catlin group limited

8/3/2019 Catlin Group Limited

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Catlin Group LimitedAnnual Report and Accounts2010

Building

a Business

for theFuture


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Building a Business for the Future

Catlin Group Limitedis an internationalspecialty property/

casualty insurerand reinsurer.Since Catlin was established in 1984, we haveretained a consistent vision, strategy and setof core values so that our decisions and actionshelp build a business for the future.

Since Catlin was establiretained a consistent viof core values so that ohelp build a business foLearn more about what makes Catlin different:

Distributionon page 6

Leveraging Global Expertiseon page 16

Efficient and FlexibleFinancial Structureon page 18

Catlin Core Valueson page 14

Underwriting Disciplineon page 17


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Catlin Group Li

BusinessReview

Building a Busi

for the FutureStrategy and Op

Key Performance

Broad Distributio

London/UK

Bermuda

US

Asia-Pacific

Europe

Canada

Catlin Values

Leveraging Glob

Underwrit ing Dis

Efficient and Flex

Investing in Our

The Catlin Arctic

Chairmans State

Chief Executives

Underwri ting Re

Financial Report

Financial Review

Loss Reserve De

Investments

Distribution Risk and Capital

Investor Relation

The Catlin Brand

CorporateResponsibiCorporate Respo

CorporateGovernancBoard of DirectoDirectors Repor

Corporate Gover

Directors Remu

FinancialStatementsReport of the Ind

FinancialHighlights

2010 2009 2008 2007 2006*

Gross premiums written (US$m)

$4,069 $3,715 $3,437 $3,361 $2,722

Net premiums earned (US$m)

$3,219 $2,918 $2,596 $2,490 $2,228Net underwriting contribution (US$m)

$683 $651 $454 $804 $574Net income/(loss) before income tax (US$m)

$406$603 ($13) $544 $520

Combined ratio (%)

89.8% 89.1% 94.9% 80.6% 82.6%Return on net tangible assets (%)

16.3% 33.2% (2.8%) 36.1% 29.4%Return on equity (%)

12.5% 24.3% (1.9%) 22.9% 26.2%Net tangible assets per share ()

4.24 3.64 3.17 2.88 2.28


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2 Catlin Group LimitedAnnual Report and Accounts 2010

Strategyand OperatingPrinciples

Realistic and flexible approachto underwriting cyclesCatlin seeks to maximise profitsthrough all phases of an underwritingcycle through superior portfolio

management and taking advantageof the diverse opportunities suppliedby the Groups broad distributionnetwork.See pages 28 to 37

Focus on grossunderwriting profits

The Groupseeks toconcentrate

on businessactivities thatwill producelong-term,sustainableearningsacrossunderwriting

Catlins operations are based on a simple yet comprehensivestrategy and a set of 12 operating principles

ConsistreservinThe Grouconsistena small re

See pages

An undestructurscope foand proCatlins uaccess t

Strateg

Catli

to beglobainsurreinsundeclaimdelivoutst

To acthe Gestabfollowobjec

Operating principlesTo carry out its strategy moreeffectively, Catlin has establisheda core set of principles by whichthe Group strives to operate.

These operating principlesare followed by all of Catlinsunderwriting hubs worldwide:

Forward-looking approachCatlin is building a businessfor the future. The Group seeksto concentrate on business


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Catlin Group Li

Just asCatlin expectsemployees

to takeresponsibilityfor theirdecisions,Catlin strivesto maintainhigh standardsof corporate

Emphasis on capitalpreservationCatlin seeks to underwrite businessthat presents the potential ofexcellent returns against the amount

of risk assumed. The Group activelylooks for new classes of businesswhich offer the potential ofunderwriting profit and, wherepossible, are uncorrelated to theexisting portfolio. Catlin usessophisticated por tfolio modellingtools to manage actively its business

1. To operateunderwriting hubs

in the worlds majorinsurance markets;

2. To expand theGroups distribution

network to achievegreater geographicand portfoliodiversification;

3. To manage riskthrough disciplined

underwriting, effectiveunderwriting controlsand procedures,rigorous analyticalreview, portfoliodiversification andthe efficient useof reinsurance;

4. To manage capitalefficiently, in part

by adjustingunderwriting strategiesto exploit prevailingconditions, bothin the overallmarketplace and withinindividual businessclasses, and bymanaging investmentsto obtain optimalrisk-adjusted returns;

5. To provide thebest possible se

to clients and thebrokers; and

Maximisation of relationshipswith clients and brokersCatlin aims to support core clientswhose business is profitable overthe long term, both during periods

of constrained market capacity andafter a large loss, recognising thatlasting relationships should not bebroken due to short-termconsiderations. The Group worksto provide innovative solutions toclients needs and prompt andreliable claims service. It aims to

CorpoJust ato takedecisiohigh st

responoperatenvironimplicabehavresponsharehto the

$


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KPIs Book value per shareplus dividends (US$)+14%

Net tangible assets per shareplus dividends (US$)

+17%

Return on equitReturn on net ta

12.5%/$8

$4

$8

$4

Management believes that increase in book value per shareplus dividends paid to shareholders during a calendar yearis an appropriate measure of shareholder value creation.During 2010 shareholder value, as measured on this basis,increased by 14 per cent. The company aligns its EmployeePerformance Share Plan with the interests of shareholdersby setting vesting conditions based on growth in book value

per share plus dividends paid during rolling three- andfour-year periods.

Financial Review, page 40

Investor Relations, page 62

Book value per shareDividends per share paid during year

Catlin aims to achieve awith a target after-tax repoints above the risk-frCatlin has exceeded thfour of the past five yeathe period. Employeeson return on equity and

Chief Executives Revi

Financial Review, page

Return on equitReturn on net t

Income before i

$406$700

$500

$600

$300

$400

The Group has selected financial KPIs tomeasure the creation of shareholder value,shareholder returns and profitability, premiumvolume, underwriting performance, expensecontrol and investment performance.

Non-financial KPIs measure employeeretention and claims service performance.

All financial KPIs are relevant to theGroups compensation philosophy, andthree of them are explicitly incorporatedin the calculations of performance-relatedpay and employee share plans.

Catlin uses key performance

indicators (KPIs) to measurethe Groups performanceagainst its strategic objectives.

40%

30%

10%

-10%

20%

06*

$7.30

$521 $543

$7.05

06*

29.2%

27.0%

07

36.1%

22.9%

$4.71

$4.46

$6.16

$5.73 $5.07

$4.63

$6.27

$5.90

$6.93

$6.52

07

$8.81

$8.38

08

$7.05

$6.61

09

$8.05

$7.68

10

$8.74

$8.34

$0

0%


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Catlin Group Li

Return on equityReturn on net tangible assets

Total investment return (%)

2.7%

The Group considers net premiums earned as a relevantindicator of underwriting volume during an accountingperiod. Net premiums earned increased during 2010 by10 per cent to more than US$3.2 billion, reflecting growthin the Groups underwriting portfolio outside of the Londonunderwriting hub.

Underwriting Review, page 28

Financial Review, page 40

Net premiums earned (US$m)

$3,2193,000

2,000

1,000

Expense ratio (%)

32.3%

Loss ratio (%)

57.5%

Claims perfor

30%

Catlin seeks to attraand the annual empcompanys successturnover rate of 9.8 pfive years. Turnover decreased to 3.8 pe

Corporate Respons

Employee tur

9.8%

The loss ratio measures claims and reserve movements asa percentage of net premiums earned and is a measure ofunderwriting performance. The attritional loss ratio whichexcludes catastrophe losses, large single-risk losses andreserve releases is a measure of longer-term, sustainableunderwriting profitability. The attritional loss ratio improvedconsiderably in 2010, reflecting disciplined underwriting,

whilst the loss ratio reflects the substantial catastrophelosses sustained during the year.

Underwriting Review, page 28

Attritional loss ratioLoss ratio

60%

20%

40%

6%

4%

2%

30%

20%

30%

20%

notconducted

20%

10%

06*

$2,228

07

$2,490

08

$2,596

09

$2,918

10

$3,219

4.3%

32.6%34.1%

32.0% 31.5% 32.3%

06*

12.9%

19

4.6%

5.9%

2.7%

06*

50.0%

48.7%

07

46.4%

51.0%

08

62.9%

54.0%

09

57.6%

53.7%

10

57.5%

51.6%

25

0 0% 0%


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$4.5bn

$3.5bn

$4.0bn

$3.0bn

BroadDistribution

Global summary

6Underwritinghubs

52Offices

20Countries

The CatUnlike mbegan atglobal insgroup, w

in 20 couThe

underwrallows ouspecialistclients anworld, altheir busbelieve, lrelationsretail bus

price-resbusiness

DiversifiOur hub other advspread inGroups both geo

As Cplayer in

we believfor contineven as competit

GPW growth 1985 2010

From a single office in London, Catlin has built a truly internationalorganisation with six underwriting hubs. This structure producesgeographic diversification and specialised growth opportunities


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Catlin Group Li

London

The London/UKunderwriting hub

includes CatlinsLondon wholesalebusiness as well asbusiness written forUK clients.

Gross PremiumsWritten

$2.3bn

Employees

795Offices

9

Bermuda

Catlin Bermudawrites a diverse

portfolio of mainlyreinsurance productsfor an internationalclient base.


$502m

Employees

70Offices

1

US

Catlin US writesa broad range of

specialty classesof insurance andreinsurance in theworlds largestmarketplace.


