REG - Catlin Group Limited - Final Results <Origin Href="QuoteRef">CGL.L</Origin> - Part 2
10/02/2015 07:01
- Part 2: For the preceding part double click ID:nRSJ4677Ea
percentage points). Large
single-risk losses are defined as losses arising from man-made causes in excess of US$10 million, gross of reinsurance. In
2014, the Group sustained ten large single-risk losses, including four Aviation losses: the disappearance of Malaysian
Airlines Flight 370 in March; aircraft losses caused by fighting at the Tripoli airport in July; the loss of Malaysian
Airlines Flight MH17 over eastern Ukraine in July; and the loss of Air Asia Flight QZ8501 over the Java Sea in December.
The Group released US$120 million from prior-year loss reserves during 2014 (2013: US$167 million), which is equivalent to
2 per cent of opening reserves (2013: 3 per cent). The reserve release reduced the net loss ratio for 2014 by 2.9
percentage points (2013: 4.2 percentage points).
Segmental performance
The underwriting performance by each of the Group's reporting segments is analysed in the table below.
Underwriting performance by reporting segment 2013-2014 (US$m)
London US Bermuda International Group
2014
Gross premiums written 2,763 1,374 577 1,252 5,966
Net premiums written 1,920 997 455 973 4,345
Net premiums earned 1,895 937 449 879 4,160
Underwriting contribution 527 129 188 147 991
Loss ratio 47.7% 63.5% 34.2% 60.1% 52.5%
Attritional loss ratio 47.4% 58.9% 33.5% 57.4% 50.6%
2013
Gross premiums written 2,474 1,213 577 1,045 5,309
Net premiums written 1,799 916 490 847 4,052
Net premiums earned 1,832 858 486 772 3,948
Underwriting contribution 523 168 183 129 1,003
Loss ratio 48.1% 59.6% 39.1% 62.3% 52.3%
Attritional loss ratio 48.0% 57.0% 34.5% 57.5% 50.1%
In addition to a 12 per cent increase in gross premiums written, the London hub's attritional loss ratio improved to 47.4
per cent (2013: 48.0 per cent). Net underwriting contribution increased by 1 per cent to US$527 million (2013: US$523
million).
The net underwriting contribution produced by Catlin US decreased by 23 per cent to US$129 million (2013: US$168 million).
The loss ratio increased to 63.5 per cent (2013: 59.6 per cent), partly due to an increase in the attritional loss ratio to
58.9 per cent (2013: 57.0 per cent), primarily due to a number of significant individual losses.
The Bermuda hub, which primarily writes Property Treaty and Specialty Reinsurance, increased net underwriting contribution
by 3 per cent to US$188 million (2013: US$183 million). Catlin Bermuda benefited from better catastrophe loss experience,
coupled with good performance in all business classes.
Net underwriting contribution from the International segment increased by 14 per cent to US$147 million (2013: US$129
million). This was largely due to a reduction in aggregate catastrophe losses, a slight improvement in the attritional loss
ratio to 57.4 per cent (2013: 57.5 per cent) and favourable development of prior year losses.
Product groups
Catlin's six product groups underwrite most classes of commercial specialty insurance and reinsurance. The gross premiums
written by the major categories in each product group are shown in the table below.
Gross written premiums by product group 2013-2014 (US$m)
Aerospace Product Group
2014 2013
Aviation 347 329
Satellite 26 26
Total 373 355
Casualty Product Group
2014 2013
General Liability 546 444
Professional/Financial 460 424
Marine 104 115
Motor 193 184
Total 1,303 1,167
Energy/Marine Product Group
2014 2013
Upstream Energy 305 247
Downstream Energy 122 106
Energy Liability 135 129
Cargo 158 161
Hull 128 117
Specie 84 76
Total 932 836
Property Product Group
2014 2013
International 394 339
US 172 144
Binding Authorities 180 146
Total 746 629
Reinsurance Product Group
2014 2013
Non-Proportional Property 792 801
Proportional Property 577 465
Casualty 340 258
Specialty 263 195
Marine 104 131
Total 2,076 1,850
Specialty/War & Political Risks Product Group
2014 2013
War & Political Risks, Terrorism & Credit 228 217
Accident & Health 160 127
Equine/Livestock 117 104
Contingency 34 26
Total 539 474
The underwriting performance for each product group is shown in the table below.
