Lloyd’s insurer confirms formation of three ‘sidecar’ syndicates

Lloyd’s insurer Catlin made a profit after tax of $82m (£52m) in 2011 despite paying $961m in gross catastrophe claims.

However the company’s  profit was down 78% on 2010’s $381m profit because of the 2011 catastrophes, which included earthquakes in Japan and New Zealand, Australian floods and US tornadoes.

Profit before tax fell 83% to £71m (£406m).

Catlin’s 2011 combined ratio was an unprofitable 102.6% (2010: 89.8%), while return on equity dropped to 1.3% from 12.5%. The underwriting result includes $103m of prior-year reserve releases (2010: $144m).

Gross written premiums increased 11% to $4.5bn (2010: $4.1bn).

Shore Capital analyst Eamonn Flanagan said Catlin’s pre-tax profit had beaten his estimate of $25m.

Outgoing Catlin chairman Sir Graham Hearne praised the company’s results. “2011 was a tough year for the insurance industry and for Catlin due to the extraordinary series of natural catastrophes. However, Catlin performed well.”

Hearn will be replaced by former Brit and JLT chairman John Barton at the company’s annual general meeting in May.  

Catlin chief executive Stephen Catlin added: “Notwithstanding the exceptional series of natural catastrophes in 2011, Catlin continued to build its global business. Gross premiums written increased by 11%, and premium volume written by our non-London/UK underwriting hubs rose by 24%.”

The company reported a 2% rise in rates across its book in 2011, compared with a 1% decrease in 2010. Premiums were up 4% in catastrophe-exposed business classes but flat elsewhere.

“Catlin is pleased with the marginally positive rate movements across non-catastrophe classes at 1 January 2012,” the company said. “Whilst these rate increases do not constitute a hard market, there is a growing sense that momentum for positive rate changes is building. This opinion is increasingly supported by external commentators.”

Catlin also confirmed it is establishing three special-purpose ‘sidecar’ syndicates, as reported by Insurance Times in November. Syndicate 2088, will be funded by the £50m investment Catlin received from Chinese state-backed reinsurer China Re. Syndicate 6111 will have £60m backing from a series of Lloyd’s Names, while Syndicate 6112 is backed with a £27m investment from Bermuda-based reinsurer Everest Re.

The three syndicates will reinsure Catlin’s main Lloyd’s operation, Syndicate 2003, on a quota-share basis.

While many companies are expected to report a deterioration in investment performance, Catlin’s investment return for 2011 was 3.1% of invested assets, compared with 2.7% in 2010.