$707m

Employees

332Offices

17

Asia-Pacific

Our Asia-Pacifichub includes

representation inmajor Asian marketsas well as two officesin Australia.


$217m

Employees

176Offices

8

Europe

Catlin Europeunderwrites

insurance andreinsurance profrom offices in eEuropean natio

Gross PremiuWritten

$229m

Employees

161Offices

13


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Catlins ambition is to be the leadingspecialist insurer and reinsurer in theLondon and UK regional markets,with a focus on technical, disciplinedunderwriting and responsive claimsservice.

Catlin owns and operates theleading syndicate at Lloyds, notonly in size but also in broker/clientpreference. For example, our London

claims team has consistently beenranked by brokers as the marketsbest.

The London/UK hub underwritesmore than 35 classes of business,maintaining a leadership positionin most. Business is written atLloyds, from eight offices in the UKand Guernsey and from Catlins newTrading Floor near Lloyds, which willprovide brokers with greater access

and a more productive environment.

London/UK

Focus on profits, notpremium volume maintainedin competitive marketplace

Our sis to munde

by attand sthe bDavid IbeCEOCatlin Lon

In focu

Politprodto mdemCatlin isPoliticaPoliticacoveragour offeincreasPoliticalargest the mar

During 2to the inin the GPiracy pwe estaspecial

RansomThe proof how neededbusinesour mar

The hub focuses on underwritingprofit rather than top-line volume.Gross premiums written decreasedslightly in 2010 to US$2.32 billion(2009: US$2.35 billion), reflectingincreasing competition in the Londonwholesale market. However, thehubs loss ratio decreased to57.6 per cent (2009: 58.3 percent) despite a significant increase

in catastrophe claims. This reflectsour underwriting selectivity.

This strategy will continue in2011, as the hub emphasises sectors such as Energy, Political Risk andspecialist UK Motor where conditionsare favourable, while reducingvolume in more competitive classes.

Summary

$2.3bnGross writtenpremiums

-1%2010 GPW growth

9Offices795Employees


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Catlin Group Li

Bermuda

Continued profitable growthfrom an increasingly diversebook of business

Other classes of businessunderwritten by Catlin Bermudainclude Casualty Treaty reinsurance,with a focus on medical and

professional lines, and Terrorisminsurance and reinsurance, includingcoverage for nuclear, chemical,biological and radiological incidents,a specialty pioneered by Catlin.

Catlin Bermuda produced a lossratio of 41.5 per cent in 2010 (2009:43.0 per cent), a strong performance

Catnowas a

in threinGrahaPresideCatlin B

Catlin Bermuda continues todiversify the portfolio of insuranceand reinsurance business itunderwrites for its international

client base.Property Treaty businessaccounted for much of the 19 percent increase in Catlin Bermudasgross premiums written, which in2010 reached US$502 million (2009:US$421 million). Growth was alsorecorded by other areas of the

Summary

$502mGross written premiums19%2010 GPW growth

1Offices*

In fo

NewbraCatproThe GBerm

year

The bclassof Caand G

The Lon desolut

Accidservebaseand F

The ireinsGrouspec

Aftersees both


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Catlin Group LimitedAnnual Report and Accounts 201010

Catlin has built a strong footholdin the US, the worlds largestinsurance/reinsurance market overthe past five years. Gross premiums

written by Catlins US offices havemore than doubled since 2006,and the number of business classeswritten has increased four-fold.

Catlin USs gross premiumswritten increased by 22 per centin 2010 to US$707 million (2009:US$581 million).

US

Strong foundationbuilt in worlds largestinsurance market

We hato strposit

whilesharpprodubottoRichard President Catlin US

Summary

$707mGross writtenpremiums22%2010 GPW growth

17Offices

In focu

CatliprodstrucExpandcompetcareful

discipliand cussome e

Flight underallowewhichon behbusineniches

ExpanLiabilioffer pthose hub; a

Latin Anow cin Mia

Catlin US offers a broadrange of specialty insurance andreinsurance products, which alignwith the Groups global portfolio.

Seeds for future growth wereplanted during 2010, most notablythrough the launch of new productgroups, all led by experiencedindustry professionals.

In the reinsurance segment,a new unit was established focusingon Agricultural reinsurance. Similarly,


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Catlin Group Li

Asia-Pacific

Strong premium growthand further opportunityfollow decade of investment

Catlin accounts forapproximately 80 per cent of thevolume underwritten by the Lloydsplatform in Shanghai and has thelargest local underwriting staff. Catlinis also the only Lloyds syndicatewith a representative office in India.

During 2010 Catlin enhanced itsLife/Accident & Health capabilitiesin the region, which has materialised

into new business across severaloffices. This resource is now alsobeing used to develop innovativeproducts in Hong Kong with keybroker partners.

CatlAsiamod

of oThisour the highclienMark Chief ECatlin A

Catlins long-term investment inthe Asia-Pacific region paid offduring 2010 as gross premiumswritten increased by 68 per centto US$217 million (2009: US$129million). Asia-Pacific is an importantcontributor to the underwritingprofitability of the InternationalHub financial segment.

Catlin has established a broad

representation in the region duringthe past decade, in terms of bothgeographical presence and classesof business written, and with localunderwriting staff empowered tomake underwriting decisions.These are key differentiatorsbetween Catlin and many otherinsurers in the Asia-Pacific region.

The eight offices established bythe hub provides increased access

to business. Offices stretchingfrom Sydney to Shanghai to Mumbaiallow Catlin to have the opportunityto write business that would notnormally be shown to underwritersin Singapore, London or Bermuda.

Summary

$217mGross writtenpremiums

68%2010 GPW growth


In fo

Metarnotin tTherebusin

from in VicMelb

The oundegivenit hadCatligoodclien

The oon Li

Aviat

a perallowcommexpa


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Catlin Europe significantlyexpanded its operations in 2010with the establishment of CatlinRe Switzerland.

The start-up reinsuranceoperation complements thesuccessful development of morethan 20 classes of insurancebusiness since the Europeanhub was established in 2003.

During 2010 gross premiumswritten by Catlin Europe primarilyinsurance business grew by31 per cent to US$229 million(2009: US$175 million).

During the year a new officewas established in Oslo specialisingin Energy insurance, which furtherexpands Catlins niche activitiesin the Scandinavian market andexploits the improved market

conditions in the Energy sector.

Europe

New reinsuranceopportunities combinewith successful directinsurance development

Catlinhub ogrowt

for boand reclassePaul BraChief ExecCatlin Eur

Summary

$229mGross writtenpremiums

31%2010 GPW growth


Catlin now operatesoffices across Europe, with CatlinEuropes insurance operationsbased in Cologne and itsreinsurance operationsheadquartered in Zurich.

Having established a robustreputation among ContinentalEuropean clients based on thedelivery of high-quality service,

Catlin believes opportunities existfor further profitable growth in directinsurance lines as well as Catlin ReSwitzerlands developing book ofbusiness. Catlin Europes structure,stressing the fact the localunderwriters write local businessacross Europe, was recognisedwhen Catlin won the 2010 LloydsIberia Award for the most efficientbusiness model in Spain.

In focu

Swisofferof prThe formSwitzerin Catlinand dis

The Zurcapitalipropertreinsurainsurersand Polgloballywill expas mark

The comwith theseason met theNinety pwritten the Gro

BesidesCatlin Rreinsuraand Col


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Catlin Group Li

Canada

Catlins Canadian hubexpands office networkacross nation

With a truly national footprint,Catlin Canada will continue to focuson delivering a superior product inthe Canadian specialty market,

seeking opportunities that add themost value. Whilst market conditionsfor most classes are competitive,the investment in experiencedunderwriting teams leaves CatlinCanada well-placed to continueto grow profitably.

Withlocacitie

Catlbecsignan iMichaChief ECatlin C

Catlin Canada is the Groupssmallest underwriting hub in terms ofpremium volume, but that does notmean that it is not expanding rapidly.

In October 2010 Catlin Canadadoubled the number of offices fromwhich it operates when it establishedoperations in Montreal andVancouver, complementing theexisting offices in Toronto andCalgary. The new offices, staffed bylocal insurance professionals, will

Summary

$91mGross writtenpremiums47%2010 GPW growth

4Offices

In fo

NewCarouCatlirangeinsurpolic

WhilsremabusinthrouparticProfe

In 20seveDirecinsurand CCliennot to

the Cintronot imby Ca


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14

CatlinValues

As Catlin has grown over thepast quarter-century into a trulyinternational organisation, theGroup remains committed to fivecommon values.

These values transparency,accountability, teamwork, integrityand dignity are the foundationfor the Catlin culture. We believethat these values empower Catlinemployees to act to the bestof their abilities and reinforcethe partnerships that must exist

Summary of our core values

TransparencyCatlin encourages open communication, both withclients and brokers and among employees.

AccountabilityOur employees are expected to take responsibility fortheir actions and decisions. They should think and actlike owners.

Teamwork

Five common values are shared by Catlin employees globally.These values embedded into our corporate culture arethe foundation for the Groups actions and behaviour


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Catlin Group Li


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LeveragingGlobalExpertise

Catlins uas markeclasses obusinessexpertise

wholesalwas founour knowthroughounderwroffer innoand reinsbasis aro

Our Aexampleinsurance

many yeawe have and nowinsuranceGroups

Our Lcontinueof Aviatioaccountscoverageand airpo

team alsbusinessCologneMelbournprimarilybusinessgeneral aan exclusW. Browworlds legeneral a

Our us not onglobally, broad disincreasesunderwria tough yairline ins

Through its broad distribution network, including more than 50 offices,Catlin can offer clients worldwide expertise in specialty insurance andreinsurance products

Worldwide Aviation ExpertiseCatlin underwrites Aviation insurance from London, Paris, Guernsey, Cologne, Toronto, Calgary, Singapore, Sydney andMelbourne. In addition, California-based W. Brown & Associates underwrites on behalf of Catlin US. Catlin writes mosttypes of Aviation coverage, ranging from airlines to general aviation to aerospace products.

