AnnualReports.co.uk · 2016. 9. 28. · Catlin Group Limited is an international specialist property/casualty insurer and reinsurer writing more than 30 classes of business worldwide

Securing our future

Catlin Group LimitedAnnual Report and Accounts 2008

Catlin Group Limited 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 offi ces.

To realise our own ambitions, Catlin helps realise the ambitions of our clients. We work in parallel with clients and their brokers to develop imaginative and effective risk management solutions.

Catlin is the title sponsor of the Catlin Arctic Survey, a scientifi c expedition to measure the thickness and density of the permanent Arctic sea ice. The data collected by the Survey will help determine when this sea ice could disappear. For more information, see pages 4 to 11.

1

2008 Financial Overview

2008 Financial Overview

Gross premiums written (US$m)

Total assets (US$m) Investments and cash (US$m)

US$9,659.7m

2008

2007

2006

2005

2004

$9,659.7

$9,600.8

$8,606.3

$3,860.0

$3,373.1

US$5,933.4m

2008

2007

2006

2005

2004

$5,933.4

$6,001.1

$5,103.7

$2,371.4

$1,982.7

US$2,469.2m

2008

2007

2006

2005

2004

$2,469.2

$3,017.0

$2,018.3

$931.1

$971.2

Stockholders’ equity (US$m)

2 About the Catlin Group 4 The Catlin Arctic Survey

Business Review12 Strategy13 Key Performance Indicators14 Chairman’s Statement16 Chief Executive’s Review20 Underwriting Review26 Catastrophe Threat Scenarios28 Business Segments34 International Offices36 Financial Review43 Loss Reserve Development

48 Investments 51 Distribution52 Claims Management/Operational Support54 Risk Management58 Corporate Social Responsibility60 Employees and Culture63 The Catlin Brand64 Investor Relations

Governance66 The Board of Directors68 Directors’ Report72 Corporate Governance Report77 Directors’ Remuneration Report

Financial Statements 84 Report of the Independent Auditors 85 Consolidated Balance Sheets 86 Consolidated Statements of Operations 87 Consolidated Statements of Changes

in Stockholders’ Equity 88 Consolidated Statements of Cash Flows 89 Notes to the Consolidated

Financial Statements115 Five-Year Financial Summary116 Glossary

Contents

US$3,437.0m

2008

2007

20061

2005

2004

$3,437.0

$3,360.6

$2,721.8

$1,386.0

$1,433.8

Dividends per share (pence)

26.6pence

20082

2007

2006

2005

2004

26.6

25.1

23.0

15.5

12.4

1 Catlin results and Wellington results aggregated, both prepared under US GAAP for period ended 31 December 2008

2 Proposed

2008

US$(46.4)m

2007

20061

2005

2004

($46.4)

$461.7

$428.5

$19.7

$154.1

Net income available to stockholders (US$m)

2 Catlin Group Limited Annual Report and Accounts 2008

About the Catlin GroupCatlin Group Limited is an international global specialty insurer and reinsurer. Our headquarters are located in Hamilton, Bermuda. Our offi ces are based in the world’s major insurance centres and in other major cities around the world

2007

Direct vs reinsurance gross premiums written

73% Direct

72% Direct

27% Reinsurance

28% Reinsurance

2008

2007

Property vs casualty gross premiums written

69% Property

70% Property

31% Casualty

30% Casualty

2008

Catlin SyndicateThe Catlin Syndicate at Lloyd’s of London (Syndicate 2003) is the largest syndicate at the world’s most famous insurance institution and is a leader of numerous classes of specialty insurance and reinsurance.

Catlin BermudaCatlin Bermuda (Catlin Insurance Company Ltd.) is a leading participant in the vibrant Bermuda market, underwriting a diversifi ed portfolio of property treaty, casualty treaty, political risk and terrorism, marine and structured risk coverages.

Catlin UKCatlin UK (Catlin Insurance Company (UK) Limited) underwrites commercial non-life insurance for UK clients through a network of regional offi ces. It also writes specialty classes of business underwritten by the Catlin Syndicate.

Catlin USCatlin US encompasses Catlin’s operations based in the United States. Catlin US underwrites specialty classes of property and casualty insurance and reinsurance from offi ces throughout the United States. Catlin US includes Catlin Insurance Company Inc. and Catlin Specialty Insurance Company Inc.

International Offi cesCatlin also has established offi ces in Germany, France, Spain, Belgium, Switzerland, Austria, Italy, Guernsey, Singapore, Malaysia, China, Japan, Australia, Canada and Brazil. These offi ces give Catlin a local presence in these markets, allowing it to better serve clients and brokers while also diversifying the Group’s risk portfolio. Coverage is written on behalf of the Catlin Syndicate and Catlin UK.

Catlin’s Offi cesThe diversifi cation of Catlin’s risk portfolio is increased by the geographic reach of Catlin’s underwriting platforms and international offi ces.

Catlin’s businessCatlin wrote US$3.4 billion in gross premiums during 2008. Catlin’s risk portfolio is highly diversifi ed, both by type of business underwritten and geographic spread.

Catlin underwrites more than 30 classes of business, divided into eight product groups.

Catlin’s PeopleCatlin’s greatest asset is its workforce of talented, energetic professionals. The Group employed 1,180 people at 31 December 2008.

Bermuda��Hamilton

United Kingdom��Birmingham��Glasgow��Ipswich��Leeds ��London��Tonbridge

Canada��Calgary��Toronto

South America��Sao Paulo

United States��Atlanta, GA��Boston, MA��Chicago, IL��Cleveland, OH��Columbus, OH��Hartford, CT��Houston, TX��Lexington, KY��New Orleans, LA��New York, NY��Paramus, NJ��Philadelphia, PA��San Antonio, TX��Scottsdale, AZ��Sonoma, CA��Summit, NJ��Walnut Creek, CA��Woodland Hills, CA

Europe��Antwerp��Barcelona��Cologne��Genoa��Innsbruck��Munich��Paris��Zurich

Asia-Pacifi c��Hong Kong��Kuala Lumpur��Shanghai��Singapore��Sydney��Tokyo

��Offi ces opened in 2009��Head offi ce

3

About the Catlin Group

Non-Proportional Property Reinsurance

General Liability/Casualty

Aviation

Upstream Energy

Professional Indemnity/Liability

$538

$369

$318

$243

$217

Five largest classes of business in 2008 (GPW US$m)

2008 gross premiums written by product group

13% Aerospace 22% Casualty 11% Energy9% Marine 13% Property 18% Reinsurnace7% Specialty Lines7% War & Political Risks

54% UK21% US5% Bermuda20% Rest of World

Employees by location

Employees by function

43% Underwriting21% Operations/IT9% Administration 19% Finance8% Claims


The Catlin Arctic Survey

“By sponsoring the Catlin Arctic Survey, Catlin will help scientists obtain the information they need to predict how long the Arctic sea ice will remain throughout the year. We believe that the expedition by Pen Hadow, Ann Daniels and Martin Hartley is essential to planning the future of our planet.”

Why is Catlin sponsoring the Survey? “Catlin is sponsoring the Catlin Arctic Survey because the implications of global warming for the whole of society are stark,” says Stephen Catlin, Chief Executive of Catlin Group Limited. “For insurers, climate change will likely have particular implications, including the potential for increased loss activity.

What is theCatlin Arctic Survey?The Catlin Arctic Survey is an international collaboration between polar explorers and some of the world’s foremost scientifi c bodies. The Survey’s aim is to determine how long the Arctic Ocean’s sea ice cover will remain a permanent feature of the Earth.

To learn the answer, three explorers set out on 28 February to travel 1,000 kilometres from the edge of the permanent sea ice to the North Geographic Pole. It will take approximately three months to complete the trek, during which time the explorers will have taken more than 10 million measurements of the ice’s thickness.

Complete information is available at www.catlinarcticsurvey.com.

The Catlin Arctic Survey 5

The data is being continuously relayed to the Survey’s scientifi c partners. The conclusions drawn from their analysis will be presented to the national negotiating teams working to replace the Kyoto Protocol agreement at the UN Climate Change Conference of Parties in Copenhagen in December 2009.

While the Survey is designed to be a scientifi c expedition, it is also a test of human endurance in the spirit of past polar expeditions. The trio must pull heavy sledges fi lled with supplies and high-tech equipment in what can best be described as hostile conditions, all the time taking readings of the ice’s thickness.

Why is an Arctic expedition necessary? Scientists can currently only estimate the thickness of the Arctic sea ice cover. Detailed measurements of the ice cannot be taken by satellites or submarines. By trekking across the ice, the Catlin Arctic Survey team will take precise measurements of the ice’s thickness and density.

“ None of us know the true impact that global warming will have. That’s why we are sponsoring the Catlin Arctic Survey: to produce the information necessary to secure our future.”Stephen CatlinChief Executive, Catlin Group Limited


While no one lives on the sea ice, 5 million people inhabit the islands and coastlines surrounding the Arctic Ocean. The rapid melting of the sea ice means huge changes in their way of life, including the loss of the hunting platforms, travel routes and food sources on which they depend. In addition, an increasing number of Arctic settlements are threatened by fl ooding.

What is the impact on the Arctic?The loss of the sea ice endangers species of animals such as narwhal, hooded and ringed seals, walrus and polar bears, all of which have evolved to fi t very specifi c conditions. The migratory patterns of birds and mammals will be affected. The loss of the ice will also open the Arctic to activities like shipping and oil/gas exploration, which will add to the stress on the ecosystem.

What is the problem?The melting of the Arctic sea ice will accelerate climate change and rising sea levels. Its loss is also an indicator of the impact of human activity on our planet’s natural systems.

The timeframe for disappearance of the permanent Arctic sea ice was until recently thought to be 40 to 100 years. However, a model developed by the US Navy’s Department of Oceanography which focuses on ice thickness indicates sea ice loss within four years.

All such models are based on imprecise data. The Catlin Arctic Survey – combining readings from an ice-penetrating radar as well as from old-fashioned drilling – will provide much more accurate data on which to base estimates.


How will climate change affect insurers?No one really knows. No one can defi nitively say, for example, if recent increases in tropical storm activity results from global warming. Insurers need more data to quantify risks in a changing environment. The Catlin Arctic Survey aims to provide that data, not only to insurers and reinsurers but to everyone.

Bangkok could be beneath sea level should this occur. Large portions of island nations, such as the Maldives, would also be submerged. In total, up to 300 million people could be fl ooded each year.

Arctic warming also changes wind and water currents, leading to increasingly unpredictable global weather patterns.

What is the global impact?Ice and snow in the Arctic refl ect the majority of solar radiation back up into the atmosphere. Open water absorbs solar heat and as a consequence expands, leading to rising sea levels.

Scientists predict that sea levels may rise by as much as 80 centimetres by 2100. Cities such as New York, London and

“ As Arctic ice melts, it makes the climate more unstable across the whole world. We need to know the rate at which the ice is likely to go, to help us prepare…” Martin SommerkornSenior Climate Change Advisor, WWF International Arctic Programme


The team is travelling on foot and by ski, hauling sledges, from approximately 80°N, 140°W, across 1,000 kilometeres of disintegrating and shifting sea ice, for approximately 100 days. Along the way, Hadow, Daniels and Hartley will climb over an estimated 15,000 ice ridges, some as high as 10 metres.

The Route Unlike most Arctic expeditions, the Catlin Arctic Survey is not about getting to the Pole, but rather about securing relevant scientifi c data. The choice of route has been dictated by the need to obtain the maximum amount of data along a scientifi cally relevant transect. The NorthGeographic Pole is the natural end point.

The expedition – the basicsThe Catlin Arctic Survey combines essential scientifi c research with a test of human endurance.

The three explorers are subject to extreme hardships, including temperatures that can plunge to as low as -50°C. The high-tech equipment needed for the expedition – plus supplies like food and tents – means that each of the explorers must pull a sledge weighing more than 100 kilos throughout the journey.

To keep their loads as light as possible, the team is being resupplied en route. If conditions are right, planes will land on the ice and supplies will be handed to the team. If conditions are poor, supplies can be dropped from the air.


