Castelnau Group Regulatory News (CGL)

19 Nov 2008 14:40



Catlin Group Limited 2008 Investor Day

Catlin Group Limited ('CGL': London Stock Exchange), the international specialty insurer and reinsurer, will hold a presentation for investors and investment analysts at 3pm today at its London office. A webcast of the presentation as well as the slides presented will be available at www.catlin.com from 10am GMT on Thursday 20 November.

One of the topics to be discussed at the presentation will focus on the Group's risk appetite, including updated disclosure of Catastrophe Threat Scenarios, details of which are provided below. No other new material information will be provided.

Risk Appetite / Catastrophe Threat Scenarios 

The greatest likelihood of significant loss to the Group arises from natural or man-made catastrophe events, including terrorism.

The Group's tolerance for catastrophe risk is a function of expected profit and available capital. Accumulation of risk is monitored and controlled within a defined underwriting risk appetite strategy in compliance with Board policy and procedures. The Group's defined underwriting risk appetite is intended to limit exposure from a single event through a diversified portfolio of risk to a maximum of one year's expected profit plus 10 per cent of capital if a 1-in-100 year event occurs, taking into account reinstatement premiums both payable and receivable after an event.

Catlin defines certain Catastrophe Threat Scenarios which reflect selected areas of significant catastrophe exposure. A detailed analysis of these catastrophe events is carried out each quarter using statistical models together with input from both actuarial and underwriting functions. Within the statistical models both secondary perils and loss amplification are included.

 

A selection of modelled outcomes for the Group's most significant Catastrophe Threat Scenarios is detailed below. The modelled outcomes below represent the Group's modelled net loss after allowing for all reinsurances, including the external Names' quota share with regard to Catlin Syndicate 2003.  They are not a prediction of actual losses arising from any given scenario. The modelled outcomes are stated prior to any tax effect.

Modelled Gross and Net Losses

Table 1 below shows the outcomes derived from the internal and external models using data as supplied by our clients. The modelled outcomes in Table 1 reflect our current interpretation of how external models and methods should be applied and are used internally for market consistent comparisons and for regulatory returns, following the instructions given in  regulators' guidelines. 

TABLE 1

Examples of Catastrophe Threat Scenarios

Data Model Output - Not a Prediction of Actual Loss

(Outcomes derived as at 1 October 2008)

US$m	Florida(Miami)Windstorm	California Earthquake	Gulf ofMexicoWindstorm	EuropeanWindstorm	Japanese Earthquake
Estimated industry loss	119,000	74,000	102,000	31,000	50,000
Catlin Group
Gross loss	726	943	1,063	540	441
Reinsurance effect (1)	(478)	(603)	(597)	(137)	(105)
Modelled net loss	248	340	466	403	336
Modelled net loss as % of net tangible assets (2)	11%	15%	21%	18%	15%

(1) Reinsurance effect includes the impact of both inwards and outwards reinstatements, including any outwards reinsurance accounted for as a derivative

(2) Net tangible assets ('NTA') amounted to US$2.25 billion at 30 June 2008; NTA is defined as total stockholders' equity (including preferred shares), less intangible assets net of associated deferred tax

However, uncertainties exist in the data and the modelling and estimation techniques and include but are not limited to:

Economic value of market loss;

Insured values and other data items as provided by clients;

Non modelled perils;

Modelling and parameter uncertainty;

Damage factor estimation; and 

Limited historic validation of model assumptions.

Due to the uncertainties and the range of potential outcomes, Catlin adds a further prudential margin to the modelled output above to reflect the degree of uncertainty in any peril or scenario. These adjusted outcomes are detailed in Table 2 below. These adjusted numbers are then used to monitor against the Group's risk appetite to add a level of conservatism above the data model outcomes. These adjusted outcomes are also used as guidelines in pricing inwards business, to influence outwards reinsurance purchasing strategy and to measure required capital.