YYC CGN

LHR

GCI


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Catlin Group Li

Marine Hull Portfolio ManagementCatlins Marine Hull account is an example of portfolio management through underwriting cycles. Catlin significantlyreduced gross premiums written for this class during the late 1990s, an era of fierce competition. Premium volume wasincreased during the hard market of the early 2000s and with the acquisition of Wellington Underwriting plc in 2006.However, volume has been static in recent years as competition for Hull business has again increased.

$150

US$mS$m


UnderwritingDiscipline

UnderdiscusphaseAt Catis not

its a wCapricingof busdedicaby sidetechniwe wrconsissince 1underw

adequArunderwthe burefuserates oOur unprofit, They kto writthat cr

maximofficesCa

netwounderwgeograallowsthat ofat anycycle. portfol

to sewithin carefuand coour cato und

Outo und

Catlin combines a technical, disciplined approach to underwritingwith strict management of its book of business to maximise profi tsin all phases of the underwriting cycle


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Efficient andFlexible CapitalStructure

Catlin Bethird-parparent coregulatedoperate t

of insuranecessarFinan

at the pathe entireallocate cused andthey are

This significanfor Catlin

other intewhich socountlesscapitalisethe rapidcapital.

BesiCatlin owCatlin Syunderwribasis by

collectionlicences.carriers insurers ogeograpDuring 20Catlin Rereinsuranclients anprovides to other

Sharnatural bcapitalisaby our hyAt the samanagedtransfer preduces

The Catlin Group has built a structure designed for optimalcapital efficiency, including fl exible allocation of available capital.Capital is managed on a Group basis

Capital Efficiency

Catlins capital structure is designed to be simple so that capital can be quickly allocated to those entities for whichthe best profit opportunities exist. The Group maintains as many regulated underwriting entities as necessary,but as few as possible.

CatlinSyndicate


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Catlin Group Li

Investingin OurFutureWhilst building its business for the future, Catlinrecognises its obligation to future generations.We sponsor the Catlin Arctic Survey to discoverhow changes to our planet may impact societyin the years to come.

Read more about the Catlin Arctic Survey on thefollowing page and more about Catlins corporateresponsibility initiatives on page 66.


20 Catlin Group Limited Annual Report and Accounts 2010


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The CatlinArctic Survey

The insurance business of the futurewill likely face a different set of risks.Thats the reason that Catlin for thepast three years has sponsored theCatlin Arctic Survey.

The Catlin Arctic Survey wascreated because of the seriousimplications that climate change andother changes to our environmentmay pose for the insurance industryand all of society. Whilst there aremany opinions regarding how theEarth may be changing, there

Through the Catlin Arctic Survey,scientists with the assistance ofexperienced Arctic explorers andguides can gather the crucial,impartial data they need to makemore reliable conclusions aboutfuture changes to our planet.

The Catlin Arctic Survey hasalready led to important scientificfindings. The information gatheredduring the 2009 Survey, duringwhich three explorers measured thedepth of the floating Arctic sea ice,

Catlin sponsors research expeditions by explorers and scientistswhich aim to discover facts about forthcoming changes to theEarths environment

Summary

32011 marks the third

Catlin Arctic Survey

7845N,10330WLocation of Catlin IceBase off Ellef RingnesIsland

The 2on the imand othewaters demissionphases: scientiststhe edgean expedpolar expconducteCO2 is mfrigid Arc

Catlin Group Li


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Catlin Group Li



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Catlin Group Limited p

Summary

16%Increase in net tangibleassets per share

17.9pFinal 2010 dividend

26.5pTotal 2010 dividend

Catlin continued to produce goodresults for shareholders in 2010.Profit before tax amounted toUS$406 million, whilst the returnon net tangible assets was 16.3 percent. I am pleased with theseresults, even though they fell short of2009s record-setting performance.

Catlins 2010 results wereimpacted by two factors. Wepredicted a year ago that totalinvestment return would decreasesignificantly during 2010 due to the

Shareholder valueShareholder value increasedsignificantly during 2010, as measuredby net tangible asset value per share(increased by 16 per cent in sterlingterms and 11 per cent in US dollars).Likewise, book value per share insterling increased by 14 per centand in US dollars by 9 per cent.

The Board of Directors hasdeclared a final dividend of 17.9pence per share (28.8 US cents),payable on 18 March 2011 to

commitmattractivethrough t

Board oBruce CaBoard aswith effecBruce waPartner aplc's quoHe also sOfficer of

Despite increase in catastrophe losses and reduced investment return,Catlins profi t before tax amounted to US$406 million and produceda return on net tangible assets of 16.3 per cent

ChairmansStatement

Business Review

Catlin Group Li


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Chart 1: Dividends paid since(UK pence)

15

20

25

TheCatlfor s

yearGrooffethe incr145Sir GraChairm

Conclusion and outlookDuring the past year Catlin markedthe 25th anniversary of the Groupsformation. Whilst it was a time forcelebration, it was also a time forreflection. Todays Catlin Group ismuch different from the very smallunderwriting agency established atthe end of 1984. However, the corevalues upon which Catlin wasfounded have not changed and arestill embraced today. They are thefoundations upon which the Groups

Catlin made good progressduring 2010. Our strategy will allowthe Group to continue to prosperduring the current challenging phaseof the insurance cycle, whilst leavingCatlin in a strong position tocapitalise on opportunities when theoverdue market correction arrives.

Sir Graham HearneChairman

10.8

13.5

20.1

14.8



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ChiefExecutivesReview

Summary

$683mNet underwritingcontribution in 2010(2009: $651m)

+25%Increase in netunderwriting contributionfrom non-London/UKhubs

Business Review

I am extremely proud of Catlinsperformance during the past year.We have produced strong financialand underwriting results, and wehave continued to increase valuefor our shareholders.

I am particularly pleased by theperformance of our underwritinghubs outside the London/UKmarket. We have made a largeinvestment over the past decadeto build a global infrastructurethat we believe will allow Catlin to

Net underwriting contribution our primary measure of underwritingperformance increased by 5 percent to US$683 million in 2010(2009: US$ 651 million), even thoughboth competition and catastrophe-related claims increasedsubstantially during the year.This is an exceptional outcome.

Rates for most classes ofbusiness came under pressureduring 2010, and weighted averagepremium rates decreased by 1 per

It is eresults dbut Catlinas compmanagemimportanunderwrselectivepremiumunderwrconsecutfor Londincreased

Catlins strong financial results in 2010 are the result of robustmanagement of the underwriting portfolio and strong contributionsby the non-London/UK underwriting hubs

Catlin Group Li


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Chart 1:Attritional loss ratio 2007-201

50.0%

52.5%

55.0%

Theundgrew

201accocentundcontStepheChief E

The loss ratio which includesboth catastrophe and single-risklosses as well as releases from prioryear loss reserves decreasedslightly to 57.5 per cent (2009: 57.6per cent), a very good per formancein the light of the surge incatastrophe-related claims.

The Group released US$144million from prior year reservesduring 2010 (2009: US$94 million),an amount equal to 3 per cent ofopening reserves (2009: 2 per cent).

underwriting portfolio by bothregion and class of business wouldperform better as the market cyclesoftens than a book of business thatis composed solely of Londonwholesale business.

The non-London/UKunderwriting hubs grew profitablyduring 2010. These hubs nowaccount for 46 per cent of Catlinsnet underwriting contribution(2009: 39 per cent), whilst theyproduce 43 per cent of the

51.0%

54.0%



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Full analysis of the Groups 2010underwriting performance is containedin the Underwriting Review.

Profit performanceProfits before tax decreased toUS$406 million in 2010 from therecord level in the previous year(2009: US$603 million). There weretwo primary factors that causedprofits to decrease:

Total investment return fell byUS$207 million or nearly 50per cent to US$212 million(2009: US$419 million). Thisperformance is a function ofthe continued low interest rateenvironment and our belief thatthe Groups investment portfolioshould remain liquid during aperiod of economic uncertainty.

The increase in catastrophe-

related claims. Catastrophelosses added 7.2 percentagepoints to the 2010 loss ratio(2009: 0 percentage points).

Net income to commonshareholders amounted to US$337

12-month US dollar Libor) was3.1 per cent.

Catlins annual compoundedperformance against the risk-freerate over the past seven years isshown in Chart 3.

Delivering shareholder valueNet tangible assets per share insterling rose by 16 per cent to 4.24per share (2009: 3.64 per share).

The increase was 11 per cent in USdollar terms. Similarly, book valueper share increased by 14 per centto 5.41 per share (2009: 4.74 pershare). The increase in book valueper share in US dollars amountedto 9 per cent

Catlin has consistently increasedthe value provided to shareholders,as measured by the annual increasein net tangible assets per share plus

dividends paid in sterling during acalendar year.

Global infrastructureThe Group continued to invest in itsinfrastructure during 2010 to providenew, profitable growth opportunities.

that is not placed in the Londonand Bermuda markets. Catlin ReSwitzerland is initially underwritingproperty and other classes ofspecialty reinsurance for Europeanceding companies as well as tradecredit, surety and political riskreinsurance on a global basis.