Ann DanielsDaniels is one of the world’s leading women polar explorers. She fi rst went to the Arctic in 1997 as part of a relay-formatted expedition to the North Pole. Daniels later led a fi ve-strong sledge-hauling trek to the South Pole, the fi rst British women’s team to do so. She has made several other polar expeditions.

Martin HartleyHartley, one of the world’s leading expedition photographers, has made 19 photographic journeys to the Arctic and the Antarctic. His work has appeared in photographic, travel and adventure magazines, as well as all the UK’s national daily newspapers. His work has been the focus of three critically acclaimed exhibitions in recent years.

Pen HadowHadow is best known as the fi rst person to travel solo without re-supply from Canada to the North Pole. He is also the fi rst Briton to trek without re-supply to both North and South Geographic Poles. Hadow, 46, has been a professional polar guide for 18 years. This is his 15th polar expedition. Hadow is responsible for all scientifi c activities.

“ Only polar explorers have the ability to make the vital direct observations in the dangerous conditions around the North Pole, something satellites and submarines have been unable to do.”HRH The Prince of Wales

Catlin Group Limited Annual Report and Accounts 2008

spot and then transmitted via satellite to the Survey’s UK headquarters.

A sophisticated voice communications system links the three explorers and the UK headquarters, allowing instant communications. This also enables armchair explorers to participate in the survey via the internet.

High adventure meets high technologyThe explorers are reliving Arctic expeditions of the past: each pulling a heavy sledge more than 1,000 kilometres. However, the Survey also features the latest technology. Detailed readings of snow and ice thickness are being taken every 10 centimetres by the Surface Penetrating Radar for Ice Thickness (SPRITE), a small yellow box dragged behind a sledge. The raw data is processed on the

The expedition – not a walk in the parkAny polar expedition is fraught with dangers and hardships; the Catlin Arctic Survey is no exception.

Extreme low temperatures have a debilitating effect on the body and brain. The extreme cold makes the explorers’ sledges feel even heavier as they scrape against cold, hard snow. And, during the early stages of the Survey, the sun is visible just above the horizon for only a couple of hours each day. The darkness guarantees not only that temperatures remain bitterly cold at all times, it also makes travelling much more diffi cult. By mid-journey, though, nearly 24-hour sunlight will be the norm, and the going will be easier.

10

“ The sea ice has shrunk by 11 per cent per decade since 1979 and thinned by up to 40 per cent over the same period. The process is accelerating, and our fi ndings will reveal how fast.”Pen HadowLeader, Catlin Arctic Survey

The Catlin Arctic Survey

Other dangersFalling through the ice is not the only peril the explorers face. Frostbite is always a danger, although a veteran of the Arctic is well-prepared for the cold weather. Among the other threats are hungry polar bears. Hadow says: “If you don’t deal with them properly, you’re dead.”

To protect them from the frigid cold water, the explorers don special ‘immersion suits’ – designed to protect the wearer and improve buoyancy – before entering the water. Or at least that’s what they attempt. One of the greatest risks that Hadow, Daniels and Hartley face is falling through thin ice unprepared.

Trekking vs swimmingAs the impact of climate change becomes more pronounced in the Arctic, the explorers spend increasing amounts of time swimming as opposed to trekking. While in the water, the Ice Team still have to propel their sledges.

11


Catlin’s ambition is to be the preferred global specialty insurer and reinsurer based on underwriting excellence delivered by outstanding people.

To achieve this goal, Catlin has established the following strategic objectives:

— To operate underwriting platforms in the world’s major insurance markets;

— To expand the Group’s distribution network to achieve greater geographic and portfolio diversifi cation;

— To manage risk through disciplined underwriting, effective underwriting controls and procedures, rigorous analytical review, portfolio diversifi cation and the effi cient use of reinsurance;

— To manage capital effi ciently, in part by adjusting underwriting strategies to exploit prevailing conditions, both in the overall marketplace and within individual business classes, and by managing investments to obtain optimal returns in line with appropriate levels of risk;

— To continually enhance and improve business processes and controls; and

— To be the employer of choice in the sector to attract and retain the highest-calibre employees.

— Emphasis on capital preservationCatlin seeks to underwrite business that presents the potential of excellent returns against the amount of risk assumed. The Group actively looks for new classes of business which offer the potential of underwriting profi t and, where possible, are uncorrelated to the existing portfolio. Catlin uses third-party reinsurance both to protect its capital base and to increase underwriting capacity. The Group maintains a diversifi ed investment portfolio with a goal of producing optimum returns without assuming undue levels of risk.

— Maximisation of relationships with clients and brokersCatlin aims to support core clients whose business is profi table over the long term, both during periods of constrained market capacity and after a large loss, recognising that lasting relationships should not be broken due to short-term considerations. The Group works to provide innovative solutions to clients’ needs. It aims to provide brokers with consistent support and easy access.

— Continuous improvement of technical capabilitiesCatlin recognises that ongoing investment in people, systems, processes and controls is essential to compete effectively.

— A culture that stresses open communication and accountability for actionsCatlin has developed a corporate culture that gives underwriters and key employees signifi cant responsibility for business decisions, supported by a comprehensive control framework. Employees are encouraged to think and act like owners and to work in teams whenever possible.

Operating principlesCatlin has established a core set of operating principles that the Group follows as it carries out its strategy:

— Forward-looking approachCatlin is building a business for the future. The Group seeks to concentrate on business activities that will produce long-term, sustainable earnings across underwriting cycles.

— Attractive return on capitalRecognising that annual returns can vary greatly based on market conditions and the occurrence of catastrophic losses, Catlin strives to at least double shareholder value over a ten-year cycle. Catlin also aims to achieve a weighted average return on equity that is ten percentage points greater than the risk-free rate over a cycle.

— Realistic and fl exible approach to underwriting cyclesCatlin seeks to increase premium volume during periods of favourable rates and conditions and focus on profi t rather than market share during times of declining market conditions.

— Focus on gross underwriting profi tsCatlin expects each class of business to produce a gross profi t in the aggregate through an underwriting cycle.

— Diversifi cation by class and distributionCatlin actively explores new classes of business and geographic markets to diversify its risk portfolio and to enlarge its core earnings base.

— Conservative reserving philosophyThe Group sets loss reserves conservatively relative to independent actuarial advisors’ best estimate.

— An underwriting and corporate structure which maximises scope for earnings growth and provides fl exibilityCatlin’s underwriting platformsprovide access to diversifi ed business opportunities in the world’s major markets. A network of international offi ces – centred around hubs in Europe, Asia and Canada – provides the underwriting platforms with fl ows of business that would otherwise be placed with local carriers and allows the Group to strengthen relationships with local clients and retail brokers.

StrategyCatlin has established well-defi ned strategic objectives, supplemented by a set of operating principles

Business Review

The Business Review reports in detail on Catlin’s operations and performance during 2008. The Business Review includes reports from the Chairman and Chief Executive; reviews of the Group’s underwriting, fi nancial and investment performance; and information about Catlin’s people and processes.

12–65

13

Key Performance IndicatorsCatlin assesses its performance using metrics such as book value, ROE and its components, and employee turnover

Business Review

$9.59

$8.07

Book value is stated after dividends and unrealised foreign exchange translation losses. Sterling fell by more than 27 per cent against the US dollar in 2008. As a dollar reporter Catlin incurred translation losses as a result. More than 60 per cent of these losses relate to intangible assets and goodwill. Tangible book value per share decreased by 19 per cent in 2008, while total book value fell by 21 per cent.

2008

2007

20061

2005

2004

$7.57

$5.97

$6.30

Book value per share (US$)

Catlin continues to benefit from its capital- and tax-efficient structure. Because profitability in 2008 is marginal, the effective tax rate is not representative of Catlin’s medium-term expected tax rate, which remains in the range of 12 per cent to 15 per cent. The tax credit in 2008 reflects the incidence of both underwriting and investment profits and losses.

2008

2007

20061

2005

2004

Not meaningful

11.0%

17.7%

28.9%

11.4%

Tax rate (%)

19.7%

Catlin’s employee turnover rate decreased during 2008 to 14 per cent, returning to the Group’s normal turnover range of 10 per cent to 15 per cent annually. The relatively high turnover rate during 2007 was anticipated following the Wellington acquisition.

1 Catlin and Wellington combined

2008

2007

20061

2005

2004

14.0%

12.9%

10.6%

13.8%

Employee turnover (%)

2008 saw a combination of a significant catastrophe losses, a relatively high level of single-risk losses and the impact of unprecedented turmoil in the investment markets. The return on average equity in 2008 illustrates the effects of these factors. Catlin’s target is to produce a weighted average ROE that exceeds the risk-free rate by at least ten percentage points over a ten-year cycle.

2008

2007

20061

2005

2004

(2.2%)

20.8%

23.8%

2.1%

19.1%

Return on average equity (%)

2008

2007

20061

2005

2004

$2,596

$2,490

$2,228

$1,216

$1,161

Net premiums earned (US$m)

Net premiums earned increased by 4 per cent during 2008. Growth in net premiums earned exceeded growth in gross premiums written, reflecting the embedded growth expected from the acquisition of Wellington and a reduction of the share of premiums earned by third-party Lloyd’s Names that had supplied capital to the Lloyd’s syndicate managed by Wellington. This embedded growth will continue through 2011.

Catlin reported negative total investment return during 2008 amid unprecedented levels of investment volatility. The return on the fixed income portfolio was significantly impacted by unrealised losses as spreads widened during the year. Returns on diversified assets were negative, in line with equity market performance.

2008

2007

20061

2005

2004

(1.5%)

4.5%

4.1%

2.3%

3.4%

Total investment return (%)

The increase in the combined ratio includes a higher loss ratio, reflecting the catastrophe losses and increased single-risk losses during 2008 as well as a reduced level of prior year reserve release. The increase in the loss ratio has been partially offset by a lower expense ratio resulting from a reduced level of administrative expenses, particularly profit-related employee remuneration.

2008

2007

20061

2005

2004

95.0%

84.1%

87.3%

103.2%

89.4%

Combined ratio (%)

The growth in sterling book value per share illustrates the material effect of the movement in the dollar-to-sterling exchange rate during 2008. Sterling book value per share growth is relevant when considering Catlin’s market value, which is denominated in sterling. Tangible book value per share in sterling increased by 10 per cent in 2008, whilst total book value grew by 8 per cent.

2008

2007

20061

2005

2004

£4.12

£3.47

£3.28

Book value per share (£)

£5.18

£4.82


14

Chairman’s StatementCatlin registered good underlying performance in the light of the diffi cult operating environment in 2008

“ The market environment is much changed from a year ago, and good opportunities exist for Catlin during 2009 and beyond. I believe the Group is well-prepared to takeadvantage of this favourable environment.”Sir Graham HearneChairman

15

The Catlin Group’s performance during 2008 was signifi cantly affected by the volatility in global investment markets as well as catastrophe and other single-event losses after two relatively benign years. Nevertheless, I believe that Catlin’s underlying operating performance was good in the light of the diffi cult environment, and I am optimistic that the Group’s results will improve during 2009.

There are clear signs that the property/casualty insurance and reinsurance market is hardening. Already, rates for property catastrophe reinsurance, Catlin’s largest class of business, as well as other selected classes are increasing. We believe that rate increases for most other business classes will follow.

Catlin is in an excellent position to take advantage of improving market conditions. Over the past several years, the Group has signifi cantly strengthened its infrastructure and expanded distribution capabilities, including the establishment of Catlin US and the ongoing development of our international offi ces. The successful integration of Wellington Underwriting plc has signifi cantly increased the Group’s size and stature. Catlin now holds a leadership position in the marketplace, particularly at Lloyd’s of London where Catlin owns and manages the largest syndicate.

We have also added strategically to our team of underwriting and support professionals.

During the past year Catlin’s London underwriting team was recognised in a major survey of brokers as providing superior levels of client service. Our employees, led by Stephen Catlin and his management team, are clearly focused on Catlin’s commitment to disciplined underwriting. I express my thanks to Stephen and all Catlin employees for their hard work during what was a challenging year.

