Best Affirms All Catlin Ratings; Downgrades Syndicate 2003 ICR

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and issuer credit rating (ICR) of “a” of the bermuda-based Catlin Insurance Company Limited (CICL) and its subsidiary the U.K.-Based Catlin Insurance Company (UK) Ltd. Best also affirmed the ICR of “bbb” of the Bermuda-based Catlin Group Limited (CGL), CICL’s ultimate parent company. The outlook for all ratings remains stable.

In a separate bulletin Best announced that it has also affirmed the financial strength rating of “A” (Excellent), but has downgraded the ICR to “a” from “a+”, of Lloyd’s Syndicate 2003, which is managed by Catlin Underwriting Agencies Limited (CUAL), and forms an integral part of CGL. The outlook for both these ratings is also stable.

Best said it “anticipates that CICL’s consolidated risk-adjusted capitalisation will remain excellent at year-end 2005. The company is expected to continue to generate additional capital internally, increasing consolidated capital and surplus to over $1 billion by year-end 2005 (up from $891 million at year-end 2004). This increase in capital will be sufficient to offset anticipated growth in gross premiums of approximately 50 percent to over $650 million during the same period.”

Best explained the lower ICR rating on Syndicate 2003 as due to a reduction in its “expectations for the syndicate’s future performance.” The rating agency indicated that it “believes there is potential for future volatility in the syndicate’s reserves, particularly relating to prior year legal expenses exposure. The syndicate’s 2002 closed-year profit of 9.4 percent of capacity fell below A.M. Best’s expectations as a result of adverse prior year deterioration of £15 million ($29 million). In addition, the syndicate’s open 2004 year is likely to be adversely affected by catastrophe losses, and A.M. Best anticipates a profit below earlier expectations at approximately 10 percent of capacity.”

Discussing the Syndicate further, Best noted that at year-end 2004 CICL had assets in trust of $237 million and a guaranteed a letter of credit for $225 million in support of CGL’s underwriting at Lloyd’s. These assets, however, have been excluded from its risk-adjusted analysis of CICL’s capitalization.

Best said it “believes that CICL’s technical performance is likely to remain excellent in 2005 and 2006. Despite exceptionally high hurricane activity in 2004, which contributed $18.8 million to CICL’s net incurred losses and 5.7 percent to the loss ratio, the company achieved a combined ratio of 78.6 percent for the year.” Best also noted that it “anticipates that the company’s operating expense ratio is likely to remain competitive in 2005 and 2006 at marginally over 20 percent, although increasing from 18.8 percent in 2004 as the company builds resources in Bermuda and London. The combined ratio is forecast to stay below 80 percent for both years, assuming a return to normal loss experience.”

Syndicate 2003’s ratings “continue to reflect its excellent capital flexibility as part of CGL, with the syndicate’s underwriting substantially supported by Catlin Insurance Company Limited (CICL) in Bermuda,” said Best. It also noted that the “Syndicate’s profile benefits from the presence in the London market of CICL’s subsidiary Catlin Insurance Company (UK) Ltd., as well as its strategy of writing a broad spread of business from a lead position.”