A Bermuda branch of Catlin ReSwitzerland has also beenestablished, initially to underwrite

reinsurance of various Catlin Groupsubsidiaries.

Catlin Re Switzerland hasreceived financial strength ratings oA from Standard & Poor's and A.MBest, the same ratings assigned tothe Groups other rated regulatedentities.

Catlin established five newoffices during 2010 in Melbourne,Miami, Montreal, Oslo and

Vancouver, further increasingour distribution. The Group alsoacquired the book of professionalindemnity and directors & officersliability business underwritten byAngel Underwriting Limited, a UKmanaging agent in Colchester.

Chief Executives Reviewcontinued

Business Review

Catlin Group Li


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Chart 2:Net underwriting contribution and gross written premiums from non-Londonunderwriting hubs

20%

40%

20%

40%

0% 2009

Net underwriting contribution

39%

2010

46%

0% 2009

Gross premiums written

37%

2010

43%

Chart 3:Compounded return on net tangible assets 2004-2010

0%

40%

80%

120%

160%

200%

240%

2004 2005 2006 2007 2008 2009 2010

21.8%2.2%

28.2%

36.1%

-2.8%

33.2%

16.3%

Average Catlin RoNTA during period: 19.3%Average Catlin R0E during period: 15.2%Average risk-free rate +10% during period: 13.1%

Compounded Catlin RoNTACompounded 12-month US Libor + 10%Values depict annual RoNTA



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Catlin produced strong underwritingresults during 2010, the result of itsstrict focus on bottom-line results.

Net underwriting contributionrose by 5 per cent to US$683 million(2009: US$651 million), despitea sharp increase in catastrophe-related losses and a morecompetitive global underwritingenvironment. The Groups loss ratioheld steady at 57.5 per cent (2009:

57.6 per cent), whilst the attritionalloss ratio which excludescatastrophe and large single-risklosses as well as movements in prioryear loss reserves decreased to51.6 per cent (2009: 53.7 per cent).

The underwriting hubs thatCatlin has established outside theLondon/UK market provide theGroup with the ability to accessgeographically diverse business in

local markets, allowing it to selectthe most appropriate mix of risksat the correct price. This accessto worldwide retail and wholesalebusiness has enabled Catlin to

increase premium volume andunderwriting profitability at a timewhen conditions are competitivein the London wholesale market,Catlins historic base.

Gross premiums writtenincreased by 10 per cent during 2010to US$4.1 billion, although grosspremiums written by Catlins London/UK hub decreased by 1 per cent.The non-London/UK underwriting

hubs during 2010 produced 43 percent of gross premiums writtenand 46 per cent of net underwritingcontribution (2009: 37 per centand 39 per cent, respectively).

Catlins global, multi-hubunderwriting structure provides theGroup with increased flexibility tomeet the changing needs of assuredsand their brokers. Catlins structure alsoallows it to change capital allocation

quickly so that underwriting is focusedon those regions which offer thebest margins.

Catlins success during 2010also results from its recognised

technicaunderwritA key Caof consisdedicateunderwr

Catastrloss expThe Grouin catast2010 (20

Overevents inby Municsignificanaverage

second-hcatastropMore tharesult of ncompareworst huJanuary 2resulted

Cataproducedlosses of

losses ofAon Benbecause as the Haregions w

The producedlosses ac60 per cecatastropTable 2.

weather-significanmajor eanot includAustralia

UnderwritingReview

Business Review

Summary

+5%increase in netunderwriting contribution

51.6%attritional loss ratio

-1%change in averageweighted premium rates$218mcatastrophe lossesincurred in 2010(2009: nil)

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30

15

20

25

10

5

The largest insured catastrophe losswas the 27 February magnitude 8.8earthquake near Maule, Chile, which

killed more than 500 people, causedestimated economic damage ofUS$30 billion and estimated insuredlosses of US$8.5 billion.

The second major earthquakewas the magnitude 7.1 tremor thatstruck the South Island of NewZealand on 4 September. Therewere no direct fatalities, primarilydue to New Zealand's strict buildingcodes and the fact that the

earthquake occurred in the earlymorning. Economic and insuredlosses for this event were estimatedlate in 2010 at $3.8 billion and$3.1 billion, respectively, butthose estimates have increasedsubstantially over the past

Table 2:Largest insured natural hazard events in 2010

EstimEstimated stru

Date Event Location fatalities c

27 February Earthquake Chile 521 1,50027-28 February Windstorm

Xynthia France, Portugal, Spain, Belgium, Germany 64 4 September Earthquake New Zealand 0 19012-26 May Severe Weather US Plains, Midwest,

Northeast, Tennessee Valley 0 23030 April-3 May Severe Weather US Mississippi Valley,

Tennessee Valley, Southeast 32 22 March Severe Weather Western Australia 0 1656 March Severe Weather Victoria, Australia 0 105

12-16 March Flooding Northeast US, Mid-Atlantic States 11 1755-9 June Flooding France, Spain 27 455-6 October Severe Weather Southwest US 0 150 All other events Total

Source: Aon Benfield

year, wa combination of record high

Chart 3:2004-2010 Atlantic hurricane seasons

0% 2004 2005 2007 20082006

Source: Holborn Corporation

Named stormsMajor hurricanes



32/124

Business Review

Underwriting Reviewcontinued

drilling platform (also known asMacondo), in which 11 workers died.

Whilst the final cost of thedisaster will not be known untilliability claims are litigated or settledmany years in the future, economiclosses are estimated atapproximately $40 billion, whilstinsured losses could range fromUS$1 billion to US$3.5 billion. Therelatively low level of insured losses

results from the fact that BP plc the primary owner/operator of theplatform does not buy insurancefrom the commercial market.

The deepwater drillingmoratorium, which was implementedin the Gulf of Mexico following thedisaster, was lifted in October, butonly a limited amount of deepwateractivity has resumed in the Gulf.

Rate movementsAverage weighted premium ratesacross the Groups underwritingportfolio decreased by 1 per centduring 2010 (2009: 6 per centincrease). The rate decrease wassimilar for both catastrophe-exposed

Charfor CatlinAerospaMarine, P

corrections. Despite the smalldecrease in average rates, pricingfor catastrophe-exposed risks isstill at a historically high level.

Despitethe smalldecrease in

Chart 4:Rating indices for catastrophe and non-catastrophe business classe

1999 2000 2001 2002 2003 2004 2005 2006 2

Rating index base = 100% in 1999

Catastrophe classesNon-catastrophe classesAll classes

150%

200%

250%

100%

Catlin Group Li


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150%

200%

250%

6%

-4%

2%

-2%

4%

Whilst the Airline insurancemarket continued to incur annuallosses that exceed premium, rates

for this class of business thelargest business class within theAerospace product group werestagnant during 2010, with averagerates decreasing by 3 per cent.

Rates also decreased on averagefor classes included in the Specialty/War & Political Risk portfolio. Thedecrease primarily reflects pricereductions in Credit and relatedclasses of business, for which rates

reached near-record levels in theaftermath of the 2008 financial crisis.

Gross premiums writtenGross premiums written by theGroup increased by 10 per centto US$4.1 billion during 2010

$

Chart 5:Rate movements for non-catastrophe classes 2009-2010*

Jan Feb March April May June July Aug Sept

*Excludes large Protection & Indemnity account

0%

2009 2010

Chart 6:Rating indexes for product groups

Rating index base = 100% in 1999

1999 2000 2001 2002 2003 2004 2005 2006

AerospaceCasualty

Energy/Marine

ProRei

Spe

100%

2% 2%

3% 3%

0%

3% 3

5%

4% 4% 4%

1%

0% 0%

-1% -1%

-2%

-3%

1%



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$1,000

$2,000

$3,000

$4,000

Chart 9:Gross premiums written by international underwriting hubs 2006-2

Business Review


Chart 8 illustrates the grosspremiums written by financialreporting segment London/UK,Bermuda, US and International forthe past five years. The proportion ofthe International segments premiumvolume produced by the Asia-Pacific, Europe and Canadaunderwriting hubs during thisperiod is shown in Chart 9.

The reduction in gross

premiums written by the London/UKunderwriting hub is the result ofcontinued selective underwritingfor business classes written in theLondon wholesale market, whererates have remained under pressure,particularly for Aviation and long-tailCasualty business. Whilst premiumvolume underwritten by the London/UK hub decreased during 2010,the hubs loss ratio improved despite

the increased catastrophe losses,which validates the Groups strategyfor this hub.

The growth in gross premiumswritten by the US, Asia-Pacific,Europe and Canada underwritinghubs is the result of Catlins strategic

brokeredto other example Agricultureinsuranhave bee

past twounderwr

The underwriresulted of the Grcapacity increaseinsurancewritten b

Chart 8:Gross premiums written by financial reporting segment 2006-2010

*Catlin and Wellington combined

2010 2009 2008 20

$4,069

$3,715

$3,437

$2,323

$502

$707

$537

$2,347

$421

$366

$2,428

$392

$269

$2,6

$3

$1

$3,3

London Bermuda US International

$0

$2$348$581

Catlin Group Li


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The Group continued to buildits global capabilities during 2010.The most notable developmentwas the formation of Catlin ReSwitzerland with capital ofapproximately US$1.1 billion. Catlin

Re Switzerland from 1 January 2011is underwriting property and otherclasses of specialty reinsurance forEuropean ceding companies as wellas trade credit, surety and politicalrisk reinsurance on a global basis.