Rights Issue Catlin on 12 February 2009 announced a fully underwritten Rights Issue to raise approximately £200 million (US$288 million), net of expenses. Whilst the Group’s existing capitalisation is suffi cient to carry out current business plans, Catlin will be in a better position following the Rights Issue to take full advantage of the improving market conditions.

The Rights Issue will result in the issue of new Common Shares representing 40 per cent of Catlin’s existing issued share capital. The Rights Issue is conditional upon, amongst other things, shareholder approval at a Special General Meeting to be held on 9 March 2009.

DividendThe Board of Directors proposes a fi nal dividend of 18.0 pence (26.6 US cents) per share, payable on 15 May 2009 to shareholders of record at the close of business on 20 February 2009. Including the interim dividend of 8.6 pence

(16.8 US cents) per share paid on 7 November 2008, the proposed total 2008 dividend of 26.6 pence (43.4 US cents) represents a 6 per cent increase in pence over the 2007 dividend.

The increase in the dividend demonstrates the Board’s confi dence in the Group’s prospects and reaffi rms our commitment to providing an attractive return to shareholders.

Board of DirectorsNicholas Lyons was appointed to the Board of Directors during 2008, succeeding Alton Irby who retired from the Board to concentrate on other commitments. Nick Lyons has a detailed knowledge of international fi nancial markets and has already made a valuable contribution to the Group. I would like to express my thanks to all of the Directors who served during 2008 for their hard work during what can best be described as a demanding year.

OutlookThe market environment is much changed from a year ago, and good opportunities exist for Catlin during 2009 and beyond. I believe the Group is well-prepared to take advantage of this favourable environment and to prosper during the years ahead.

Business Review

Dividend history (pence)

2008*

2007

2006

2004

2005

23.0

12.4

15.5

Final dividendInterim dividend

* 2008 final dividend as proposed

26.6

25.1


Chief Executive’s ReviewThe turmoil of 2008 has created excellent opportunities for the Catlin Group in 2009 and beyond

The events of the past year combined to create what could best be described as a ‘perfect storm’ for insurers and reinsurers worldwide, including Catlin.

What began as the ‘subprime crisis’ accelerated into the ‘credit crunch’ and then developed into a full-blown global economic recession, the likes of which has not been seen for decades. Whilst the recession impacts insurers and reinsurers in many ways, the major ramifi cations for our market are threefold:

— The volatility in global fi xed income and equity investment markets, particularly in the second half of the year, signifi cantly affected companies’ investment returns;

— Some leading insurers and reinsurers were forced to make substantial write-downs in the value of their assets, raising questions over their market positions; and

— Catastrophe and large single-risk losses increased markedly compared with the previous two years of relatively benign loss activity. The insured loss caused by Hurricane Ike – whose damage extended from energy installations in the Gulf of Mexico and cities on the Texas coast all the way to homeowners in Ohio – is now estimated at a minimum of US$20 billion, making it the third most costly hurricane on record.

These factors had a signifi cant adverse impact on Catlin’s fi nancial results during 2008, but they also are creating substantial opportunities for the Group in 2009 and beyond.

2009 – a changing market environmentThe combination of economic disruption and increased loss activity during 2008 has signifi cantly reduced insurers’ and reinsurers’ capital levels. Unlike in past periods of capital erosion, the property/casualty industry cannot expect to raise substantial amounts of new capital due to the current economic uncertainty. As a result, underwriting caution has returned to the marketplace, capacity has decreased and inevitably rates are beginning to rise.

During January 2009 renewals, rates increased substantially for property reinsurance and energy classes of business, and the Group saw positive rate corrections across its risk portfolio. We expect that rates and conditions will continue to harden over time for nearly all of the classes of business that Catlin writes, although it is diffi cult to pinpoint exactly when rates will rise for each individual class.

We believe that this new market environment will be sustainable. Insurers and reinsurers cannot rely on consistent and substantial profi ts from invested assets during this period of extreme market volatility, and therefore companies will increasingly focus on underwriting profi tability. This represents what can be best described as a lifestyle change for many companies, but is a positive development for the industry as a whole.

Catlin is well-prepared to prosper in this new market environment as we have consistently endeavoured to build a business that can adapt quickly to future trends. Our structure – which includes underwriting platforms in London, Bermuda and the United States combined with a truly global network of international offi ces managed from hubs in Singapore, Cologne and Toronto – is designed both to provide the Group with a well-diversifi ed risk portfolio and to allow us to take advantage of opportunities wherever they may arise. We have continued to develop both Catlin US and the international offi ces over the past year, opening offi ces in strategic locations and adding experienced underwriting teams. This investment is important to our future success.

37.7%

37.3%

2008

2007

2006*

2005

2004

32.1%

32.0%

32.5%

Expense ratio (%)

46.4%

50.0%

2008

2007

2006*

2005

2004

62.9%

71.7%

56.9%

Loss ratio (%)

* Catlin and Wellington combined

17Business Review

“ Insurers cannot rely on consistent and substantial profi ts from invested assets during this period of extreme market volatility, and therefore companies will increasingly focus on underwriting profi tability. This represents what can be best described as a lifestyle change for many companies.”Stephen CatlinChief Executive


Chief Executive’s Review continued

Catlin’s increased scale and market leadership position – provided by the successful integration of our acquisition of Wellington Underwriting plc – makes the Group an attractive business partner during uncertain times as clients seek out strong, fi nancially secure insurers. The impact of the economic turmoil on some major insurers and reinsurers will likely benefi t the Lloyd’s market in particular, due to its strong fi nancial security ratings and its position as the leading marketplace for syndicated insurance business. Catlin, which owns the largest syndicate at Lloyd’s, will share in Lloyd’s gains.

Overall, we see potential growth in gross premiums written of approximately US$1 billion through 2011.

Catlin’s underwriting performance was impacted by Hurricane Ike and other large losses which occurred during 2008. In contrast, both 2007 and 2006 had been relatively benign years for losses. The Group’s net loss from Hurricanes Ike and Gustav amount to US$250 million, based on an estimated total market loss from Hurricane Ike of US$20 billion or more. While we have increased the original estimate of the Group’s loss from Hurricane Ike by approximately 25 per cent, the estimate of the total market loss has increased by at least 33 per cent. Most of the deterioration is related to offshore energy losses; the vast majority of any further deterioration in this book of business will be covered by reinsurance.

The loss ratio rose to 62.9 per cent in 2008 (2007: 46.4 per cent). The hurricanes added 10.4 percentage points to the 2008 loss ratio, whilst the increase in large single-risk losses accounted for another 3.1 percentage points.

The expense ratio decreased to 32.1 per cent (2007: 37.7 per cent), largely driven by proportionately lower administrative expenses.

The Group will also benefi t in 2009 and subsequent years from the embedded growth to be created by the Wellington acquisition. The quota share reinsurance of the Catlin Syndicate that had been written by Lloyd’s Names who provided capacity to Wellington Syndicate 2020 expired at the end of 2008. As a result, the net premiums earned by Catlin will increase as Catlin will be entitled to 100 per cent of the premiums and related profi ts of the Catlin Syndicate. In addition, the closure of Syndicate 2020 into the Catlin Syndicate, expected in the fi rst half of 2009, will increase the Group’s cash and investments by approximately US$400 million.

2008 resultsThe Group reported a net loss to common stockholders of US$46.4 million after payment of preferred share dividends (2007: US$461.7 million profi t). Return on average equity was negative 2.2 per cent (2007: 20.8 per cent). This performance was primarily the result of the increase in catastrophe and large single-risk losses and a deterioration in investment return.

Later this year we will mark the 25th anniversary of the establishment of Catlin Underwriting Agencies Limited (‘CUAL’), the fi rst company in what is now the Catlin Group. CUAL was created to manage a new Lloyd’s syndicate which began underwriting for the 1985 year of account.

It has been my privilege to be Catlin’s Chief Executive throughout the Group’s history and to witness remarkable changes at Catlin that have occurred over nearly a quarter-century:

— When CUAL was established in 1984, we had two employees; today, we employ nearly 1,200 people.

— At the time, our syndicate was the newest at Lloyd’s; today we manage the largest syndicate in the market.

— London was our only location in 1984; today we have offi ces in more than 40 cities worldwide.

— We wrote about US$6 million in gross premiums in 1985, our fi rst full year of business; the Catlin Group in 2008 wrote gross premiums of nearly US$3.5 billion. We have achieved approximately 30 per cent annual growth over our history, not including the Wellington acquisition.

Business StatementsFocus on Catlin’s development

Stephen CatlinChief Executive

19

The Group reported total net investment return of -1.5 per cent wholly due to the volatility in the fi nancial markets (2007: 4.5 per cent). Net losses relating to fi xed income investments amounted to US$111.5 million, which reduced total investment return by two percentagepoints. Net unrealised losses were included in profi ts in 2008 following a change in accounting treatment; in 2007 unrealised gains and losses on fi xed income assets were not included in profi ts.

In response to investment market conditions, Catlin has adopted a defensive investment position that stresses liquidity. Liquid assets – defi ned as cash, cash equivalents, government securities and fi xed income assets with less than six months to maturity – comprised 60 per cent of Catlin’s investment portfolio at 31 December 2008 (2007: 54 per cent), far exceeding the Group’s minimum liquidity guideline of 40 per cent. As a result of this high level of liquidity, Catlin expects to hold its fi xed income assets to recovery, thereby eliminating the net unrealised losses.

Detailed commentary regarding the Group’s performance in 2008 can be found in the other sections of the Business Review.

Focus on underwriting profi t Gross premiums written during 2008 rose by 2 per cent, even though average weighted premium rates fell by 4 per cent across our book of business. Average weighted rates decreased by less than we had anticipated at the start of the year, refl ecting our underwriters’ discipline in a competitive market. We are pleased with this performance and believe that it illustrates Catlin’s ‘Underwriting First’ mentality, whereby our employees are fi rst and foremost focused on achieving underwriting profi tability.

As we had anticipated, gross premiums for business originating in London and the UK decreased because of the competitive market conditions for London wholesale business. However, this decrease was more than offset by increases in gross premiums written by Catlin Bermuda, Catlin US and the international offi ces. This further demonstrates the advantages of the actions taken by the Group over the past several years to source business outside of the London wholesale market.

OutlookThese are uncertain economic times, but we are certain that signifi cant underwriting opportunities will emerge in 2009 and subsequent years. We anticipate that rate increases will become widespread and that the improvement in underwriting conditions will be sustainable. Catlin is well-positioned to profi t from this advantageous environment.

To say 2008 was challenging would be an understatement. However, I am very proud of our employees’ performance over the past 12 months, especially in the light of prevailing economic conditions. We have a strong team of professionals, and I would like to take this opportunity to thank them for their hard work.

Business Review

While the changes at Catlin have been great indeed, the changes that have taken place within our industry have been just as vast.

Perhaps the greatest change has been in the area of underwriting technology. When Catlin was founded, most underwriting was still done by pen. The typewriter and desk calculator represented the limits to our technology, except for a bespoke catastrophe programme that ran on a PC costing £4,000 with 1/1000th of the memory of today’s laptops.

Today, we are highly technical underwriters, utilising sophisticated models to quantify the risks that we underwrite. We now take computer modelling for granted; 25 years ago, these models were indeed a curiosity in our industry.

The insurance marketplace has also changed greatly over the past 25 years, both at Lloyd’s and in other markets. Regulation has improved immeasurably, which benefi ts the consumer, the insurer and the investor. The operations of most insurance companies were opaque; today, we are transparent.

Shortly after Catlin was established, the fi rst major commercial insurers to be based in Bermuda were also formed. Today, the Bermuda insurance market is the location of our parent company’s domicile and one of our operating platforms. Bermuda is one of the world’s major insurance centres.

Some things have not changed, of course. Insurance is still a cyclical market. Rates were beginning to increase for most classes

of business at the end of 1984, and we are again in a period of market hardening. However, while cycles are still with us, the industry has learned over the past 25 years – much to its advantage – how to weather much better the cyclical nature of our business by signifi cantly increasing our ability to control the downside risk to capital. That said, the current economic environment is presenting insurers with challenges that they have not faced for more than 25 years.

