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Investments boost Catlin

An above average investment performance against a benign claims backdrop has sent Catlin's earnings soaring
August 8, 2014

A low claims backdrop and a better-than-average investment performance helped Catlin (CGL) more than double half-year profit. Indeed, the Lloyd’s insurer’s combined ratio (of claims to premiums) improved by more than three percentage points to an impressively profitable 85 per cent.

IC TIP: Buy at 514p

But that benign claims environment - along with an influx of new capital into the sector - has left prices under pressure. Overall, Catlin’s premium rates fell 3.2 per cent, with the group’s catastrophe-exposed business having seen rates fall 6.4 per cent. Still, management says its non-Lloyd's operations are sustaining firmer pricing: in the US, for example, rates rose 2.3 per cent. Around 48 per cent of Catlin’s s underwriting contribution now comes from outside of Lloyd’s. Management says growth opportunities still exist in those markets, despite less than buoyant conditions overall.

Meanwhile, the investment book delivered a 1.6 per cent return in the half, at a time when Catlin’s rivals are generally reporting returns nearer 1 per cent. That’s significantly because 7 per cent of the book is invested in higher-yielding assets, such as private equity or special situation stocks. That proportion could rise to 10 per cent, even as the rest of the portfolio remains in cash and high-quality bonds.

Broker Numis Securities expects full-year EPS of 53.1p (from 60.7p in 2013) and net tangible assets (NTA) of 442p.

CATLIN (CGL)
ORD PRICE:514pMARKET VALUE:£1.9bn
TOUCH:514-515p12-MONTH HIGH:591pLOW: 459p
DIVIDEND YIELD:6.1%PE RATIO:6
NET ASSET VALUE:929¢COMBINED RATIO:85%

Half-year to 30 JunGross premiums ($bn)Pre-tax profit ($m)Investment return ($m)Dividend per share (p)
20133.30145910
20143.6631814210.5
% change+12+119+1478+5

Ex-div: 20 Aug

Payment: 22 Sep

Capacity owned: 100 per cent

£1=$1.68