An office was opened inMelbourne to expand Catlinspresence in the Australian market.Catlin Canada established offices inMontreal and Vancouver, staffed by

teams of experienced professionals.A Miami office targets treatyreinsurance business in theCaribbean and Central and SouthAmerica. Catlin also acquired theoperations of Angel UnderwritingLimited, a UK-based underwritingmanager specialising in professionalindemnity and directors & officersliability insurance.

Underwriting performanceThe Groups loss ratio held steadyduring 2010 at 57.5 per cent(2009: 57.6 per cent), whichproduced a net underwritingcontribution of US$683 million,a 5 per cent increase (2009:US$651 million). This is a significantachievement, considering theincrease in catastrophe lossesincurred by the Group during

the year (see Chart 10).

final sebe less

Laimprovmillionsingle

(2009:experieterm a

Thexplosof larg2010, aviatio

Thexcludsingle-

movem51.6 pdespitaveragduringreflectunderw

Anof the is showrelease

year lo(2009to 3 pe(2009reserveloss ra(2009

Thof resesome

Chart 11:Components of loss ratio 2009-2010

The decreasein the attritionalloss ratioreflects Catlin'sunderwriting

discipline.

Chart 10:Underwriting performance 2009-2010

No catastrophe losses were incurred in 2009

Underwriting contributionLarge single-risk losses

Catastrophe losses

$0

$200

$400

$600

$800

$1,000

2010

$683

$98

$218

2009

$651

$207

7.2%7.1% 3.2%-3.2%

57 6%

Catastrophe losses accountedfor 7.2 per cent of the loss ratio (2009:nil). The Chile earthquake accountedfor approximately two-thirds of thecatastrophe losses, with the NewZealand earthquake accounting for

US$46 million and the Decemberfloods in Australia accounting forthe remainder.

The December 2010 Australianfloods produce a range of outcomes.Recent notifications suggest that



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Business Review


Table 12:Underwriting performance by hub 2009-2010 (US$m)

London/UK Bermuda US International Group

2010Gross premiums written 2,323 502 707 537 4,069Net premiums written 1,830 438 572 478 3,318Net premiums earned 1,827 427 538 427 3,219Underwriting contribution 366 151 95 71 683Loss ratio 57.6% 41.5% 64.8% 64.2% 57.5% Attritiona l loss ratio 52.3% 29.5% 59.7% 60.2% 51.6%

2009Gross premiums written 2,347 421 581 366 3,715Net premiums written 1,984 371 487 326 3,168Net premiums earned 1,891 348 409 270 2,918Underwriting contribution 397 123 105 26 651Loss ratio 58.4% 43.0% 56.8% 72.4% 57.6% Attr itional loss ratio 54.6% 41.1% 57.0% 59.2% 53.7%

The Casualtyproduct groupcontinued tofollow theGroups

ProductCatlin wrcommerreinsurangroups. Tby the m

product gSign

sustaineproduct Deepwatbut this wwindstorexpectedAlthoughpricing cDeepwat

moratoriudrilling ina significof the op

The Mto grow wMarine bof the Lodeliveredcontributfrequenc

relating tfollowing

The continuedof Long Long Taibe on bufor whichmost notProfessioConverse

reductionunderwrto LondoNet premby 17 pe

Catli includin

Underwriting performance by eachof the Groups reporting segmentsis analysed in the Table 12.

Meaningful underwritingcontribution was produced by allfour reporting segments. Whilst

The Bermuda hub improvedboth its loss ratio and underwritingcontribution in 2010 despiteincreased catastrophe losses.Significant improvement was seenin the attritional loss ratio, which

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Chart 13:Gross written premiums by product group 2009-2010 (US$m)

Aerospace Product Group

Casualty Product Group

Energy/Marine Product Group

Property Product Group

Reinsurance Product Group

2009 Total$490

2010 Total$440

400 40

416 74

Aviation Satellite

2009 Total$797

2010 Total$842

316 391 87 48

331 351 96 19

General Casualty Professional/Financial Marine Motor

2009 Total$577

2010 Total$607

191 147 105 73 63 28

194 136 91 74 51 31

Upstream Energy Hull Cargo Specie Downstream Energy Energy Liability

2009 Total$378

2010 Total$471

256 113 102

189 96 93

International US Binding Authorities

2009

2010 659 293 105

610 178 137 132



38/124

Business Review


business also decreased, which wasthe result of increased underwritingselectivity as pressure on ratescontinued. Whilst Aerospace grosspremiums written decreased by 10per cent during 2010, the loss ratioremained steady and the product

During the year, the Groupleveraged its expertise in thisbusiness class and expanded theamount of Agricultural reinsurancepremiums written across theunderwriting hubs.

The Group manages its

Whilegroup warise in caratio incrunderwrby 30 pe

The S

The Specialty/War & PoliticalRisk productgroup whichincludes theGroups Credit

Table 14: Underwriting results by product group (US$m)Gross Net Net

premiums premiums premiums Underwritiwritten written earned contributi

2010 Aerospace 440 348 Casualty 842 651 647 (1Energy/Marine 607 464 447 9Property 471 379 371 7Reinsurance 1,289 1,102 1,043 30Specialty/War & Political Risks 420 406 355 15

2009 Aerospace 490 412 Casualty 797 678 648 (2Energy/Marine 577 469 470 9Property 378 300 282 5Reinsurance 1,116 994 950 38Specialty/War & Political Risk 355 339 333 6

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Strong contributions fromthe Personal Accident, PoliticalRisk and Terrorism accountscontributed to the strong Specialty/War & Political Risk results.

Risk transferThe goal of Catlins risk transferprogramme is to reduce theGroups earnings volatility andimprove capital efficiency. Theprogramme is designed andexecuted centrally in order tomaximise effectiveness. The keyelements of the programme include: Non-propor tional event and

aggregate protection to reduce

the impact of large and/orfrequent significant events;

Risk transfer to capital marketsand/or collateralisedcounterparties to increase theterm of protection, diversify andimprove counterparty financialsecurity, and reducethe volatility in risk transfer costsover time; and

Proportional and facultative

protection to enhance the Groupsgross underwriting capacity.

Catlins Newton Re transactions which transferred underwriting riskto capital markets expired in 2010.They have been replaced withtraditional and collateralised risktransfer protections. The Groupcontinues to monitor the state of theinsurance-linked securities market

and will sponsor such transactionsin the future when appropriate.

The Group evaluates thefinancial condition of its reinsurerson a regular basis and also monitorsconcentrations of credit risk withreinsurers. All current reinsurers

2011 outlookAlthough the importance of the1 January renewal season has beenreduced for Catlin due to the productand geographic diversification,it remains a significant period for

the London wholesale marketand in other markets.

1 January is traditionally themost important renewal date forProperty Treaty reinsurance. Despitethe increase in catastrophe lossesin 2010 and the early predictionsof significant Atlantic windstormactivity in 2011, rates for Catlinscatastrophe-exposed por tfoliohave been broadly flat. Rates for

loss-impacted accounts wereincreased at renewal, whichoffset rate reductions of between5 per cent and 10 per cent forloss-free accounts.

The Group has held back aportion of its catastrophe aggregateto ensure that it will be able to takeadvantage of opportunities shouldpricing improve as the yearprogresses. For example, there

could be some pricing changesfollowing the February release ofnew property catastrophe modelsby RMS, a leading vendor. It iswidely believed that the updatedsoftware will increase modelledloss estimates, triggering correctivepricing at subsequent renewals.

During January 2011 widespreadflooding continued in the Australianstate of Queensland, affecting

Toowoomba, Brisbane and otherlocations. The state of Victoria alsoexperienced flooding. These 2011events are initially estimated toproduce losses for the Groupamounting to approximatelyUS$50 million, net of reinsurance

Gr31 Jancent (3which The ina cons

Prpercensmallecompadue tonew bbusinea majoportionJanuaEurop

largelySwitzegross US$80

AsunderwCatlin bottomprovidto incrregion

where strongsacrificgrowth

Wdoes opositioallow Cwhere our invteams

markeflexibleincreaas rate

Premiumvolume growthin percentageterms is likelyto be smaller

during allof 2011 ascompared withJanuary, largelydue to theimpact of theGroups newbook ofEuropeanreinsurancebusiness,

for which1 Januaryis a majorrenewal date.



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Catlin modified its basis of segmentalreporting for 2010 to align reportingwith the underwriting hub structuredeveloped by the Group. Financialperformance is increasingly evaluatedby the Groups management byunderwriting hub rather than byrisk-bearing legal entities (insurancecarriers), the basis of the formerreporting segments.

Catlins four reporting

segments are: London/UK, which comprises

direct insurance and reinsurancebusiness underwritten in theUnited Kingdom;

Bermuda, which primarilyunderwrites reinsurancebusiness;

US, which underwr ites directinsurance and reinsurancebusiness in the United States;

and International, which comprises

the Groups Asia-Pacific, Europeand Canada underwriting hubswhich provide a full complementof insurance and reinsuranceservices for their markets.