Catlin has grown and prospered during its lifetime, adapting to changes in the marketplace as the occur. When the Group was founded, we set out to build a business for the future. We’re still doing exactly that.


Underwriting ReviewCatlin’s underwriting results in 2008 were affected by increased catastrophe and single-risk losses

2008: unprecedented challenges A combination of factors made 2008 one of the most diffi cult in recent years for insurers and reinsurers worldwide. Those factors included:

— global economic volatility which caused insurers worldwide to report sharply lower investment returns and forced some insurers to reduce the value of assets signifi cantly;

— the overall uncertainty created by these economic conditions and their impact on premium volumes and claims;

— a sharp increase in natural catastrophe and single-risk losses, the combination of which resulted in the second worst year on record for insured catastrophe losses; and

— a reduction in margins for most classes of business.

Altogether, it is estimated that US property/casualty insurers alone have lost US$55 billion to US$75 billion in capital during 2008 as a result of investment-related losses. In addition, property/casualty insurers and reinsurers worldwide sustained US$50 billion in catastrophe-related losses in 2008.

The volatility in the fi nancial markets has affected insurers and reinsurers in other ways. As 2008 progressed, it became more apparent that Professional Liability and Directors’ and Offi cers’ Liability (‘D&O’) claims arising from the credit crunch could create signifi cant liabilities for insurers, especially those which underwrote coverage for major fi nancial institutions. The economic recession could also have an effect on insurers, in terms of both premium volume and loss experience.

The combination of these events made 2008 a market-changing year, with rates for selected classes of business already hardening at 1 January 2009 renewals. The Group believes that the unusual events of the past 12 months will make the timing, severity and duration of the anticipated market hardening diffi cult to predict with certainty.

The Group believes it is well-positioned to take advantage of the favourable prospects that will likely arise during 2009. As anticipated, gross premiums written by the Group for business originating in London and the UK decreased by 7 per cent during 2008 due to competitive conditions in this market. However, the Group believes that good opportunities will arise during 2009 at Lloyd’s, where the Group owns the largest syndicate in the market. The Group believes that the unique advantages of Lloyd’s will be increasingly recognised in the light of the ongoing economic crisis. These advantages include:

— Syndication, which effectively reduces counterparty risk. Lloyd’s is the world’s largest market for syndicated insurance and reinsurance business.

— Lloyd’s Chain of Security. The Lloyd’s market is rated ‘A+’ (Strong) by Standard & Poor’s and ‘A’ (Excellent) by A.M. Best.

Further growth is anticipated from both Catlin US and the network of international offi ces following Catlin’s signifi cant investment in these operations over the past several years.

2008 loss experienceInsured catastrophe losses nearly doubled in 2008 to an estimated US$50 billion (2007: US$30 billion), making 2008 the second most expensive natural catastrophe year on record in actual monetary costs (see Table 1 and Chart 2).

2009: a complicated and changing competitive landscape Several factors have combined to shape conditions in the property/casualty insurance and reinsurance market, including capital and competition:

— Capital: Following previous ‘market changing’ events, insurers and reinsurers quickly received substantial amounts of new capital. This capital fl owed into the market in various forms, including the formation of new insurers and reinsurers, additional capital raised by existing market players, and the proliferation of ‘alternative’ capital mechanisms such as catastrophe bonds and reinsurance sidecars.

It is anticipated that capital will be raised by selected insurers and reinsurers during 2009. However, the volatility in the capital markets means that the amount of additional capital available – or affordable – will be much less than during previous hardening markets.

— Competition: The events of 2008 have resulted in signifi cant market dislocation, with some prominent insurers and reinsurers facing extreme diffi culties. This will lead to new opportunities for the Group and new competitors as other companies attempt to seize on these opportunities. However, the Group believes that these competitors will be fewer in number and more focused than in previous cycles.

The companies which will prosper in the new market environment will have a strong underwriting track records, broad distribution capabilities and strong capital bases.

Table 1: Years with greatest insured catastrophe losses (US$bn)

2005 107.02008 50.82004 48.22001 36.51999 33.6Source: Swiss Re sigma

21Business Review

The 2008 hurricane season was the fourth most severe – in terms of both number of storms and number of major hurricanes – since the onset of reliable data. Hurricane Ike, while only a Category 2 hurricane at landfall, is the third-most costly hurricane on record in terms of insured damage, producing signifi cant and unexpected losses, particularly within the Energy market. As shown in Table 3, the largest insured natural catastrophe losses during 2008 were caused by weather-related events.

The earthquake that devastated China’s Sichuan Province in May 2008 illustrates the human tragedy and severe damage that earthquakes can cause. Although more than 70,000 people were reported dead and 18,000 missing, most of the estimated US$85 billion of damage was not insured.

There was also a signifi cant increase in large single-risk losses, including man-made catastrophes, during 2008. These types of losses are estimated to have caused more than US$6 billion in insured claims. Although Catlin does not believe that the rise in these types of losses is evidence of any trend, it highlights the potential downside risk facing insurers following several years of relatively benign loss activity.

The fi rst credit crisis claims notifi cations were fi led with insurers writing casualty business during 2008. Industry analysts project that insured claims from E&O and D&O policies covering 2007-2009 will eventually reach US$10 billion. After a review of the Group’s risk portfolio, we believe that the impact of these potential claims on Catlin is unlikely to be material.

The extent to which wider recessionary issues will impact longer-tail classes remains diffi cult to predict. It is likely that casualty classes will see downward pressure on premium revenue and upward pressure on loss activity as company insolvencies and litigation – and the underlying claims frequency – increase. Historically, classes of business connected with companies and professions related to the housing market – such as solicitors, surveyors and valuers – have suffered in particular, and claim notifi cations related to the economic downturn may be fi led during the coming months.

Rate movementsAverage weighted premium rates across Catlin’s risk portfolio decreased by 4 per cent during 2008 (2007: 4 per cent decrease). This performance was better than the Group anticipated at the start of the year.

Chart 4 shows rate movements for Catlin’s overall book of business and for catastrophe and non-catastrophe business since 1999.

Rate reductions relating to catastrophe-exposed business classes were greater than during 2007, with a weighted average rate decrease of 8 per cent for the full year (2007: 2 per cent decrease). However, a large proportion of the Group’s catastrophe risk portfolio is underwritten during the fi rst half of the year, in advance of the hurricane season.

200

6

2007

*20

08

Table 3: Largest insured natural catastrophe losses during 2008 (US$bn)

Event Date Country Insured loss

Hurricane Ike 6 September 2008 US, Caribbean 20.0Hurricane Gustav 26 August 2008 US, Caribbean 4.0Winter Storm Emma 29 February 2008 Europe 1.4Tornadoes, rainfall, hail 22 May 2008 US 1.3Snowstorms, freezing rain 10 January 2008 China 1.3Thunderstorms, wind, hail 29 May 2008 US 1.1Source: Swiss Re sigma

Chart 4: Rating indexes for catastrophe and non-catastrophe classes of business

100%

150%

200%

250%

2008200720062005200420032002200120001999

Rating index base = 100 in 1999

Non-catastropheCatastrophe

Man-made catastrophe lossesNatural catastrophe losses

1982

1983

1984

1985

1986

1987

1988

1989

199

0

1991

1992

1993

1994

1995

199

6

1997

1998

1999

200

0

2001

2002

2003

2004

2005

$120

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

1981

Chart 2: Insured catastrophe losses: 1980-2008 (US$bn)

* Provisional estimateValues indexed to 2008 prices Source: Swiss Re sigma


Underwriting Review continued

Conversely, the rate decreases relating to non-catastrophe classes of business fl attened during 2008, resulting in an overall decrease in average weighted premium rates of 1 per cent for these classes (2007: 5 per cent decrease).

Average weighted premium rates for non-catastrophe business generally strengthened as the year progressed, although the impact of these rate movements was moderated by the fact that the Group underwrites lower volumes during the second half of the year. This trend is shown in Chart 7.

Chart 8: Gross premiums written by source of business (US$m)

2008

2007

20061

2005

$3,437

$3,361

$2,722

$1,387

1 Catlin and Wellington combined2 Includes business underwritten on behalf of the Catlin Syndicate and Catlin UK

London/UK-originating businessCatlin BermudaCatlin US originating business2

International offi ces

Chart 6: Rating indexes for selected non-catastrophe classes of business

100

150

200

250

300

2008200720062005200420032002200120001999


Casualty InsuranceCasualty ReinsuranceWar & Political RiskSpecialtyMarineAerospace

Chart 7: Average weighted premium rate increases for non-catastrophe classes in 2008

January (3%)

February 0%

March (6%)

April (4%)

May 0%

June 0%

July (4%)

August (2%)

September 2%

October (1%)

November 2%

December 7%

Within the Aerospace product group, rates for Airline business had decreased for several years following a period of benign claims experience and a perceived increase in airline safety. However, rates for this class of business increased by 5 per cent to 10 per cent during the fourth quarter of 2008. Including price corrections on the Satellite account in the aftermath of recent losses, overall weighted premium rates for Aerospace business were broadly fl at during 2008.

Within the War & Political Risk product group, the number of Credit and Political Risk contracts underwritten has reduced sharply over the past 12 months due to the wider economic climate. However, the contracts that have been written have been the subject of signifi cant rate increases.

2008 gross premiums writtenAgainst the backdrop of softening rates during 2008, the gross premiums written by the Group increased by 2 per cent, further highlighting the benefi ts of Catlin’s strategy of diversifi cation and distribution. Chart 8 shows the breakdown of gross premiums written by source of business.

Gross premiums relating to London/UK-originating business decreased by 7 per cent, driven by competitive market conditions across a large part of the portfolio and the non-renewal of business that did not meet rate adequacy levels. However, this decrease was more than offset by a 32 per cent increase in gross premiums written by Catlin Bermuda, Catlin US and the international offi ce network.

Chart 5: Rating indexes for selected catastrophe classes of business

100%

150%

200%

250%

300%

350%

400%

2008200720062005200420032002200120001999


EnergyProperty DirectProperty Reinsurance

23Business Review

Gross premiums written by the international offi ces rose by 68 per cent, with growth from all regions. A new underwriting offi ce was opened in Munich during 2008, while a representative offi ce was established in Tokyo. A team of D&O underwriters joined the Paris offi ce, while an energy team was added in Calgary and a casualty underwriter was added in the Asia-Pacifi c region. The representative offi ce in Sao Paulo, which was established in 2007, produced its fi rst business in 2008 following the reform in Brazil’s reinsurance laws.

The growth of the international offi ces is analysed in Table 9.

The success of the international network is driven by a strategy of employing underwriters and teams with local expertise and relationships in classes of business that Catlin knows and understands.

Catlin US continued to grow, with gross premiums written increasing 17 per cent. Catlin US continued to expand its offerings with the opening of offi ces in Boston and Los Angeles and the addition of experienced teams writing D&O and Professional Liability business. The further development of the US platform continues to give Catlin an important foothold in the world’s largest insurance market.

Premiums written by Catlin Bermuda increased by 26 per cent during 2008.

Product groupsThe lines of business underwritten by Catlin are arranged into eight product groups. The gross premiums written by each product group, divided by major business categories, are shown in Chart 10.

$215 War & Political Risks, Terrorism and Credit

Aerospace Product Group (GPW: US$398 million)

Chart 10: Gross premiums written by product group in 2008 (US$m)

$318 Aviation$80 Satellite

Casualty Product Group (GPW: US$677 million)

$369 General Casualty $217 Professional Indemnity/Liability$91 Marine

Energy Product Group (GPW: US$336 million)

$243 Upstream $48 Downstream $45 Liability

Marine Product Group (GPW: US$277 million)

$74 Specie $132 Hull$71 Cargo

Property Product Group (GPW: US$387 million)

$198 International $98 US $91 Binding Authorities

Reinsurance Product Group (GPW: US$931 million)

$538 Non-Proportional Property $156 Proportional Property $128 Casualty $97 Marine $12 Specialty

Specialty Lines Product Group (GPW: US$216 million)

$131 Accident & Health $70 Equine/Livestock$15 Contingency

War & Political Risks Product Group (GPW: US$215 million)

Table 9: Gross premiums written by Catlin international offi ces

US$m 2008 2007 2006 2005

Asia-Pacific 105 66 39 30Europe 99 39 17 8Canada 53 41 23 4Guernsey 41 38 27 6Brazil 12 – – –Total 310 184 106 48


Underwriting Review continued

2009 outlookThe unprecedented events of 2008 have had a signifi cant impact on 2009 renewals.

