Argenta Comment: Catlin Group Limited Lloyd’s insurer reported its annual results this morning. Like Beazley yesterday, it featured a substantial fall in combined ratio, largely in consequence of much lower catastrophe activity and a commensurate increase in profitability. Overall profit before tax increased from $71m in 2011 to $305m.

Catlin launched three special purpose syndicates, supported by third party capital in 2012. One of these, Syndicate 6111, is supported by clients of Argenta Private Capital Limited. The impact of these new syndicates does distort some of the ratios, for example, while the gross premiums increased by 10% to $4,972 million, the net earned premium reduced by 0.2% to $3,604 million. Although private capital’s support for the syndicate increased in 2013, Catlin thinks that this gross premiums up but net premiums down effect will normalise over the next year.

Catlin reported that there has been some adverse movement in two of the 2012 catastrophe losses. Reserves for the loss of the Costa Concordia cruiseship in January last year have been increased from $35m to $51m, as the management team believes the recovery costs have been increased by the Italian government demanding that the ship be refloated rather than cut up in situ. Estimates for superstorm Sandy have been increased from $200m to $225m as the loss has caused more damage to marine properties and cargo than originally envisaged. Despite these movements, loss reserves have produced a surplus of $139m, equivalent to a positive movement of almost 4% on the combined ratio.

The combined ratio was 90%, down from 102.6% in 2011. The major differentiator was the lower catastrophe loss as the attritional loss ratio was almost exactly the same at 50.6% of net earned premiums (2011 50.0%).

Investment income was down from 3.4% to 2.0%, and the strategy is described as conservative.

Average weighted rate increases across the group were 4%. Catastrophe exposed classes increased by 8%, but rates for non-catastrophe exposed business increased by just 2%. A chart showing the rate indices by product group is attached,

The full press release can be found here and the presentation to analysts here