Tablecarriers wincludedsegmentinsurancdivided in

Catliwhich wa2010 andeffect frounderwriunderwrin the IntsegmentInc., whicshell ins2011 by C

InsurancsubsequunderwrUS reporin the sec

The segmentlong invehubs outoperatio

As e

hubs pPacific, E

Financial

ReportingSegments

Business Review

Table 1:Relationship between Catlin insurance carriersand reporting segments in 2010

Insurance Carriers

Catlin CatlinSyndicate Bermuda Catlin UK Catlin US

London/UK Bermuda

US International

Table 2:2010 financial results by reporting segment

(US dollars in millions) London/UK Bermuda U

Gross premiums written $2,323 $502 $70

Net premiums earned 1,827 427 53Losses and loss expenses (1,052) (177) (34Policy acquisition costs (409) (99) (9

Net underwriting contribution $366 $151 $9

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Chart 4:Gross premiums written by report ing segment in 2010 and2009 (%)

2010

57% London/UK12% Bermuda18% United States13% International

Chart 5:Net underwriting contribution by reporting segment in 2010 an

2009 (%)

2010

54% London/UK22% Bermuda

2009

63% London/UK11% Bermuda16% United States10% International

2009

61% London/UK19% Bermuda

continued to grow during 2010, withgross premiums written increasingby 28 per cent to US$1.7 billion(2009: US$1.4 billion. The non-London/UK underwriting accountedfor 43 per cent of the Groups gross

premiums written (2009: 37 per cent).Net underwriting contribution

from the non-London/UK hubsincreased by 25 per cent to US$317million (2009: US$254 million). Thesehubs accounted for 46 per cent ofthe Groups total net underwritingcontribution (2009: 39 per cent).

Gross premiums written bythe London/UK underwriting hubdecreased marginally during 2010 to

US$2.3 billion (2009: US$2.3 billion),reflecting the Groups decision not toincrease business in the competitiveLondon wholesale market.Underwriting contribution decreasedto US$366 million (2009: US$397million). The decrease reflects thesignificant amount of catastrophe-related losses incurred by theLondon/UK hub during 2010.

Charts 4 and 5 show the

proportion of gross premiums writtenand net underwriting contributionproduced by each reporting segmentin 2010 and 2009.

More information regarding thefinancial reporting segments canbe found in Note 3 to the FinancialStatements on page 100.



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The following pages contain commentary regarding Catlins consolidated financial statements for theyear ended 31 December 2010, which are prepared in accordance with Accounting Principles GenerallyAccepted in the United States (US GAAP).

Table 1: Consolidated Results of Operations (US$m)

2010 2009 % change

RevenuesGross premiums written 4,069 3,715 10%

Reinsurance premiums ceded(751)

(547) 37%Net premiums written 3,318 3,168 5%Change in net unearned premiums (99) (250) (60%)Net premiums earned 3,219 2,918 10%Net investment return 205 414 (50%)Change in fair value of catastrophe swaps (15) (31) (52%)Net gains on foreign currency 3 30 (90%)Other income 2 4 (50%)Total revenues 3,414 3,335 2%

Expenses

Losses and loss expenses 1,852 1,681 10%Policy acquisition costs 684 586 17%Administrative and other expenses 457 449 2%Financing costs 15 16 (6%)Total expenses 3,008 2,732 10%Income before income taxes 406 603 (33%)

Business Review

Financial

Review

Catlins ito US$40cent redupreviousmillion). Tby severa

A 10in groto US

A 10in neto US

A 5 pnet uto US

A losmarg

previcent)in cadurin

A sigretur2009returcent

Consoli

of OperTable 1 sResults ocomparisanalysis taxes is s

Gross pGross prby 10 pe(2009: U

of measuconstantis insigni

GrosGroups Europeanunderwr

Catlin Group Li


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Chart 3: Growth in gross writ

*Catlin and Wellington combined, excluding

$1,000

$2,000

$3,000

$4,000

Seventy-four per cent of grosspremiums written were denominatedin US dollars, 9 per cent in euros,and 16 per cent in sterling andother currencies.

The five-year growth in the

Groups gross premiums writtenis shown in Chart 3.

ReinsuranceReinsurance premiums cededincreased by US$204 million toUS$751 million (2009: US$547million). Reinsurance premiumsceded are analysed in Table 4.

Third-party reinsurance costsexpressed as a percentage of written

premiums were approximately 4percentage points higher than in 2009.The increase was attributable to thepurchase of additional contracts, anumber of which provide coveragefor 2010 and future years. Theelement of the multi-year contractswhich relates to future periods wasapproximately US$76 million in 2010(2009: US$14 million).

Net premiums earnedNet premiums earned increasedby 10 per cent to US$3.2 billion(2009: US$2.9 billion). This increase,which was in line with the Groupsexpectations, was largely due toincreased gross premiums writtenand premium rate increases achievedon business written in 2009 that wasearned in 2010. Embedded growtharising from the 2006 acquisition

of Wellington Underwriting plccontinued to contribute a portionof the increase, arising from thecessation of quota share reinsuranceprovided to Catlin Syndicate by someof the third-party Lloyds Names thathad formerly provided capital to

Table 2: Income before income taxes (US$m)

Net underwriting contributionTotal investment returnAdministrative expenses controllable (Administrative expenses non-controllableAdministrative expenses other expensesFinancing and otherForeign exchangeIncome before income taxes

the loss ratio by 7.2 percentage points.The decrease in the Groups

loss ratio during 2010 is analysedin Table 6 on page 42.

Large single-risk lossesincreased the loss ratio by 3.2percentage points in 2010 (2009: 7.1percentage points). Approximatelyhalf of these losses related to claimsarising from the Deepwater Horizonoil spill in the Gulf of Mexico in April.

The Group released US$144million from prior year loss reserves

during 2010, an amount equatingto 3 per cent of opening reserves(2009: US$94 million or 2 per cent).

Policy acquisition costs,administrative and otherexpensesThe expense ratio amounted to 32.3per cent (2009: 31.5 per cent). Thecomponents of the expense ratio andother expenses are analysed

in Table 7 on page 43.The policy acquisition cost

ratio increased to 21.3 per cent (2009:20.1 per cent). Administrativeexpenses represent 11.0 percentagepoints of the overall expense ratio(2009: 11.4 percentage points).

$0 2006*

$2,722

$3,361 $3

2007 2

combined ratios to give a closerrepresentation of the costs ofunderwriting. The decrease in othe

expenses relate to reduced levels omanagement and staff bonuses in2010, which are based on bothincome before tax and the return oequity achieved by the Group. Thereductions have been partially offsby additional accommodation cost



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Chart 5: Growth in net premiums earned (US$m)

*Catlin and Wellington combined

Table 6:Analysis of loss ratio

2010 2009

Attritional loss ratio 51.6% 53.7%Catastrophe losses 7.2% Large single-risk losses 3.2% 7.1%

$1,000

$2,000

$3,000

Net underwriting contributionThe 2010 net underwritingcontribution of US$683 millionrepresents a 5 per cent increaseon 2009 (2009: US$651 million).Of the total underwriting contribution,54 per cent was produced by theLondon underwriting hub; 46 percent was produced by the Groupsother underwriting hubs (2009: 61per cent London, 39 per cent other).

Total investment returnTotal investment return amountedto 2.7 per cent (2009: 5.9 per cent).Table 8 summarises the totalinvestment return during the year.

Additional commentaryregarding investment performanceappears on page 51.

Change in fair value

of catastrophe swapsAs part of its third-party reinsurancearrangements, the Group in previousyears entered into catastrophe swaparrangements with certain specialpurpose entities. One sucharrangement expired during

Financial Reviewcontinued

Business Review

Income The Grou6.3 per cprincipalrate contof the un

profits anAppr

points ofto a 1 pecorporatwhich wi2011. Threflectedprovision

Net inco

to commAfter payamountinholders operpetuaUS$44 mto commto US$33million). Tassets w33.2 per

amounte24.3 per

BalanceA summa31 Decemout in Ta

The sheet are

Investm

Investmeby 4 per (2009: Uis driven Groups positive

$0 2006*

$2,228

$2,490$2,596

$2,918

$3,219

2007 2008 2009 2010

Catlin Group Li


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Table 7:Analysis of expense ratio

Compoof exp

US$m 2010

Policy acquisition costs 684 21 Administrative expenses

Controllable expenses 289 9Non-controllable expenses 67 2Other expenses 101

Administrative andother expenses 457 11

1,141 32

Table 8: Total investment return (US$m)

Total investments and cash as at 31 Decembe

Investment incomeNet gains on fixed maturities and short-term inNet gain on investments in fundsTotal investment returnInvestment expensesNet investment return

Table 9: Change in the fair value of deriv

Premiums in respect of catastrophe swapsChange in value of catastrophe swaps

Catlin reporteda gain onforeigncurrencyexchange

amounting toUS$3 million(2009: US$30million). Catlinreports in USdollars butundertakessignificanttransactionsin variouscurrencies.

Premiums and other receivablesPremiums and other receivablesincreased during 2010 by US$189million or 17 per cent. The increasewas due partly to increased grosspremiums written and also to a

change in accounting policy onlong-term risk contracts, wherebypolicies covering a period longer than18 months were fully recognised in2010 and no longer signed forward tofuture underwriting years of account.

Reinsurance recoverableAmounts receivable from reinsurersand anticipated recoveries decreasedby US$212 million or 15 per cent.

Reinsurance recoverables represent36 per cent of stockholders equity(2009: 44 per cent).

Deferred policyacquisition costsDeferred policy acquisition costsrepresented 19 per cent of unearnedpremiums at 31 December 2010(2009: 17 per cent).

Loss reservesGross loss reserves have increasedby US$157 million or 3 per centduring 2010. Approximately 95 percent of net reserves relate to the2003 and later accident years. TheGroup released US$144 million fromprior year loss reserves during 2010,an amount equal to approximately3 per cent of opening net reserves.

