Interim Management Statement

RNS Number : 5168L

Catlin Group Limited

07 May 2010

 



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 at 31 March 2010

·     9 per cent increase in gross premiums written

·     39 per cent increase in gross premiums written by non-London underwriting hubs

·     0.5 per cent increase in average weighted premium rates across Group's underwriting portfolio

·     Underlying underwriting portfolio performing according to plan

·     Estimate of Chilean earthquake loss unchanged

·     Low incidence of large single-risk losses during first quarter; Catlin's exposure to Deepwater Horizon-related claims in second quarter estimated at US$40 million net of reinsurance and reinstatements

·     Defensive and liquid asset allocation continues

US$m	31 March 2010	31 March 2009	Percent change	Constant currency percent change
Gross premiums written	1,272	1,172	9%	5%
Net premiums earned	798	641	24%	19%
Investments and cash	7,471	6,744	11%	--
Total investment return to 31 March	0.9%	0.7%	--	--

Underwriting Operations

Gross premiums written increased during the period ended 31 March 2010 by 9 per cent to US$1.3 billion.  Using constant exchange rates, gross premiums written rose by 5 per cent. 

The table below shows the breakdown of gross premiums written by underwriting hub during the period ended 31 March 2010:

US$m	31 March 2010	31 March 2009	Percent change	Constant currency percent change
London	754	798	(6%)	(8%)
Bermuda	194	147	32%	20%
US	174	117	49%	49%
International (Asia, Europe and Canada)	150	110	36%	33%
	1,272	1,172	9%	5%

The Group maintained its underwriting discipline during the period.  In London this resulted in decreased premium volumes, as intended, reflecting the competitive environment in certain classes of business. In the Bermuda, US and International underwriting hubs, the Group was able to capitalise on these hubs' long-term development and strongly increase gross premiums written. 

The Bermuda, US and International underwriting hubs accounted for 41 per cent of the Group's gross premiums written at 31 March 2010, compared with 37 per cent at 31 December 2009 and 32 per cent at 31 March 2009.

Group-wide net premiums earned increased by 24 per cent (19 per cent on a constant currency basis) during the first quarter of 2010.  This growth is partly attributable to increases in premium volume and higher rates relating to business written in 2009 but not earned until 2010.  

Gross premiums written by product group during the three-month period are shown in the table below:

US$m	31 March 2010	31 March 2009	Percent change	Constant currency percent change
Aerospace	81	99	(18%)	(21%)
Casualty	243	221	10%	8%
Energy/Marine	177	179	(1%)	(4%)
Property	120	79	52%	45%
Reinsurance	506	465	9%	4%
Specialty/War & Political Risk	145	129	12%	8%
	1,272	1,172	9%	5%

The decrease in Aerospace premiums resulted largely from the reduction in satellite launches during the first quarter of 2010 compared with the corresponding period of 2009.  The increase in Casualty gross premiums written resulted primarily from changes in the accounting treatment of multi-year contracts.  On a consistent accounting basis, overall casualty written premium increased marginally, with a decrease in long-tail business and an increase in short-tail volume.

Gross premiums written for the Energy/Marine Product Group were flat during the first quarter. Market conditions were difficult in the Energy sector prior to the Deepwater Horizon loss, prompting the Group to choose not to renew certain contracts.  The growth in the Property Product Group resulted from the decision to increase the volume of business written in the first quarter in anticipation of accelerated rate competition as the year progresses.  In 2009, the opposite was true..

The growth in Reinsurance gross premium volume was expected due to continued favourable market conditions for most types of reinsurance.  The growth in Specialty/War & Political Risk premium volume was also largely according to plan.

Rating Environment

Average weighted premium rates increased by 0.5 per cent across the Group's entire portfolio of business during the first quarter of 2010, compared with a 6 per cent increase in average weighted premium rates at 31 March 2009.  Average weighted premium rates increased by 1.0 per cent for catastrophe-exposed business classes and increased by 0.4 per cent for non-catastrophe classes during the first quarter of 2010.

Claims and Operating Expenses

The Group's estimate of the financial impact of the 27 February Chilean earthquake has not changed. Catlin estimates that its exposure amounts to approximately US$140 million, net of reinsurance and reinstatements.

Catlin's exposure to Windstorm Xynthia, which caused damage to Western Europe on 27-28 February, amounts to approximately US$5 million.

Overall loss experience, with the exception of these two catastrophic events, was benign in the first quarter.  Large single-risk losses were below average in the first quarter, in comparison with the above-average level of large single-risk loss experience incurred by the Group during 2009.