Underwriting results by product group 2013-2014 (US$m)1
Gross premiums Net Net Underwriting contribution Loss ratio Rate
written premiums premiums change
written earned
2014
Aerospace 373 260 256 1 75% (5%)
Casualty 1,303 956 897 122 63% 2%
Energy/Marine 932 642 638 179 49% (3%)
Property 746 622 571 148 46% (3%)
Reinsurance 2,076 1,894 1,766 561 46% (5%)
Specialty/War & Political Risks 539 491 432 163 38% (2%)
2013
Aerospace 355 271 279 84 47% (8%)
Casualty 1,167 899 830 162 61% 6%
Energy/Marine 836 607 606 143 54% --
Property 629 501 487 109 49% 2%
Reinsurance 1,850 1,630 1,594 395 53% --
Specialty/War & Political Risk 474 426 407 178 36% (1%)
1 Product group data excludes the effects of claims handling costs, bad debt charges and cessions to Special Purpose
Syndicates and the Adverse Development Cover.
Aerospace gross premiums written grew by 5 per cent in 2014, largely due to price increases on Airline business during the
second half of the year in the aftermath of the series of significant market losses. Not surprisingly, insurance claims
arising from these large single-risk losses reduced net underwriting contribution to US$1 million (2013: US$84 million).
Gross premiums written for the Casualty product group increased by 12 per cent as a result of continued development of
Casualty business in the US and International hubs. The net loss ratio for the Casualty product group increased by 2 per
cent, largely due to a US barge collision that resulted in a large single risk loss sustained by the London hub. This loss
contributed to the reduction in Casualty net underwriting contribution to US$122 million (2013: US$162 million).
Volume for the Group's Energy/Marine portfolio grew by 11 per cent in 2014, driven by growth in Energy underwriting across
all hubs, especially in the London and US hubs. The portfolio produced a 25 per cent increase in net underwriting
contribution due to favourable reserve development and improved catastrophe and large single-risk loss experience.
The Property product group's gross premium volume increased by 19 per cent, driven largely by new and existing Binding
Authority business written in the London hub. The Property loss ratio improved by 3 percentage points, largely due to
decreased catastrophe loss experience, which resulted in a 36 per cent increase in net underwriting contribution to US$148
million (2013: US$109 million).
Gross Reinsurance premiums written increased by 12 per cent. Major contributors to the growth were Property Treaty
Specialty lines, volume for which increased by 61 per cent in Europe, 57 per cent in Bermuda, 29 per cent in Asia-Pacific
and 9 per cent in London. Casualty Reinsurance volume increased by 55 per cent in the US hub, 24 per cent in London and 10
per cent in Europe. The Reinsurance product group's loss ratio improved by 7 percentage points largely due to decreased
catastrophe loss experience, while net underwriting contribution increased by 42 per cent to US$561 million (2013: US$395
million).
The Reinsurance product group is a diverse portfolio of business, including both catastrophe and non-catastrophe-exposed
business. The development of the Group's reinsurance portfolio over the past five years is illustrated in the following
table.
Development of Reinsurance Product Group gross premiums written 2010-2014 (US$m and %)
2014 2013 2012 2011 2010
Gross premiums written 2,076 1,850 1,766 1,593 1,289
Percentage of total
Non-Proportional Property 38% 43% 44% 49% 51%
Proportional Property 28% 25% 23% 23% 23%
Casualty 16% 14% 13% 11% 13%
Specialty 13% 11% 11% 9% 5%
Marine 5% 7% 9% 8% 8%
As Catlin significantly increased the size of its overall reinsurance portfolio during this period, it reduced the
percentage of the portfolio devoted to Non-Proportional Property business, which primarily includes catastrophe business.
In addition, within the Non-Proportional Property book, the percentage of business pertaining to US exposures has decreased
from 73 per cent in 2009 to 50 per cent in 2014.
Gross premium volume for the Group's Specialty/War & Political Risks portfolio rose by 14 per cent, largely due to growth
in Speciality lines written by the Asia-Pacific hub. The portfolio continues to perform well, producing a 38 per cent loss
ratio (2013: 36 per cent).
2015 renewals
Average weighted premium rates for business that renewed on 1 January 2015 decreased by 2.8 per cent (2014: 3.2 per cent
decrease). Rates for catastrophe-exposed classes decreased by 4.6 per cent (2014: 6.0 per cent decrease), whilst rates for
non-catastrophe business classes decreased 0.9 per cent (2014: 0.9 per cent decrease).
Rate movements at 1 January 2015 for the six product groups are shown in table below.