Unearned premiumsUnearned premiums have increasedby US$162 million or 9 per centduring the year.

Notes payable andsubordinated debt

Table 10: Summary of Consolidated Balan

Investments and cash 8,Securities lending collateralIntangible assets and goodwill



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Financial Reviewcontinued

Business Review

Table 12: Change in stockholders equity (US$m)

2010 2009

Stockholders equity, 1 January 3,278 2,469Net income 381 553Common share dividends declared (138) (115)Preferred share dividends declared (44) (44)Currency translation gain 5 112

Rights Issue 289Treasury stock purchased (57) (8)Stock compensation expense 23 22Stockholders equity, 31 December 3,448 3,278

Reinsurance payableReinsurance payable has decreased by

The significant currencytranslation gain in 2009 resulted

syndicate capacity from Lloyds Nameboth of which primarily related to thpurchase of sterling assets. As aresult, more than 62 per cent of thecurrency translation gain in 2009related to intangible assets.

The split of net assets bycurrency is analysed in Table 14.

In line with managements focuon underwriting hubs, intangible assethave been attributed to segments tomatch those assets to relevant businesflows. From 1 January 2010, thesyndicate capacity has beenmeasured in US dollars as thisreflects that the majority of businesswritten in the Syndicate is in US

dollars. This has led to decreasedforeign exchange movements in 201

In March 2009 the Groupcompleted a Rights Issue. TheCompany issued 102,068,050 newCommon Shares, par value of $0.01per Common Share, by way of aRights Issue at 205 pence per newshare on the basis of 2 new sharesfor every 5 existing shares.Proceeds, after issue costs,

amounted to 200 million (US$289million), of which approximately halfwas converted to US dollars.

In January 2007 Catlin Bermudissued US$600 million of non-cumulative perpetual preferredshares. Dividends are paid semi-annually at a rate of 7.249 per centup to 2017 when there is a 100 baspoint step up in the interest costbased on LIBOR at that time. These

shares represent a capital instrumewhich is eligible as regulatory capitafor Catlin Bermuda and innovativeTier 1 capital under the rules of theFinancial Services Authority in the UK

The amount attributable topreferred shareholders is US$590

Table 11: Intangible assets and goodwill (US$m)2010 2009

Purchased Lloyds syndicate capacity 634 634Distribution network 1 2Surplus lines licenses 5 6Goodwill on acquisition of Wellington 60 62Other goodwill 16 14Intangible assets and goodwill 716 718Associated deferred tax (included within other liabilities) (94) (96)Intangible assets and goodwill net of deferred tax 622 622

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Table 13:Analysis of currency translation gain (US$m)

2010 2009

Foreign exchange, excluding intangible assets 8 52Intangible assets revaluation (losses)/gains

on sterling balances (3) 60 5 112

Table 14:Analysis of net assets by currency

US$m Amount US$ Sterling Other Total

Net tangible assets1 2,236 78% 6% 15% 100%Intangible assets 622 89% 11% 100%Net assets1 2,858 81% 7% 12% 100%

1Excludes preferred shares

Table 15: Net tangible assets (US$m)2010 2009

Total stockholders equity 3,448 3,278Less: attributable to preferred shares (590) (590) 2,858 2,688Less: intangible assets (622) (622)

Net tangible assets 2,236 2,066Book value per share (US$) $8.34 $7.68Book value per share (sterling) 5.41 4.74Net tangible assets per share (US$) $6.53 $5.90Net tangible assets per share (sterling) 4.24 3.64

Table 16: Capital position (US$m)

2010 2009

Paid-up capital (net of intangibles) 2,236 2,066Preferred shares 590 590Capital available for underwriting 2,826 2,656Economic capital1 2,349 2,231Capital buffer to economic requirements 477 425Capital buffer as % of economic capital 20% 19%

CapitThe Gis anal

Thprovidpolicyh

of A aregulatand St

Cais to meconothe Grcurrenbelieveat 31 Dto miti

to raistwo 1-the Grimprovin subs

Sterling bookvalue per sharegrowth isrelevant whenconsidering

Catlins marketvalue, whichis denominatedin sterling.Tangible book

value per sharein sterlingincreased by16 per cent in2010, whilsttotal book value

grew by 14 percent.



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Loss Reserve

Development

Business Review

Reserves for lossesand loss expensesCatlin adopts a conservativereserving philosophy, reflectingthe inherent uncertainties inestimating insurance liabilities.

A liability is established forunpaid losses and loss expenseswhen insured events occur. Theliability is based on the expectedultimate cost of settling the claims.

The reserve for losses and lossexpenses includes: Case reserves for known but

unpaid claims as at the balancesheet date;

Incurred but not reported(IBNR) reserves for claimswhere the insured event hasoccurred but has not beenreported to the Group as atthe balance sheet date; and

Loss adjustment expensereserves for the expectedhandling costs of settlingthe claims.

The process of establishingreserves is both complex and

The effects of inflation; Estimation of underly ingexposures;

Changes in the mix of business; Amendments to wordings

and coverage; The impact of large losses; Movements in industry

benchmarks; The incidence of incurred claims; The extent to which all claims

have been reported; Changes in the legalenvironment;

Damage awards; and Changes in both internal and

external processes which mightaccelerate or slow down bothreporting and settlementof claims.

The Groups estimates and

judgments may be revised asadditional experience and other databecome available and are reviewed,as new or improved methodologiesare developed or as current lawschange. Any such revisions couldresult in future changes in estimates

EstimatreinsurThe Grourecoveriereinsuranfor the carelated loAmountsare estimwith the cwith the

estimate failure anis providvalue of net recov

Developfor lossCatlin beof the deprovision

provides than presyear basof future exposuredata restand alloc

Summary

Catlin hasadopted aconsistentreservingphilosophy.

$4.5bnNet loss reserves

at 31 December 2010

Four majorevents during2010.

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The loss reserve trianglesin Tables 2 and 3 on pages 48and 49 show how the estimates ofultimate net losses have developedover time. The development isattributable to actual payments

made and to the re-estimate of theoutstanding claims, including IBNR.The development is shown includingand excluding certain major eventsas detailed below. Developmentover time of net paid claims is alsoshown, including and excludingthese major events.

All historic premium and claimamounts have been restated usingexchange rates as at 31 December

2010 for the Groups functionalcurrencies to remove the distortingeffect of changing rates of exchangeas far as possible.

Wellington acquisitionThe business combination resultingfrom the acquisition of WellingtonUnderwriting plc was deemedeffective at 31 December 2006 foraccounting purposes; accordingly

the net assets acquired are valuedas at that date. In the tables onpages 48 and 49 the Wellingtonreserves arising from the transactionfor events occurring prior to31 December 2006 are shownfrom the date of the businesscombination. Premium and reservesrelating to business written byWellington prior to the businesscombination but earned during

future calendar years are includedwithin those accident years forthe Group.

For the 2007 underwriting yearthe Group in effect purchased theremaining Lloyds capacity relating tothe business previously underwritten

HighlightsIn aggregate, across all accident years, reserves have developed slightly made at the previous year-end. The reserves from the 2002 and prior acccent of the Groups net reserves at 31 December 2010.

A summary of the Groups net reserves is shown in Table 1.

Table 1: Summary of Catlin Group net reserves at 31 December 2

Catlin Legacy Wellington Accident Year net reserves net reserves

2002 and prior 106 138 2003 47 31 2004 52 57 2005 80 212 2006 102 145

2007 375 23 20081 550 3 20091 1,032 0 2010 1,459 0 Sub-total 3,804 609 Other net reserves2

Total net reserves

1Legacy Catlin net reserves after external quota share.2Other net reserves include other outwards reinsurance, unallocated claims handling expenses, disputes, and Life business.

The development tables on pages 48 and 49 exclude unallocated claimsreinsurance failure and disputes, other reinsurance and foreign exchangeexplicitly stated.



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Development tables Table 2: Estimated ultimate net losses (US$m)Accident year

Wellington accidentperiods 2006 2002

and prior and prior 2003 2004 2005 2006 2007 2008

Net premiums earned 931 1,169 1,201 1,353 2,748 2,548

Net ultimate excluding major eventsInitial estimate1 5,946 1,545 425 546 589 633 1,396 1,531 One year later 5,918 1,564 409 481 533 593 1,462 1,516

Two years later 6,125 1,576 382 460 491 578 1,425 1

Three years later 5,826 1,616 381 433 469 563 1,420Four years later 5,737 1,630 370 423 458 557Five years later 1,639 368 428 458Six years later 1,652 371 419Seven years later 1,638 359Net ultimate loss ratio excluding major eventsInitial estimate1 45.6% 46.7% 49.1% 46.8% 50.8% 60.1% One year later 43.9% 41.2% 44.4% 43.8% 53.2% 59.5%

Two years later 41.0% 39.3% 40.9% 42.7% 51.8% 5 Three years later 40.9% 37.0% 39.1% 41.6% 51.7%Four years later 39.7% 36.1% 38.1% 41.2%Five years later 39.5% 36.6% 38.1%

Six years later 39.9% 35.8%Seven years later 38.5%Net ultimate major eventsInitial estimate1One year later 20 116 334 274

Two years later 19 117 386 Three years later 19 118 397 Four years later 19 117 401Five years later 20 121 401Six years later 23 120 412Seven years later 20 120Net ultimate including major events

Initial estimate1

5,946 1,565 425 661 923 633 1,396 1,804 One year later 5,918 1,583 409 599 919 593 1,462 1,802 Two years later 6,125 1,595 382 578 887 578 1,425 1, Three years later 5,826 1,636 381 550 870 563 1,420Four years later 5,737 1,650 370 544 858 557Five years later 1,662 368 548 870Six years later 1,671 371 538Seven years later 1,657 359

Loss Reserve Developmentcontinued

Business Review


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Loss Reserve Developmentcontinued

Business Review

Major eventsThe following events are included in the major events sections of thedevelopment tables.

