throughout the world. This reduction was offset by increased volume for Accident & Health, Specialty Livestock and Crisis Management coverages.

Commenting on the Group's performance, Stephen Catlin, Chief Executive of Catlin Group Limited, said:

"2011 has had an unprecedented number of significant catastrophe-related losses, even though losses arising from the Atlantic windstorm season have not been as large as many had predicted.

"We believe that fundamental changes in the marketplace are on the horizon as a result of the series of catastrophe losses, several years of falling rates for many classes of business, the challenging investment environment and the increasing strain on some insurers' and reinsurers' balance sheets due to all of these factors.

"Catlin's investment in its global footprint over the past ten years has resulted in a highly diversified business, which is scalable.  This allows us to take full advantage of anticipated improvements in market conditions, now and in the future.  Our balance sheet remains strong, supported by the protection provided by our Catastrophe Aggregate reinsurance programme. We expect improvement in rates and conditions for many of the classes of business we write.

"Despite the challenging environment, Catlin looks ahead with confidence."

- 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 writing more than 30 classes of business worldwide through six underwriting hubs. Gross premiums written in 2010 amounted to US$4.1 billion.

2.   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 20 countries.

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

4.   Catlin shares are traded on the London Stock Exchange (ticker symbol: CGL). More information about Catlin can be found at www.catlin.com.

 

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