Average weighted premium rate movements by product group at 1 January 2014 and 2015 (%)
1 January 2015 1 January 2014
Aerospace (5%) (4%)
Casualty 2% 4%
Energy/Marine (3%) (2%)
Property (2%) (1%)
Reinsurance (3%) (5%)
Specialty/War & Political Risk (2%) (2%)
Overall, gross premiums written as at 31 January 2015 increased by 10 per cent (31 January 2014: 4 per cent).
1 January is a major renewal date for Property Treaty Catastrophe Excess of Loss Reinsurance. In addition to general market
pressures, this class of business was also impacted by the increase in non-traditional capacity, reduced demand from
cedants and, in some cases, pressure to alter terms and conditions.
Average weighted premiums rates for Property Treaty Excess of Loss business decreased by 6.9 per cent overall on 1 January
2015 (2014: 8.8 per cent decrease), with rates for US business falling an average of 7.5 per cent (2014: 12.1 per cent
decrease) and international rates decreasing by 6.6 per cent (2014: 6.4 per cent decrease).
Despite the competitive pressures, the Group retained accounts when desired, maintained signings and in some instances
obtained preferred terms due to the strong relationships formed over time with ceding companies. Cedants are increasingly
instructing brokers regarding which reinsurers to approach, and the Group believes that it is generally on cedants'
shortlists due to its leadership position and technical capabilities.
Financial Review
Consolidated Results of Operations (US$m)
2014 2013 % change
Revenues
Gross premiums written 5,966 5,309 12%
Reinsurance premiums ceded (1,621) (1,257) 29%
Net premiums written 4,345 4,052 7%
Change in net unearned premiums (185) (104) 78%
Net premiums earned 4,160 3,948 5%
Net investment return 226 124 82%
Other income 14 11 27%
Total revenues 4,400 4,083 8%
Expenses
Losses and loss expenses 2,183 2,063 6%
Policy acquisition costs 986 882 12%
Administrative and other expenses 717 661 8%
Financing costs 17 19 (11%)
Net losses on foreign currency 9 26 (65%)
Total expenses 3,912 3,651 7%
Net income before income tax 488 432 13%
Income tax (expense)/benefit (26) 4 N/M
Net income 462 436 6%
Non-controlling preferred stock dividend (44) (44) -
Net income available to common stockholders 418 392 7%
2014 2013
Loss ratio1 52.5% 52.3%
Expense ratio2 34.3% 33.3%
Combined ratio3 86.8% 85.6%
Tax rate4 5.3% (0.9%)
Return on net tangible assets5 16.3% 17.0%
Return on equity 6 13.1% 13.4%
Total investment return 7 2.6% 1.5%
N/M Not meaningful
1 Calculated as losses and loss expenses divided by net premiums earned
2 Calculated as the total of policy acquisition costs and expenses relating to underwriting divided by net premiums
earned; the expense ratio excludes performance-related compensation and certain Group corporate costs unrelated to
underwriting
3 Total of loss ratio plus expense ratio
4 Calculated as income tax expense divided by net income before income tax
5 Calculated as net income available to common stockholders divided by net tangible assets (opening common
stockholders' equity less intangible assets and associated deferred tax)
6 Calculated as net income available to common stockholders divided by opening common stockholders' equity
7 Calculated as total investment return divided by average invested assets during the year
Catlin's income before tax amounted to US$488 million in 2014, a 13 per cent increase from US$432 million in the previous
year. The result includes a net underwriting contribution of $991 million (2013: US$1.00 billion), underpinned by a stable
loss ratio of 52.5 per cent (2013: 52.3 per cent). The Group produced a strong underwriting performance in 2014 despite
the impact of US$85 million in catastrophe losses and US$107 million large single risk losses, net of reinsurance and
reinstatement premiums.
Another key driver of the income before tax is total investment return. The Group produced total investment return of 2.6
per cent (2013: 1.5 per cent). Total investment return amounted to US$241 million (2013: US$135 million), which was above
the Group's expectations. This investment return includes a US$31 million valuation gain on loans made to Box Innovation
Group Ltd, for which Catlin agreed to the sale of its stake in December 2014.
An analysis of net income before income tax is shown in the table below.
Net income before income tax (US$m)
2014 2013 % change
Net underwriting contribution 991 1,003 (1%)
Total investment return 241 135 79%
Administrative expenses relating to underwriting (441) (435) 1%
Performance related compensation (183) (150) 22%
Other expenses (93) (76) 22%
Financing and other (18) (19) (5%)
Foreign exchange (9) (26) (65%)
Net income before income tax 488 432 13%
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