Accident year Event

2002 & prior World Trade Centre/US Terrorism 9/112004 Hurricane Charley2004 Hurricane Frances2004 Hurricane Ivan2004 Hurricane Jeanne2005 Hurricane Katrina

2005 Hurricane Rita2005 Hurricane Wilma2008 Hurricane Ike2010 Chilean Earthquake2010 Deepwater Horizon2010 New Zealand Earthquake2010 Central Queensland Flooding

The major event component of Wellington for accident periods priorto the business combination are not included in the major event estimatesshown in the development tables.

Commentary on development tablesAccident year 2010Excluding large losses initial selection improved on 2008/09 due to fewerlarge single-risk losses.

Accident year 2009

Managementconsidersthat the lossreservesand relatedreinsurancerecoveriescontinueto be heldat levels

which areconservativerelative tothe Groupsindependentactuarialadvisorsbest estimatebased on theinformationcurrently

available.

LimitatiEstablishrequires liabilities variablesrepresen

those liabthan an eto uncertactual losexceed r

Whilstables abperspectestimateestablishthe estim

years, reextrapolaon the cuThe inforguide to nature ofmight chto be inaprogramor reinsuto pay cl

Manathe loss rreinsuranto be helconservaindependestimate currently ultimate of inhereresult in s

to the amis a risk tcircumstcarried ameet ulti

The awere con

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Investment performanceThe Groups total investment return for 2010 is shown in Chart 1 andcompared with the previous year in Table 2.

Chart 1: Contribution to 2010 total investment return (US$m)

Table 2: Contribution to 2009-10 total investment return (US$m)

2010 2

Interest income $147 $Net gains on fixed maturities

and short-term investments 46

$50

$100

$150

$250

$200

InvestmentsBusiness Review

Total return on Catlins average cashand investments of US$7.8 billionamounted to 2.7 per cent during2010 (2009 : 5.9 per cent). Totalinvestment income amountedto US$212 million, a 49 per centdecrease (2009: US$419 million).The decrease in the Groups 2010pre-tax profits reflected thisdecrease in investment income.

Investment return decreasedduring 2010 as expected amidthe continuation of the global lowinterest rate environment and theGroups conservative and liquidinvestment strategy. The economicrecovery progressed in 2010 andrisk assets generally performedwell, whilst interest rates trendedlower until the fourth quarter.

The quality of the portfoliocontinued to improve as selectedrisk positions were exited intorallying markets and proceeds werereinvested into the core fixed incomeportfolio. During 2009 the Groupsinvestment return reflected unusualmarket conditions, in particular therecovery in the value of the hedge

InvestmentIncome

Net Gainson FixedIncome

Investments

Net Gainson Funds

TotalInvestmen

Return

$0

$147

$46$19 $212



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Investmentscontinued

Business Review

Investment performance in 2010is analysed by major asset categoryin Table 3.

The return on our fixed incomeportfolio reflects the unrealised gainsfrom the decline in interest rates overthe course of 2010 and the spread-tightening on corporate bonds and

mortgage-backed securities. Thestrategic hedge fund investmentswhich are mainly focused ondistressed investment strategiesproduced a return of 15.2 per centduring 2010.

income pof governholdingsbond po

The Ghad US$

positionewhich USinvestmeremainininvestmeinvestmewere pento receivover the c

The respect o

is shownFollomortgag(commerbacked) 2010, weto this se2010. Thwith the redemptin the co

principalagency-band highbond po

Asset qCatlins fiat 31 Dechigh-quaof the poagency s

rated Acent). Thfixed incoin Table 6

The Gdirect sogovernm

The Groupsinvestmentportfolioremainsliquid andconservativelypositioned inthe light ofcontinuedglobal

economicuncertainty.Cash, cashequivalentsand short-terminvestmentsaccounted for41 per cent ofthe portfolio at31 December2010.

Table 3: 2010 investment performance by major asset category

201031 Dec 2010 average

2010 average allocationUS$m allocation allocation % Return Return %

Fixed income 4,577 4,162 53.7% 167.5 4.0%Cash & short-term

investments 3,244 3,324 42.9% 25.2 0.8%Funds strategic 102 72 0.9% 11.0 15.2%

Funds run-off 98 192 2.5% 8.1 4.2%Total 8,021 7,750 100.0% 211.8 2.7%

Chart 4:Asset allocationat 31 December 2010

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Catlinsubstantiallystrengthenedits in-houseInvestment

expertiseacross allfunctionsduring 2010.

A new ChiefInvestmentOfficer wasappointed earlyin the year,roles andresponsibilities

within the teamwere definedand assignedand the totalInvestmentstaff increasedto 10 at year-end from threeat the endof 2009.

The yield to redemption onthe fixed income portfolio was1.8 per cent at 31 December 2010.

Revised investment strategyThe Groups investment portfolio

at 31 December 2010 reflects therevised investment strategy that wasimplemented during the year. Thisstrategy aims to maximise economicvalue whilst minimising downsiderisk to capital. The investment strategyoperates within a comprehensivemarket risk framework that is basedon capital, solvency and earningstargets. This framework is overseenby Catlins Enterprise Risk

Management team.Under this strategy, a significantmajority of Catlins investmentscomprise a core port folio, whichis aligned with the profile of theGroups liabilities. A tactical portfoliois invested in credit and selected

other fixed income instruments toextract premium from Catlins highlevels of liquidity and to benefit fromdislocations as they may arise.Investment mandates with externalmanagers have been updated

and amended accordingly.As part of the strategy, theGroup uses overlays to manageportfolio and macro risks moreefficiently. As at 31 December theGroup has in place options whichprovide protection in the event ofa significant decline in longer-terminterest rates over 2011 and the firsthalf of 2012.

Along with the definition and

implementation of the revisedstrategy, Catlin substantiallystrengthened its in-house Investmentexpertise across all functions during2010. A new Chief Investment Officerwas appointed early in the year, rolesand responsibilities within the team

were dtotal In10 at yend of

Outlo

Catlin the invliquid aduringThis poto deprates roccur,an optof asseremain

Table 5: Detailed asset allocation at 31 December 2009 and 2010

2010 2009

Fixed income investmentsUS government and agency securities 13% 10%Non-US government and agency securities 13% 11%Agency mortgage-backed securities 6% 5%FDIC-backed corporate bonds 4% 5%Asset-backed securities 4% 3%Corporate bonds 15% 11%Commercial mortgage-backed securities 2% 3%Non-agency mortgage-backed securities 0% 2%

57% 50%Cash and short-term investments 41% 43%Funds strategic 1% 1%Funds run-off 1% 6%Total 100% 100%



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Distribution

Catlins portfolio of insurance andreinsurance business is producedthrough a distinctive distributionmodel that is a cornerstone ofCatlins operating strategy. Thisdistribution model allows Catlinto underwrite a geographic-and product-diverse portfolio.

Catlin more than a decadeago began to build an internationaldistribution network, rather thanrelying solely on London wholesalebusiness. Catlin established officesin Singapore and London, followedby the acquisition later in 1999 of aUS underwriting agency with officesin Houston and New Orleans. Twelveyears later, Catlin operates 52 officesworldwide. Besides its original Londonmarket underwriting operation atLloyds of London, Catlin operatesunderwriting hubs in Bermuda,the United States, the Asia-PacificRegion, Europe and Canada.

This model allows Catlin tounderwrite specialty insurance andreinsurance business that wouldnormally not be placed in theLondon wholesale market, which

The vast majority of the businessthat Catlin underwrites is producedby hundreds of retail and wholesalebrokers worldwide, includingspecialty and regional brokerages.Catlin aims to establish close andlong-lasting relationships withits brokers through its reputationfor underwriting excellence andthrough superior levels of serviceto brokers and clients. Moreinformation on Catlins serviceinitiatives can be found in theCorporate Responsibility Reporton page 66.

A breakdown of Catlins tenlargest brokers based on percentageof the Groups 2010 gross premiumsplaced by each appears in Chart 1.The five largest brokers accountedfor nearly 60 per cent of 2010 grosspremiums written, and the top tenproduced two-thirds of the Groupspremium volume.

Binding authorities andthird-party coverholdersCatlin delegates underwriting authorityfor specific classes of business to

Writiselected with accesmaller towould orunderwrit

by coverhof Catlinclass andIt also prof operat

Catlileader in authoritywith regalines proThe Catl

had 1,00agreeme(2009: 1,

Catlibook of bwhich is in ScottsdCatlin USaviation pW. BrowServices

underwrBindcareful mgreat emmanagemcoverholdedicateand the Uand reviecoverholdis to ens

underwrof Catlin rigorous In additioits own inthose of all partie

Business Review

Summary

Catlins globaldistributionnetwork isintegral tothe Groupsstrategy.

The vast

majorityof Catlinsbusiness isproducedby brokers.

Writingbusinessthroughcoverholdersincreases

diversification.

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Risk and

CapitalManagementCatlin has a robust risk and controlframework

catlin group limited

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