Positive pricing corrections were witnessed in all of Catlin’s product groups during the 1 January renewals, with rate movements more pronounced for some classes of business as shown in Chart 12. Overall, average weighted premium rates increased by 6 per cent across Catlin’s risk portfolio.

In response to the catastrophic and single-risk loss experience of 2008, rate increases for Property Reinsurance and Energy classes have been most pronounced, as expected, with weighted rate increases of approximately 10 per cent for renewal business. However, other than Property Reinsurance, the majority of business classes are not heavily driven by 1 January renewals. A clearer picture of rate movements for these classes will emerge as the year progresses.

Gross premiums written as at 31 January 2009 increased by 8 per cent compared with the previous year on a constant exchange rate basis.

Risk transferThe goal of Catlin’s risk transfer programme is to reduce the Group’s earnings volatility and improve capital effi ciency. The programme is designed and executed centrally in order to maximise purchasing power.

The key elements of the programme include:

— Non-proportional event and aggregate protection to reduce the impact of large and/or frequent catastrophic events;

— Risk transfer to capital markets to increase the term of protection, diversify and improve greater counterparty fi nancial security, and reduce the volatility in risk transfer costs over time; and

— Proportional and facultative protection to enhance the Group’s gross underwriting capacity.

The Group has a number of in-force capital markets risk transfer transactions, which are described in Table 11 on page 25.

The fi nancial strength of the Group’s risk transfer counterparties is of high quality as more of the risk transfer programme is placed with higher-rated and collateralised markets. The fi nancial strength of risk transfer partners is monitored on a regular basis by the Group’s Reinsurance Security Committee, which is independent from the reinsurance purchasing team.

The Catlin Syndicate during 2008 was reinsured under a quota share contract with two Lloyd’s syndicates capitalised by Lloyd’s Names who were formerly members of Wellington Syndicate 2020. This contract ceded approximately 12.5 per cent of net premiums and claims of the Catlin Syndicate for the 2007 and 2008 Lloyd’s underwriting years. The contract expired at 31 December 2008.

Business StatementsFocus on Underwriting

Paul BrandChief Underwriting Officer

To say that 2008 was a market changing year is a bit of an understatement. A year ago, we were expecting tough trading conditions with rates likely to decrease over several years. However, the market did not develop as we had thought. As the year progressed, market discipline increased. Towards the end of the year, rates for some classes began to increase in the light of the spike in catastrophe and single-risk losses and the volatility in investment markets. Average weighted premium rates fell by only 4 per cent during 2008, compared with our projection early in the year of up to a 10 per cent average decrease.

We saw real evidence of market hardening during the January 2009 renewals, when average weighted rates rose by 6 per cent. Average rate decreases had stopped across the entire portfolio, and there were meaningful price increases for the classes most affected by catastrophe losses, such as property reinsurance and energy.

We believe that we will see further rate improvement during 2009 and into 2010. We anticipate some quite substantial pricing movements for wind exposures, both at the 1 April and 1 July 2009 renewals. As time passes, the rate hardening will likely spread from catastrophe-exposed classes tocasualty and other classes of business.

25Business Review

More signifi cant pricing corrections for catastrophe-exposed business, and the Energy account in particular, are anticipated at the signifi cant 1 April and 1 July renewal dates as the supply and demand for Gulf of Mexico wind-exposed risks is better known. The Group also expects that rates will increase for longer-tail business classes as the true extent of claims resulting from the economic volatility and the impact of wider recessionary issues becomes more clear, with Financial and Professional Indemnity classes responding fi rst, probably during the second half of 2009.

Catlin in recent years has strengthened its position in the marketplace, both through the acquisition of Wellington and our investment in Catlin US and the international offi ces. Catlin’s increased scale, distribution capabilities and leadership role in the marketplace ideally positions the Group to take advantage of what we believe will be signifi cant opportunities in 2009 and future years.

Table 11: Capital market risk transfer transactions

Issuer Domicile Perils Trigger Expiration Limit ($m) Format

Bay Haven Limited Cayman US hurricane, Coverage for third Nov 2009 US$257 Swap US earthquake, to ninth eligible events; UK windstorm, no eligible events have European windstorm, occurred as at Japanese typhoon, 31 December 2008 Japanese earthquake Newton Re Series 2007-1 Cayman US hurricane, Large single events as Dec 2010 US$225 Swap US earthquake measured by Property Claims Services

Newton Re Series 2008-1 Cayman US hurricane, Annual aggregate Dec 2010 US$150 Reinsurance US earthquake, reinsurance covering European windstorm, accumulated losses Japanese typhoon, related to property Japanese earthquake treaty reinsurance

Chart 12: Movement in average weighted premium rates (business incepting 1 January 2009)

20082009

Aerospace 1%(7%)

(1%) 0%Casualty

Energy (5%) 17%

Marine 3%(2%)

1%(6%)

9%(5%)

Property

Reinsurance

Specialty Lines 2%(3%)

War & Political Risk 3%(4%)


Modelled gross and net lossesTable 1 shows the outcomes derived from the internal and external models using data as supplied by our assureds. The modelled outcomes in Table 1 refl ect the Group’s 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.

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

— Economic value of market loss;— Insured values and other data items

as provided by assureds;— 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 to refl ect the degree of uncertainty in any peril or scenario. These adjusted outcomes are detailed in Table 2. These adjusted outcomes 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 infl uence outwards reinsurance purchasing strategy and to measure required capital.

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 net 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 threat scenarios 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 in the tables on this page 27. The modelled outcomes represent the Group’s modelled net loss after allowing for all reinsurances, including the external Names’ quota share with regard to Catlin Syndicate 2003 which was in place during 2008. The modelled outcomes are not a prediction of actual losses arising from any given scenario (see ‘Limitations’). The modelled outcomes are stated prior to any tax effect.

Catastrophe Threat ScenariosCatlin closely analyses its most signifi cant potential catastrophe threats from natural or man-made events, including hurricanes

LimitationsThe 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 in Tables 1 and 2 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 profi ts for a year with limited utilisation of capital. Signifi cant 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, for a number of reasons (e.g. legal developments, model defi ciency, 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.

27Business Review

A modelled outcome of net loss from a single event relies in signifi cant 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.

Table 2: Examples of catastrophe threat scenarios/Adjusted data model output

Outcomes derived as at 1 October 2008

Florida (Miami) California Gulf of Mexico European JapaneseUS$m Windstorm Earthquake Windstorm Windstorm Earthquake

Estimated industry loss 119,000 74,000 102,000 31,000 50,000Catlin Group

Gross loss 945 1,132 1,332 575 444 Reinsurance effect1 (595) (697) (748) (169) (105)

Modelled net loss 350 435 584 406 339

Modelled net loss asa percentage of net tangible assets2 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; defined as total stockholders’ equity (including preferred shares), less intangible assets net of associated deferred tax

Table 1: Examples of catastrophe threat scenarios/Data model output

Outcomes derived as at 1 October 2008

Florida (Miami) California Gulf of Mexico European JapaneseUS$m Windstorm Earthquake Windstorm Windstorm Earthquake

Estimated industry loss 119,000 74,000 102,000 31,000 50,000

Catlin GroupGross loss 726 943 1,063 540 441 Reinsurance effect1 (478) (603) (597) (137) (105)

Modelled net loss 248 340 466 403 336

Modelled net loss as a percentage of net tangible assets2 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 amounted to US$2.25 billion at 30 June 2008; defined as total stockholders’ equity (including preferred shares), less intangible assets net of associated deferred tax

“ Accumulation of risk is monitored and controlled within a defi ned underwriting risk appetite strategy.”


Business SegmentsCatlin divides its business into reporting segments that correspond with its underwriting platforms

Catlin defi nes its reporting segments by underwriting platform. The four reporting segments are:

— Catlin Syndicate, which comprises direct insurance and reinsurance business underwritten by the Catlin Syndicate at Lloyd’s;

— Catlin UK, which primarily underwrites direct insurance;

— Catlin Bermuda, which primarily underwrites reinsurance business, including intra-Group reinsurance; and

— Catlin US, which primarily underwrites specialty business in the United States through Catlin Insurance Company Inc., which writes on an admitted basis, and Catlin Specialty Insurance Company Inc, which writes non-admitted business. Catlin US also underwrote an additional US$205.1 million in gross premiums in 2008 as a coverholder on behalf of the Catlin Syndicate and Catlin UK; this business is included within these platforms rather than Catlin US for segmental analysis.

Comparisons of premiums written and loss ratios for the four segments in 2008 and 2007 are shown in the Table 1.

The Catlin Syndiacate wrote 70 per cent of the Group’s gross premiums in 2008 excluding intra-Group reinsurance (2007: 76 per cent) (see Chart 2). This decrease refl ects both the competitive conditions for wholesale business which comprises a large portion of the Catlin Syndicate’s premium volume, combined with the growth of the other three operating platforms.

The Catlin Syndicate wrote 37 per cent of the Group’s net premiums written including intra-Group reinsurance (2007: 49 per cent), refl ecting the increasing amount of intra-Group reinsurance underwritten by Catlin Bermuda, which accounted for 53 per cent of net premiums written including intra-Group reinsurance (2007: 43 per cent) (see Chart 3).

Additional information and analysis regarding the business segments can be found in Note 3 to the Financial Statements on page 94.

Table 1: Gross and net premiums written by business segments

Gross premiums Gross premiums Net premiums Net premiums written excluding written including written excluding written including intra-Group Intra-Group intra-Group intra-Group intra-Group 2008 US$m reinsurance reinsurance reinsurance reinsurance reinsurance

Catlin Syndicate 2,416,416 – 2,416,416 1,733,319 956,382Catlin Bermuda 391,781 1,061,585 1,453,366 330,591 1,392,176 Catlin UK 486,420 – 486,420 425,161 229,512 Catlin US 142,387 – 142,387 122,272 33,373 Intra-Group

Reinsurance – – (1,061,585) – –Total 3,437,004 1,061,585 3,437,004 2,611,443 2,611,443

Gross premiums Gross premiums Net premiums Net premiums written excluding written including written excluding written including intra-Group Intra-Group intra-Group intra-Group intra-Group 2007 US$m reinsurance reinsurance reinsurance reinsurance reinsurance

Catlin Syndicate 2,537,904 – 2,537,904 1,872,323 1,258,447 Catlin Bermuda 311,976 844,676 1,156,652 263,825 1,108,501 Catlin UK 439,440 – 439,440 370,013 205,097 Catlin US 71,306 – 71,306 67,357 1,483 Intra-Group

Reinsurance – – (844,676) – –Total 3,360,626 844,676 3,360,626 2,573,518 2,573,528

Chart 2: Gross premiums written by segment (%)*

70% Catlin Syndicate 12% Catlin Bermuda 14% Catlin UK4% Catlin US

76% Catlin Syndicate9% Catlin Bermuda 13% Catlin UK2% Catlin US

* Excluding intra-Group reinsurance

2008 2007

Chart 3: Net premiums written by segment (%)*

37% Catlin Syndicate53% Catlin Bermuda9% Catlin UK 1% Catlin US

49% Catlin Syndicate43% Catlin Bermuda7% Catlin UK 1% Catlin US

2008 2007

* Including intra-Group reinsurance

29Business Review

The Catlin Syndicate (Syndicate 2003), Catlin’s oldest and largest underwriting platform, has been the largest syndicate at Lloyd’s in terms of underwriting capacity since 2007. The Syndicate’s capacity in 2008 was £1.25 million, unchanged from the previous year.

