Catlin offers upbeat trading statement

Catlin has issued a positive trading statement, saying the group continues to perform strongly.

The company said gross premiums written for the nine-month period ended 30 September 2007 amounted to $2.73bn, compared with $1.24bn underwritten by Catlin on a stand-alone basis in the corresponding period of 2006 and a 6% increase from the $2.58bn written by Catlin and Wellington Underwriting combined during the first nine months of 2006 (on the basis that Wellington supplied 100% of Lloyd’s Syndicate 2020’s capacity during 2006).

Catlin said business retention continued to be strong during the third quarter, remaining consistent with the favourable experience reported by the group in its interim results announcement.

The increase in gross premiums written was achieved at attractive pricing levels across Catlin’s book of business, even though weighted average premium rates across all classes of business decreased by 5% during the nine-month period.

It added that the group’s loss experience through 30 September 2007 has been benign, primarily reflecting the relatively low incidence of catastrophe losses. Prior year reserves have developed in line with expectations.

Operating expenditures were within plan as at 30 September 2007.

The group has recently completed a comprehensive review of all individual subprime-related securities in Catlin’s investment portfolio. The group expects to take a total charge during 2007 of $75m against the value of these securities. The group has sold some subprime-related securities at close to book value and now holds subprime-related securities with a book value of $85m (prior to the charge), 85% of which are collateralised debt obligations (‘CDOs’). The book value of the subprime-related portfolio after the sales and the charge is $12m.

The total amount of cash and investments held by the group amounted to $5.85bn at 30 September 2007. The effect of the proposed $75m charge would reduce the group’s investment return to 3.6% on an annualised basis as at 30 September 2007.

Based on information currently available, the group does not believe that its insurance and reinsurance portfolio is materially exposed to potential claims arising from subprime-related issues. Although the ultimate level and nature of these potential claims are not known to the market at this time, thegGroup had in the past largely withdrawn from business classes, such as financial institutions E&O and Fortune 500 D&O liability, that appear most likely to be affected.

Other Developments

• On 1 October 2007 AM Best upgraded the outlook assigned the Catlin group and various underwriting units to stable from negative. AM Best added that it expected Catlin “to produce an excellent technical result at year-end 2007”.

• The group is in the process of establishing a representative office in Sao Paulo, Brazil. With the establishment of this office, the Catlin Group will have 40 offices in 17 countries.

Stephen Catlin, chief executive of Catlin group, said: “Catlin has made real progress during 2007, which is particularly pleasing given that the acquisition of Wellington was not yet complete at this time last year. The group has benefited from strong business retention following the acquisition, attractive underwriting margins and a benign level of losses. Catlin has also enjoyed benefits from the increased scale created by the acquisition, and we continue to strengthen our underwriting teams and support functions to take advantage of new opportunities.

“The group is on track to meet its targets in 2007. Whilst we have taken the decision to write down the value of the small portion of the investment portfolio exposed to the subprime sector, we expect the profit impact of the writedown to be offset broadly by the low incidence of catastrophe losses in the second half of 2007.

“We currently expect that weighted average premium rates may decrease by as much as 10 per cent during 2008, although rate movements will vary considerably among the more than 30 classes of business that Catlin underwrites. However, we believe that rate adequacy will remain good across most of these business classes. We will benefit in 2008 from further embedded growth arising from the Wellington acquisition, as well as continued growth in the classes of business we already write from Catlin US and our network of international offices. Furthermore, we can expect to realise at least US$100 million in after-tax synergy savings arising from the acquisition.

“We look ahead to the remainder of 2007 and beyond with confidence.”