TABLE 2

Adjusted Data Model Output - Not a Prediction of Actual Loss

(Outcomes derived as at 1 October 2008)

US$m	Florida(Miami)Windstorm	California Earthquake	Gulf ofMexicoWindstorm	EuropeanWindstorm	Japanese Earthquake
Estimated industry  loss	119,000	74,000	102,000	31,000	50,000
Catlin Group
Gross loss	945	1,132	1,332	575	444
Reinsurance effect (1)	(595)	(697)	(748)	(169)	(105)
Modelled net loss	350	435	584	406	339
Modelled net  loss as % of NTA (2)	16%	19%	26%	18%	15%

(1) Reinsurance effect includes the impact of both inwards and outwards reinstatements, including any outwards reinsurance accounted for as a derivative

(2) Net tangible assets amounted to US$2.25 billion at 30 June 2008; NTA is defined as total stockholders' equity (including preferred shares), less intangible assets net of associated deferred tax

Limitations

The modelling of Catastrophe Threat Scenarios is a complex exercise involving numerous variables and material uncertainty. The modelled output therefore does not constitute a prediction of what losses the Group would incur in the event of a modelled loss occurring.

The modelled outcomes above are mean losses from a range of potential outcomes. At the mean value, the size of one loss would be contained or nearly contained within the normal expected profits for a year with limited utilisation of capital. Significant variance around the mean is possible. For a given industry loss, there is a wide range of potential outcomes for the Group.

The selected Catastrophe Threat Scenarios are extreme and therefore highly uncertain. Should an event occur, the modelled outcomes may prove inadequate, possibly materially so. This may be for a number of reasons (e.g. legal requirements, model deficiency, non-modelled risks or data inaccuracies). Data as supplied by our insureds and ceding companies may prove to be inaccurate or could develop during the policy period. Furthermore, the assumptions made during any analysis will evolve following any actual event.

A modelled outcome of net loss from a single event relies in significant part on the reinsurance arrangements in place, or expected to be in place at the time of the analysis, and may change during the year. The modelled outcomes assume that the reinsurance in place responds as expected with minimal reinsurance failure or dispute. Reinsurance is purchased to match the inwards exposure as far as possible, but it is possible for there to be a mismatch or gap in cover which could result in higher than modelled losses to the Group.

Many parts of the reinsurance programme are purchased with limited reinstatements, and therefore the number of claims or events which may be recovered from second or subsequent events is limited. It should also be noted that renewal dates of the reinsurance programme do not necessarily coincide with those of the inwards business written. Where inwards business is not protected by 'risks attaching' reinsurance programmes, the programmes could expire resulting in an increase in the possible net loss retained.

For more information contact:
Media Relations:
James Burcke, Head of Communications, London	Tel: Mobile: E-mail:	+44 (0)20 7458 5710 +44 (0)7958 767 738 james.burcke@catlin.com
Investor Relations:
William Spurgin,  Head of Investor Relations, London	Tel: Mobile: E-mail:	+44 (0)20 7458 5726 +44 (0)7710 314 365 william.spurgin@catlin.com

Notes to editors:
	1.	Catlin Group Limited, headquartered in Bermuda, is an international specialist property/casualty insurer and reinsurer writing more than 30 classes of business worldwide through four underwriting platforms and an international network of offices. Gross premiums written in 2007 exceeded US$3.3 billion. Catlin shares are traded on the London Stock Exchange (ticker symbol: CGL). More information about Catlin can be found at www.catlin.com.
	2.	Catlin's four underwriting platforms are:
		•	The Catlin Syndicate at Lloyd's of London (Syndicate 2003), which is a recognised leader of numerous classes of specialty insurance and reinsurance. The Catlin Syndicate is the largest at Lloyd's in 2008 based on premium capacity of £1.25 billion.
		•	Catlin Bermuda (Catlin Insurance Company Ltd.), which is a leading participant in the Bermuda market, underwriting a diversified portfolio of property treaty, casualty treaty, political risk and terrorism, and structured risk coverages.
		•	Catlin UK (Catlin Insurance Company (UK) Ltd.), which specialises in underwriting commercial non-life insurance for UK clients through a network of regional offices. In addition, Catlin UK underwrites other classes of commercial business which are also written by the Catlin Syndicate
		•	Catlin US, which encompasses Catlin's operations based in the United States. Catlin US underwrites a wide variety of specialty property/casualty insurance and reinsurance products from a network of offices throughout the U.S. Catlin US includes Catlin Insurance Company Inc. and Catlin Specialty Insurance Company Inc.
	3.	Catlin's international network of offices allows the Group to diversify further its risk portfolio and to work more closely with local policyholders and brokers. Besides its offices in the UK, US and Bermuda, Catlin operates offices in Canada (Toronto and Calgary), Australia, Singapore, Malaysia, Hong Kong, China, Japan, Guernsey, Germany, Belgium, France, Spain, Italy, Switzerland, Austria and Brazil.

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