However, the Catlin Syndicate’s leading position at Lloyd’s is not based purely on capacity: the Syndicate is an acknowledged leader for a wide variety of business classes, both direct and reinsurance, property and casualty.

The Syndicate underwrites a vast majority of the business classes that are underwritten at Lloyd’s and is continually expanding its product offerings to diversify its business mix further. As an example, the Catlin Syndicate during 2008 commenced writing Aviation Loss of License coverage, an Accident and Heath class of business that protects airlines and pilots against the fi nancial consequences of loss of licence resulting from bodily injury or illness.

The Catlin Syndicate underwrote gross premiums amounting to US$2.42 billion in 2008, a 5 per cent decrease compared with the previous year (2007: $2.54 billion). This decrease, which was anticipated by the Group prior to the beginning of 2008, resulted from the competitive conditions for London wholesale business that existed through most of the year, in line with the Group’s core underwriting principles.

The Catlin Syndicate acquires its business from three sources:

— Traditional business placed at Lloyd’s by wholesale brokers;

— Business written on a coverholder basis by Catlin US. While Catlin US underwrites on behalf of two Catlin-owned US-based insurance companies, a majority of the business underwritten by Catlin US is written on a binding authority basis on behalf of the Catlin Syndicate and Catlin UK; and

— Business underwritten by Catlin’s network of international offi ces. This business is largely produced by retail brokers and underwritten by local underwriters in the international offi ces on behalf of the Syndicate and Catlin UK.

The Catlin Syndicate’s loss ratio for 2008 was 61.2 per cent (2007: 43.9 per cent). The increase is attributable to an increase in large single-risk losses, claims resulting from Hurricane Ike and the competitive market conditions.

During 2007 and 2008, business written by the Catlin Syndicate was reinsured under quota-share contracts with two Lloyd’s syndicates capitalised by Lloyd’s Names who were formerly members of Wellington Syndicate 2020, which was merged with the Catlin Syndicate for 2007 following the Group’s acquisition of Wellington Underwriting plc. Under these contracts, the Syndicate ceded approximately 12.5 per cent of net premiums and claims, net of brokerage and certain acquisition costs. These contracts expired at 31 December 2008 and are not in place for 2009.

The leading position of the Catlin Syndicate was underscored by a survey of 300 London market brokers conducted during 2008 by Gracechurch Consulting. Ninety per cent of the brokers surveyed said that they had transacted business with Catlin within the past year, more than any other Lloyd’s managing agent. Catlin rated the highest among the surveyed managing agents in terms of broker satisfaction, and 60 per cent more brokers said they would recommend Catlin based on quality of service compared with any other managing agent.

Paul Jardine, the Group’s Chief Operating Offi cer, represents Catlin as a member of the Council of Lloyd’s and is also Chairman of the Lloyd’s Market Association, the group which represents Lloyd’s managing agents. Catlin executives and underwriters are members of virtually all major market committees and advisory bodies. Catlin strongly supports the implementation of market reform and technological initiatives in the Lloyd’s market, including the development of the Lloyd’s Exchange (see page 53).

Catlin Syndicate underwriting capacity (£m)

£1,250

2008

2007

2006

2005

2004

£1,250

£480

£500

£500

Catlin Syndicate

US$m 2008 2007

Gross premiums written US$2,416 US$2,538Net premiums written US$1,733 US$1,872Loss ratio 61.2% 43.9%

Chief Executive David Ibeson Active Underwriter Nicolas Burkinshaw Largest classes Property Reinsurance Energy Aviation

Catlin Syndicate gross premiums written excluding intra-Group reinsurance (US$m)

2008

2007

20061

2005

2004

$2,416

$2,538

$1,107

$977

$1,082

1 Catlin Syndicate ‘as reported’


Business Segments continued

Gross premiums written by Catlin UK (Catlin Insurance Company (UK) Limited) increased during 2008 for the fourth consecutive year.

Catlin UK underwrites two categories of business:

— Classes of insurance and reinsurance which are also written by Catlin Syndicate. Catlin UK allows the Group to offer clients and brokers the option of coverage written at Lloyd’s or by a UK-domiciled and regulated insurance company. As a UK-authorised insurer, Catlin UK can underwrite business in all nations within the European Economic Area.

— Property and casualty classes of business written for UK commercial clients, particularly small to medium-size enterprises (‘SMEs’), mid-market companies and a wide range of professionals, ranging from accountants and solicitors to architects and school governors.

During 2008, the management of Catlin UK was more closely aligned with that of the Syndicate to create an integrated London-based underwriting team. David Ibeson, who is also Chief Executive of the Catlin Syndicate, was appointed Chief Executive of Catlin UK during the year.

Growth in the UK business underwritten by Catlin UK was again limited by competitive market conditions across the classes of business it underwrites, particularly for professional indemnity insurance. While Catlin UK could have written larger volumes, it rejected business whose rates or terms were insuffi cient.

Another challenge facing Catlin UK is the ongoing consolidation among UK brokerages, particularly the increasing number of acquisitions of regional brokers by UK composite insurance companies.

Catlin UK’s loss ratio deteriorated to 76.3 per cent in 2008 (2007: 65.5 per cent). A portion of the increase is attributable to satellite insurance losses during the fi rst half of the year; a substantial portion of the Group’s space/satellite book of business is underwritten by Catlin UK.

Catlin UK’s gross premiums written increased by 11 per cent during 2008 to US$486.4 million (2007: US$439.4 million). The increase is attributable to higher volumes of Aviation and Satellite business as well as increased premiums written by the Catlin Group’s international offi ces. A portion of Catlin UK business is written on a binding authority basis by Catlin US; Catlin UK is eligible to write business on a non-admitted basis in most US states.

The business underwritten by Catlin UK for UK commercial clients was produced during both from London and from regional offi ces in Glasgow, Leeds, Birmingham and Tonbridge. During 2008, Catlin UK established a ‘London City’ offi ce which writes UK regional business placed by London brokers.

During 2008 Catlin UK expanded its product offerings by underwriting motor coverage for UK commercial fl eets. In early 2009, a team of six cargo insurance specialists joined Catlin UK and began underwriting from the London City and Leeds offi ces as well as the Catlin offi ce in Ipswich, which was previously used solely for fi nancial processing.

Catlin UK

US$m 2008 2007

Gross premiums written US$486 US$439Net premiums written US$425 US$370Loss ratio 76.3% 65.5%

Chief Executive David Ibeson Chief Underwriting Officer Richard Clapham Largest classes Aviation Property Direct & Facultative Professional Indemnity

2008

2007

2006

2005

2004

$486

$439

$299

$232

$200

Catlin UK gross premiums written excluding intra-Group reinsurance (US$m)

31Business Review

The Casualty Reinsurance team performed strongly in 2008. Catlin Bermuda is a quoting market for virtually all classes of casualty reinsurance including medical malpractice, lawyers’ professional liability, nursing home liability, municipal liability, auto liability and general liability, on both a per risk and clash basis.

Catlin Bermuda is also a lead market in providing Casualty Reinsurance protection to captives, mutual insurers and risk retention groups.

The Political Risk and Terrorism team achieved a signifi cant level of premium growth during 2008, refl ecting heightened demand for capacity in the current attractive underwriting environment.

The Structured Risk team continued to provide important support to Catlin underwriters who have responsibility for traditional product classes. This team specialises in developing bespoke risk management solutions to meet client needs, especially in classes of business where capacity is constrained. The team also underwrites Catlin Bermuda’s Agricultural Reinsurance account.

Catlin Bermuda is a leading participant in the island’s vibrant underwriting community.

Catlin Bermuda is primarily a provider of reinsurance treaty capacity, with a particular emphasis on Property Catastrophe business. Casualty Treaty, Political Risk/Credit, Agriculture and Structured Risk are other important classes written by the company. In addition, Catlin Bermuda provides reinsurance protection to the Catlin Syndicate, Catlin UK and Catlin US through various intra-Group treaties and holds a signifi cant proportion of the Group’s assets.

Catlin Bermuda’s underwriting strategy is to combine expert risk selection by experienced underwriters working closely with actuaries and modellers with an impeccable level of broker and client service.

Property Reinsurance is the largest class of business written. Catlin Bermuda differentiates itself from other reinsurers by providing an assortment of specialised Property Reinsurance products, including structured catastrophe programmes, offered on either an excess of loss or proportional basis.

2008

2007

2006

2005

2004

$392

$312

$199

$177

$153

Catlin Bermuda gross premiums written excluding intra-Group reinsurance (US$m)

Catlin Bermuda

US$m 2008 2007

Gross premiums written US$392 US$312Net premiums written US$331 US$264Loss ratio 52.4% 38.9%

Chief Executive Graham Pewter Largest classes Property Reinsurance Political Risk & Terrorism Casualty Reinsurance

Gross premiums written by Catlin Bermuda (excluding intra-Group reinsurance) grew for the sixth consecutive year in 2008, increasing 26 per cent to $391.8 million (2007: US$312.0 million). The platform’s loss ratio rose to 52.4 per cent (2007: 38.9 per cent) as a consequence of the natural catastrophe activity during the year.

Gross premiums written by Catlin Bermuda including intra-Group reinsurance increased 26 per cent to US$1.4 billion in 2008 (2007: US$1.2 billion), refl ecting the increased cession of business by other Catlin underwriting platforms.

2004

2008

2007

2006

2005

$1,453

$1,157

$729

$567

$243

Catlin Bermuda gross premiums written including intra-Group reinsurance (US$m)


32

Business Segments continued

Catlin US encompasses the Catlin Group’s diverse insurance and reinsurance underwriting operations based in the United States.

Atlanta-based Catlin US underwrites a broad range of insurance products, including casualty, marine, professional liability, binding authority and specialty classes of business. Reinsurance classes underwritten include property treaty and property facultative, marine, and accident and health.

The classes of business written by Catlin US complement the classes written by other Catlin underwriting platforms. For example, the Catlin Syndicate has been a leading underwriter of equine risks at Lloyd’s for many years; Catlin US writes equine-related coverages from an offi ce in Lexington, Kentucky, established during 2007.

The development of Catlin US signifi cantly enhances the Group’s distribution capabilities in the world’s largest insurance market. While signifi cant amounts of US business are written on a wholesale business by the Catlin Syndicate at Lloyd’s, Catlin US allows the Group to write US business that would not normally be placed outside the United States.

Catlin US continued to build its infrastructure during 2008. Offi ces were established in Boston and Woodland Hills, California, bringing the total number of offi ces to 18. Catlin US also continued to recruit new underwriting teams and professional support staff. The number of employees grew by 16 per cent to 243 (2007: 210). The Catlin US underwriting staff has an average of 20 years of experience, through both hard and soft markets.

Catlin US underwrites both on behalf of two Catlin-owned US insurance companies and on a binding authority basis on behalf of the Catlin Syndicate and Catlin UK. The two US insurance companies – Catlin Insurance Company Inc., which writes coverage on an admitted basis, and Catlin Specialty Insurance Company Inc., which underwrites on a non-admitted basis – are rated ‘A’ (Excellent), Financial Size Category XV by A.M. Best.

Total gross premiums written by Catlin US rose by 17 per cent during 2008 to US$347.5 million (2007: US$297.4 million). For segmental purposes Catlin US only includes premiums written on behalf of the two US insurance companies. Gross premiums written on this basis nearly doubled during 2008 to US$142.4 million (2007: US$71.3 million), illustrating the ongoing development of the two US insurers.

Catlin US

US$m 2008 2007

Gross premiums written1 US$142 US$71Net premiums written1 US$122 US$67Loss ratio1 70.0% 58.2%

Chief Executive Richard S. Banas Chief Underwriting Officers Nick Greggains (Insurance) Joseph Horan (Reinsurance) Largest business classes General Liability Property Reinsurance Professional Liability1 Includes Catlin Insurance Company Inc. and Catlin Specialty Insurance Company Inc.

