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Catlin Falls After Missing Estimates on Higher Yields

Chief Executive Officer Stephen Catlin said in the statement that
Chief Executive Officer Stephen Catlin said in the statement that "Investment performance suffered due to mark-to-market reductions in the value of our fixed-income portfolio caused by rising interest rates." Source: Catlin Group Ltd via Bloomberg

Catlin Group Ltd., the second-largest Lloyd’s of London insurer by market value, fell in London trading after it reported lower-than-expected first-half earnings, hurt by rising bond yields and catastrophe losses.

Catlin fell as much as 4.4 percent, the most since February, and was down 1.1 percent to 483.7 pence at 11:42 a.m. local time. Pretax profit dropped to $145 million from $231 million a year earlier, the Hamilton, Bermuda-based firm said in a statement today. That missed the median $160 million estimate of three analysts surveyed by Bloomberg. Net investment income decreased to $9 million from $83 million.

“Investment performance suffered due to mark-to-market reductions in the value of our fixed-income portfolio caused by rising interest rates,” Chief Executive Officer Stephen Catlin said in the statement. “The decrease in profits before tax compared with a year ago is the result of these movements.”

Catlin, which said its investments will benefit over the longer term as rates rise, joins other Lloyd’s insurers that have said this year’s bond slump is hurting returns. Longer-term Treasuries have been the world’s worst-performing sovereign debt this year after the Federal Reserve signalled it may start phasing out bond purchases.

Beazley Plc shares tumbled after it reported earnings that missed estimates on July 23, hurt by bond-market losses that “canceled out” profit made earlier in the year.

Underwriting Concerns

Catlin’s gross premiums written increased 10 percent to $3.3 billion, while net earned premiums increased to $1.9 billion from $1.7 billion a year earlier.

The insurer’s combined ratio, or claims and expenses as a percentage of premiums, worsened to 88.9 percent from 86.3 percent a year earlier. Losses and loss expenses increased to $1 billion from $882 million a year earlier, including $126 million in catastrophe and large single-risk losses, according to the statement.

Catlin, which was hurt by claims relating to Hurricane Sandy and the wreck of the Costa Concordia cruise ship in Italy, said average weighted premium rates for catastrophe-exposed classes rose 0.4 percent.

“We continue to harbor concerns over Catlin’s underwriting capabilities, with it typically experiencing outsized exposure to major loss events and then often upwardly revising loss estimates,” Mark Williamson, an analyst at Peel Hunt LLP in London with a hold rating on the shares, wrote in a note today. “Moreover, disclosure in respect of reserving is low, and this adds to our caution.”

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