The explosion of the Deepwater Horizon drilling rig on 20 April, combined with the resulting oil spill, is likely to be the largest loss impacting the Energy insurance market since the explosion of the Piper Alpha oil drilling platform in 1988. Catlin estimates its exposure to physical damage and liability claims arising from the Deepwater Horizon disaster to be approximately US$40 million, net of reinsurance and reinstatements.

Operating expenditures remained in line with expectations for the three months ended 31 March 2010.

Investment Management

Total cash and investments amounted to US$7.47 billion at 31 March 2010, compared with US$7.69 billion at 31 December 2009.  The decrease resulted from the payment of dividends and performance-related compensation during the first quarter.  The Group's total cash and investments have increased by 11 per cent compared with 31 March 2009.

Total investment income for the three-month period ended 31 March 2010 was US$70 million
(31 March 2009: US$46 million), representing a 0.9 per cent year-to-date total investment return (31 March 2009: 0.7 per cent).  The investment return is calculated after valuing all investments on a mark-to-market basis.

The Group's investment performance during the first quarter by major asset category is analysed in the table below:

US$m	Average allocation during period	Return %
Fixed income	51%	1.5%
Cash and short-terms	44%	0.2%
Equity, bond and hedge funds	5%	0.8%
	100%	0.9%

The strong fixed income performance was due in large part to lower US bond yields and spread compression.

The Group continues to maintain a defensive asset allocation and liquidity levels in the light of continued uncertainty in investment markets.  The percentage of total cash and investments held in liquid assets - defined as cash, cash equivalents, government securities and fixed income securities with less than six months to maturity - was 64 per cent at 31 March 2010, compared with 62 per cent at 31 December 2009.  The Group holds no Greek or Portuguese sovereign debt, and total direct exposure to Spanish and Italian sovereign debt is less than US$15 million.  In addition, exposure to sub-investment grade non-agency mortgage-backed securities was reduced significantly.

The percentage of the Group's investment portfolio allocated to equity, bond and hedge funds continued to decrease during the first quarter, in line with the decision announced during 2009 to reduce diversified asset holdings.  These holdings amounted to US$311 million at 31 March 2010, compared with US$530 million at 31 December 2009. 

Investment markets remain challenging and the Group does not necessarily expect the first quarter performance to be repeated in future periods.

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

"Catlin's underlying performance during the first quarter of 2010 was strong.  The rating environment remains good overall, although there is negative pressure on pricing in certain areas of the portfolio.  The volume underwritten by our London hub decreased as intended, but each of our non-London underwriting hubs recorded strong increases in gross premiums written, supporting the Group's decision over the past several years to invest in these hubs.

"So far this year, the property/casualty insurance market has witnessed two exceptional losses: the Chilean earthquake, which is one of the most devastating earthquakes in the past century, and the Deepwater Horizon oil rig disaster, which is the largest Energy market loss in more than 20 years.  Both of these losses are within Catlin's planning margins, although further exceptional losses during 2010 will likely have an impact on the Group's financial results for the year.

"Whilst large, these are the types of losses for which policyholders purchase insurance, and we anticipate that these two losses will have a positive impact on pricing and demand for coverage over time.  Based on this expectation, along with the overall level of rate adequacy and the underlying performance of our business during the first quarter, Catlin looks ahead with confidence."

Catlin is the title sponsor of the Catlin Arctic Survey.  The 2010 Survey, which commenced in March, seeks to obtain scientific facts regarding the potential effects of carbon dioxide on the Arctic Ocean.  Scientists working at an Ice Base located off the northern coast of Canada have studied the potential impact of increased ocean acidification in some of the coldest water on the planet.  In addition, a team of experienced polar explorers have been trekking across the floating sea ice in the High Arctic to collect scientific data in a region in which it would be unsafe for scientists to work.

- ends -

For more information contact:

Media Relations:
James Burcke, Head of Communications, London	Tel: Mobile: E-mail:	[phone] [phone] [e-mail]
Liz Morley, Maitland	Tel: E-mail:	[phone] [e-mail]
Investor Relations:
William Spurgin, Head of Investor Relations, London	Tel: Mobile: E-mail:	[phone] [phone] [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 2009 amounted to more than US$3.7 billion.

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

3.   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 nearly 50 offices in 20 countries.

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

5.   Catlin is the title sponsor of the Catlin Arctic Survey, a unique collaboration between polar explorers and research scientists to improve society's knowledge of potential environmental changes.  Catlin Arctic Survey 2010, which began in March, will focus on how rising carbon emissions may affect oceans and sea life.  More information is available at CatlinArcticSurvey.com.

 

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