Business StatementsFocus on Catlin US

Richard S. BanasPresident and CEO Catlin US

2008 was a good year for Catlin US. Despite challenging market conditions, gross premiums written increased 17 per cent to nearly $348million. More importantly, we continued to build the US platform in terms of underwriting capabilities and infrastructure to support substantial future growth.

A year ago, I wrote in the Annual Report that if I could build Catlin US over again, the only thing I would have done differently is that I would have begun the job fi ve years earlier during more favourable market conditions. Building a competitive insurance operation in a soft market is not easy. We focused on attracting talented experienced staff with solid track records in their respective

specialties, and that group is now well-positioned to take advantage of a fi rming market in many lines of business.

Catlin US is off to a solid start in 2009. So far, we have announced two important additions to our product portfolio: General Aviation Insurance and Facultative Casualty Reinsurance. I believe that the combination of our wide range of product offerings, experienced team of professionals and distinctive culture puts Catlin US in a great position to prosper in this changing market.

33Business Review

managers in the United States specialising in aviation insurance, and the partnership is expected to result in a substantial increase in Catlin US’s gross written premium volume. Among the types of general aviation coverage to be underwritten through this partnership are hull, liability, aircraft products liability, airport liability, ground-based liability and non-owned aircraft liability.

Overall, the growth of Catlin US was restrained by competitive market conditions in most of the classes of insurance and reinsurance that it underwrites. In keeping with Catlin’s focus on underwriting profi tability, Catlin US underwriters refused to write business if rates did not meet the Group’s adequacy standards. However, Catlin’s investment in building a robust US infrastructure over the past three years has put Catlin US

in an advantageous position should rates and conditions for US specialty insurance and reinsurance classes improve as predicted in 2009.

In February 2009 Catlin US announced that W. Brown & Associates Insurance Services (‘WBAIS’) will underwrite general aviation insurance for US clients nationwide on behalf of Catlin US, effective 1 April 2009. WBAIS is one of the largest underwriting

Table 1: Catlin US offi ces

Number of Year employees atOffice established Classes underwritten/Function 31 December 2008

Atlanta, Georgia (Headquarters) 2006 Casualty Insurance, Owners/Contractors, Professional Liability Insurance, 66 Direct Property Facultative Reinsurance, Casualty Facultative ReinsuranceHouston, Texas 1999 Medical Malpractice Insurance 8New Orleans, Louisiana 1999 Treasury/Finance Operations only 9New York, NY 2006 Professional Liability Insurance, Inland and Ocean Marine Insurance, 20 Aviation Insurance Chicago, Illinois 2006* Direct Property Facultative Reinsurance, Casualty Insurance 9Columbus, Ohio 2006* Direct Property Facultative Reinsurance, Medical Malpractice Insurance 6Hartford, Connecticut 2006* Direct and Broker Property Facultative Reinsurance, Casualty Insurance, 26 Crisis Management Insurance Paramus, New Jersey 2006* Marine Treaty Reinsurance 2San Antonio, Texas 2006* Casualty Insurance 8Scottsdale, Arizona 2006* Binding Authorities 39Sonoma, California 2006* Reinsurance Management 2Summit, New Jersey 2006* Accident & Health Reinsurance, Casualty Insurance 13Walnut Creek, California 2006* Direct Property Facultative Reinsurance, Property Treaty Reinsurance, 14 Architects’ & Engineers’ Professional Liability Insurance Cleveland, Ohio 2007 Casualty Insurance 7Lexington, Kentucky 2007 Equine Insurance 5Philadelphia, Pennsylvania 2007 Marine Insurance 4Boston, Massachusetts 2008 Directors’ & Officers’ Liability Insurance 3Woodland Hills, California 2008 Directors’ & Officers’ Liability Insurance 2* Office acquired through acquisition of Wellington Underwriting plc

“ Catlin US underwriters refused to write business if rates did not meet the Group’s adequacy standards.”


International OfficesCatlin’s international offi ces allow the Group to write coverage that diversifi es its portfolio both geographically and by business mix

Catlin’s network of international offi ces greatly expands the Group’s distribution capabilities while further diversifying its risk portfolio.

The international offi ces, the oldest of which mark their tenth anniversary in 2009, provide Catlin with a local presence in targeted markets, allowing the Group to develop local insurance products written by locally based employees. This type of business, which is often written on a retail basis as opposed to the wholesale business that makes up the majority of the Group’s portfolio, constitutes coverages that would not necessarily be written by one of Catlin’s underwriting platforms absent a regional presence.

Catlin has made signifi cant investment in its international offi ce network over the past decade. Its network of international offi ces is the most well developed of any insurer whose primary operations are based at Lloyd’s of London. The Group believes that this distribution network gives Catlin a distinct advantage over many of its competitors and that the international offi ces will be a source of substantial growth for the Group in future years.

The growth of the international offi ces is shown in Charts 1 and 2.

Gross premiums written by the international offi ces during 2008 increased by 68 per cent to US$309.7 million (2007: US$183.5 million). Growth was reported in each of the fi ve regions in which the Group divides the offi ces, but the increase in gross premiums written was most pronounced in Europe, where premium volume increased by more than 150 per cent during 2008.

The international offi ces produced 9 per cent of Catlin’s gross premiums written during 2008 (2007: 5 per cent).

The European growth is the result of the maturing of offi ces previously established by the Group – particularly offi ces established in 2007 in Paris, Barcelona, Zurich and Innsbruck – as well as an increase in aviation underwriting in the Paris offi ce, where a team of highly experienced aviation underwriters joined the Group in 2007.

During 2008 Catlin established two international offi ces. An offi ce was opened in Munich which serves as a branch of the existing Cologne offi ce and underwrites similar classes of business. A representative offi ce was established in Tokyo, which demonstrates the Group’s continuing commitment to the Japanese insurance market and its willingness to develop further Catlin’s business relationships in Japan.

$309.7

$183.5

2008

2007

2006

2005

$106.0

$48.9

Chart 1: Growth of international offi ces (US$m)

Chart 2: Growth of international offi ces by region

$105.0

$98.5

2008

2008

2008

2008

2008

Asia-Pacifi c

Europe

Canada

Guernsey

Brazil

2007

2007

2007

2007

2006

2006

2006

2006

2005

2005

2005

2005

$53.1

$41.2

$11.9

$66.5

$38.5

$41.0

$37.5

$39.7

$16.7

$22.5

$27.1

$30.2

$7.9

$4.1

$5.6

Chart 3: Breakdown of international offi ce gross written premiums by region – 2008

34% Asia-Pacifi c32% Europe 17% Canada 13% Guernsey4% Brazil

Catlin also during the past year further developed a ‘hub and spoke’ management system for the international offi ces. Three hubs were established: Singapore for the Asia-Pacifi c region, Cologne for the European region and Toronto for the Canadian region. The hubs provide centralised management and support services – including claims handling, fi nance and human resources – for the offi ces in the region, while the individual offi ces – the ‘spokes’ – can concentrate on underwriting. The Guernsey offi ce is managed from London, while the Sao Paulo offi ce is part of the European hub due to cultural similarities.

Chief Executives were appointed during 2008 for all three hubs, all of whom report to the Group’s Director of International Operations, based in London.

Table 4 lists the Group’s international offi ces, the classes of business underwritten by each and the number of employees.

35Business Review

Table 4: Catlin’s international offi ces

Number of Year employees at Office established Classes underwritten 31 December 2008

Asia-Pacific RegionSingapore 1999 Property, Marine Hull, Cargo, Construction, Aviation, 41 Property Reinsurance, Specie (including Fine Art and Jewellers’ Block), Energy, Professional Indemnity and Terrorism Kuala Lumpur 1999 Energy, Aviation, Casualty (also includes Group shared service centre, see page 36) 47Sydney 2004 Aviation, Casualty, Specie (including Fine Art), Terrorism, Property Reinsurance, 17 Construction & Engineering, Crisis Management Hong Kong 2006 Property, Marine Hull, Cargo, Terrorism, Property Reinsurance, 12 Construction & Engineering Shanghai 2007 Property, Marine Hull, Cargo, Terrorism, Property Reinsurance, 3 Construction & Engineering Tokyo 2008 Representative office 1

European Region Cologne 2003 Specie (including Cash in Transit, Fine Art and Jewellers’ Block), Marine Hull, 38 Cargo, Aviation, Film and Event, Terrorism, Property Reinsurance, Financial Institutions, Casualty, Construction, Professional IndemnityAntwerp 2005 Film and Event Contingency, Marine Hull, Financial Institutions, Construction, 5 Specie (including Cash in Transit, Fine Art and Jewellers’ Block), Terrorism Genoa 2005 Representative office 2Barcelona 2007 Cargo, Casualty, Construction, Specie (including Cash in Transit, 4 Fine Art and Jewellers’ Block), Equine Innsbruck 2007 Marine Hull, Cargo, Specie (including Cash in Transit, Fine Art and Jewellers’ Block), 5 Casualty, Construction, Professional Indemnity, Terrorism Paris 2007 Marine Hull, Cargo, Financial Institutions, Aviation, Construction, 14 Professional Indemnity, Specie (including Cash in Transit, Fine Art and Jewellers’ Block), Terrorism, Directors’ & Officers’ Liability Zurich 2007 Casualty, Construction, Professional Indemnity, 6 Directors’ & Officers’ Liability, Personal Accident Sao Paulo1 2007 Representative office 3Munich2 2008 Specie (including Cash in Transit, Fine Art and Jewellers’ Block), Marine Hull, – Cargo, Aviation, Film and Event, Terrorism, Property Reinsurance, Financial Institutions, Casualty, Construction, Professional Indemnity

Canadian RegionToronto 2005 Property, General Liability, Energy, Marine Hull, Cargo, 26 Construction & Engineering, Aviation, Professional Liability Calgary 2006 Aviation, Property, General Liability, Energy, Marine Hull, 11 Cargo, Construction, Professional Liability

Guernsey 2005 Aviation 101 Sao Paulo is considered part of the European region for management purposes2 The Munich office shares employees with Cologne


Financial Review

Catlin’s 2008 results were also affected by changes in accounting rules and the rising value of the US dollar

The following pages contain commentary on Catlin’s consolidated fi nancial statements for the year ended 31 December 2008, which are prepared in accordance with Accounting Principles Generally Accepted in the US (‘US GAAP’).

Consolidated Results of OperationsSet out in Table 1 are the Consolidated Results of Operations for the 2008 year with comparison to the 2007 results.

Catlin’s 2008 fi nancial results were affected by a number of factors:

— Catlin adopted a new accounting standard, FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, effective 1 January 2008. With the adoption of FAS 159, unrealised gains and losses on fi xed income investments now fl ow directly through the Statement of Operations and therefore are included in the Group’s profi ts. In 2007 US$30 million (net of tax) of net unrealised gains on fi xed income investments earned did not impact the Group’s profi ts.

— Substantial volatility in global investment markets has caused signifi cant unrealised losses in the Group’s investment portfolio. The total investment return for 2008 was a loss of US$91 million. This included net losses on the valuation of fi xed income and short-term investment assets amounting to US$111 million.

The adoption of FAS 159 does not affect the overall calculation of net investment return, which traditionally has included unrealised gains and losses relating to fi xed income assets. However, because of the adoption of FAS 159, total investment return is now included in profi t before tax; previously net unrealised gains or losses on fi xed income assets were reported in stockholders’ equity.

Table 1: Consolidated Results of Operations

US$000 2008 2007 % change

RevenuesGross premiums written 3,437,004 3,360,626 2Reinsurance premiums ceded (825,561) (787,108) 5Net premiums written 2,611,443 2,573,518 1Change in unearned premiums (15,402) (83,984) (82)Net premiums earned 2,596,041 2,489,534 4

Net investment income 232,945 260,289 (11)Net (losses)/gains on investment in funds (212,495) 29,824 NMNet losses on fixed maturities

and short-term investments (111,488) – NMNet realised losses on investments

available for sale – (78,970) NMChange in fair value of derivatives (12,527) (30,088) (58)Net realised losses on foreign

currency exchange (20,631) (4,035) NMOther income 14,991 23,354 (36)Total revenues 2,486,836 2,689,908 (8)

ExpensesLosses and loss expenses 1,631,837 1,154,670 41Policy acquisition costs 510,238 530,972 (4)Administrative and other expenses 357,312 460,898 (22)Total expenses 2,499,387 2,146,540 16 (Loss)/income before income taxes (12,551) 543,368 (102)Minority interest 23 8 NMIncome tax benefit/(expense) 9,639 (59,790) 116Net (loss)/income (2,889) 483,586 (101)Preferred share dividend (43,500) (21,868) 99Net (loss)/income available to

common stockholders (46,389) 461,718 (110) Loss ratio1 62.9% 46.4% Expense ratio2 32.1% 37.7% Combined ratio3 95.0% 84.1% Tax rate4 NM 11.0% Return on average equity5 (2.2%) 20.8%NM: Not meaningful1 Calculated as losses and loss expenses divided by net premiums earned2 Calculated as the total of policy acquisition costs, administrative expenses and other expenses,

less financing expenses and restructuring costs, divided by net premiums earned3 Total of loss ratio plus expense ratio4 Calculated as income tax benefit/(expense) divided by (loss)/income before income taxes5 Calculated as net (loss)/income available to common stockholders divided by the weighted

average of opening and closing stockholders’ equity (excluding preferred shares)

37

— The US dollar has strengthened against sterling by more than 25 per cent during the year. Although US dollars account for the majority of the Group’s cash fl ows, a signifi cant part of the remainder are in sterling. The Group also has sterling net investments in the Catlin Syndicate and Catlin UK. Catlin has therefore incurred exchange losses on open transactions and balances, including net investments, primarily as a result of sterling’s weakness in the second half of 2008. This does not affect net income but has reduced stockholders’ equity.

— The Group incurred losses of approximately US$250 million arising from Hurricanes Ike and Gustav; Catlin did not incur any hurricane-related losses during 2007. In addition, there was a markedly higher incidence of large single-risk losses in 2008 compared with 2007. As a result of these and other factors, the Group’s loss ratio increased to 62.9 per cent (2007: 46.4 per cent).

The following commentary compares Catlin’s 2008 results with the results for 2007.

Gross premiums writtenGross premiums written increased by 2 per cent to US$3.4 billion.

The Group experienced weighted average rate decreases of approximately 4 per cent for business incepting during 2008, although rates remained adequate for nearly all classes of business. In addition, Catlin’s network of international offi ces exceeded growth targets, contributing new, diversifi ed business to the Group’s risk portfolio.

Net premiums earnedGrowth in premiums earned lags the increase in premiums written when a company is growing. This was particularly notable for Catlin during 2007 because a signifi cant element of premiums earned related to premiums written in respect of the 2006 and previous Lloyd’s underwriting years of account by Wellington Syndicate 2020. This effect was less signifi cant during 2008. However, the Names’ quota share reinsurance described above ceased at the end of 2008, which will result in continued embedded growth in Catlin’s net premiums earned during 2009 through to 2011.

In addition, the reinsurance to close of Syndicate 2020 into the Catlin Syndicate, which is expected during the fi rst half of 2009, will increase the Group’s investment assets and loss and loss expense reserves by approximately US$400 million.

Business Review

Chart 2: Gross premiums written (US$m)

2008

2007

20061

2005

2004

$3,437

$3,360

$2,721

$1,386

$1,433


ReinsuranceReinsurance premiums ceded include both premiums ceded in respect of third-party protections purchased by the Group and premiums ceded under a quota share contract with two syndicates capitalised by Lloyd’s Names who formerly provided capital to Wellington Syndicate 2020. This quota share contract ceded approximately 12.5 per cent of premiums earned by the Catlin Syndicate for the 2007 and 2008 Lloyd’s underwriting years of account, net of brokerage and certain other acquisition costs.

Reinsurance premiums ceded are analysed in Table 3.

Third-party reinsurance costs expressed as a percentage of written premiums were approximately 1 percentage point higher than in 2007. The reinsurance programme for 2008 was restructured to take advantage of the synergies available to the combined Catlin and Wellington business portfolio. The combined portfolio benefi ted from reduced costs for reinsurance, refl ective of softening reinsurance rates in 2008. However, during the year a number of long-term contracts covering 2008 and future years were purchased; these contracts had not been purchased in previous years. The element of the multi-year contracts which relates to future periods, approximately US$66 million, is included in reinsurance premiums ceded, but has no impact on earned premiums, and therefore profi ts, in 2008.

Table 3: Reinsurance premiums ceded

Percentage PercentageUS$000 2008 of GPW 2007 of GPW

Third-party protections 568,641 17% 549,652 16%Names’ quota share 256,920 7% 237,456 7% 825,561 24% 787,108 23%Element of multi-year contracts

relating to future periods (65,958) (2%) – – 759,603 22% 787,108 23%

Chart 4: Net premiums earned (US$m)

2008

2007

20061

2005

2004

$2,596

$2,489

$2,228

$1,216

$1,161



Financial Review continued

Table 6: Analysis of expense ratio

Components of Components ofUS$000 2008 expense ratio 2007 expense ratio

Policy acquisition costs 510,238 19.6% 530,972 21.4%Administrative expenses 324,320 12.5% 406,633 16.3%Financing costs 18,126 – 21,508 –Integration costs 14,866 – 32,757 – 867,550 32.1% 991,870 37.7%

Chart 5: Analysis of loss ratio

70%

60%

50%

40%

30%

20%Reported 2008

loss ratio

62.9%

Reserve release

(4.6%)

Large single-risk losses

3.1%

Hurricane losses

10.4%

Attritional 2008 loss ratio

54.0%51.0%

Attritional 2007 loss ratio

Losses and loss expensesLosses and loss expenses increased by US$477 million in 2008, resulting in an increase in the loss ratio to 62.9 per cent (2007: 46.4 per cent). Losses relating to Hurricanes Ike and Gustav amounted to approximately $250 million net of reinsurance and reinstatement premiums, increasing the loss ratio by 10.4 percentage points. In addition, single-risk loss experience during 2008 was higher than anticipated.

Consistent with the Group’s conservative reserving approach, reserve redundancies – in respect of the 2003 to 2007 accident years in particular – led to a total release of US$118 million from prior years’ reserves during 2008.

The increase in the Group’s loss ratio during 2008 is analysed in Chart 5.

Policy acquisition costs, administrative and other expensesThe expense ratio amounted to 32.1 per cent (2007: 37.7 per cent). The expense ratio comprises a number of components as illustrated in Table 6.

The policy acquisition cost ratio decreasedto 19.6 per cent (2007: 21.4 per cent). This primarily refl ects the mix of business underwritten during 2008.

of administrative and other expenses are incurred in sterling, the movement of which against the dollar gave rise to savings in dollar terms.

Financing costs do not affect the expense ratio. These costs comprise interest and other costs in respect of bank fi nancing, together with costs of subordinated debt. Also included are the issue and other costs associated with the catastrophe swap derivative transactions entered into in 2007 and 2008, explained more fully in Note 9 to the Financial Statements. Dividends relating to preferred shares are treated as an appropriation of net income and are not included in fi nancing costs.

Administrative expenses represent 12.5 percentage points of the overall expense ratio (2007: 16.3 percentage points). The most signifi cant element of administrative expenses is staff-related costs, which represent approximately 68.3 per cent of the total (2007: 59.7 per cent). As a result of the net loss reported by the Group in 2008, management and staff bonuses – which are based, in part, on the return on average equity achieved by the Group – were signifi cantly lower than in 2007. In addition, the valuation of entitlements under share option schemes also decreased during 2008, resulting in a release of accruals booked in prior periods due to changes in assumptions relating to ultimate vesting. Finally, a signifi cant part

Chart 7: Expense ratio (%)


37.7%

37.3%

2008

2007

2006

2005

2004

32.1%

32.0%

32.5%

39Business Review

Integration costs associated with the implementation of the Wellington acquisition do not represent a component of the Group’s ongoing expense base and therefore are not refl ected in the expense ratio. Integration costs incurred in 2008 amounted to $15 million (2007: US$33 million) and related primarily to personnel and systems integration. All integration costs relating to the Wellington acquisition have now been incurred.

Total investment returnTable 8 summarises the total return on investments and cash during the year. As described on page 36, Catlin adopted the Fair Value Option under FAS 159, resulting in the total return on investments being reported in net income for 2008 and subsequent years. In 2007, net unrealised gains of US$36 million (US$30 million net of tax effects) were reported in other comprehensive income within stockholders’ equity.

Change in fair value of derivativesAs part of its third-party reinsurance arrangements, the Group has entered into catastrophe swap arrangements with certain special purpose entities. Information about these arrangements is contained in the Underwriting Review and Note 9 to the Financial Statements.

The change in fair value of these swaps during 2008 is shown in Table 9.

The fair value of the swaps is based on the inverse of the value of the bonds issued by the special purpose entities. The value of the bonds has reduced in the current economic climate, and therefore the value of the swaps has increased.

Table 8: Total return on investments and cash

US $000 2008 2007

Total investments and cash as at 31 December 5,933,413 6,001,144

Net investment income 232,945 260,289Net (losses)/gains on investments in funds (212,495) 29,824Net losses on fixed maturities and short-term investments (111,488) –Net realised losses on investments available for sale – (78,970)Total investment return in income (91,038) 211,143Net unrealised gains/(losses) on investments (reported in OCI) – 36,423Total investment return (91,038) 247,566Total return on average investments (1.5%) 4.5%

Table 9: Change in fair value of derivatives

US $000 2008 2007

Premiums in respect of catastrophe swaps (28,228) (14,464)Change in value of catastrophe swaps 15,701 (8,480)Other – (7,144) (12,527) (30,088)

Net realised loss on foreign currencyDuring 2008 Catlin reported a loss on foreign currency exchange amounting to US$21 million (2007: US$4 million). This loss was primarily due to the 27 per cent fall in the sterling-US dollar exchange rate to 1.46 at year-end 2008 (31 December 2007: 1.99). Catlin reports its fi nancial results in US dollars but undertakes signifi cant sterling transactions. It also owns operating and fi nancing subsidiaries which have accounting (functional) currencies which are not dollars, the largest of which is sterling. The Group therefore incurs net exchange losses on transactions and open balances, including net investments, during a period of sterling weakness.

Other income In 2008 and 2007 most of the other income reported related to fees charged to third-party Lloyd’s Names by Syndicate 2020. The Syndicate’s 2006 year, which will close in early 2009, is the last year that has third-party Name participation; most of the fees chargeable to the third-party Names have therefore been recognised.

Income tax benefi t/(expense)The Group incurred losses in its taxable jurisdictions and as a result had a consolidated tax benefi t of $10 million in 2008 (2007: $60 million tax expense, or 11.0 per cent effective tax rate).

In periods of marginal profi tability, the effective tax rate is not meaningful. The principal driver of the effective tax rate continues to be where among the Group’s four platforms profi ts and losses fall.



Balance SheetsA summary of the Consolidated Balance Sheets at 31 December 2008 and 2007 is set out in Table 10.

Chart 11 shows the principal components of the change in stockholders’ equity during the year.

The currency translation loss results from the signifi cant portion of the Group’s stockholders’ equity being represented by sterling entities. Sterling entities such as Catlin UK, the Catlin Syndicate and certain intermediate holding companies comprise a signifi cant portion of Catlin’s consolidated stockholders equity. A currency translation loss arose when the sterling net assets of these companies were translated at year-end into the Group’s reporting currency, which is US dollars.

The largest sterling assets owned by the Group are the intangibles arising on the acquisition of Wellington and the buyout of the Names, both of which primarily related to the purchase of sterling assets. As a result, over 60 per cent of the currency translation loss relates to intangible assets.

In January 2007 Catlin Bermuda issued US$600 million of non-cumulative perpetual preferred shares. Dividends are paid semi-annually at a rate of 7.249 per cent up to 2017 when there is a 100 basis point step-up in the interest cost based on LIBOR at that time. These shares represent a capital instrument which is eligible as regulatory capital for Catlin Bermuda and innovative ‘Tier 1’ capital under the rules of the Financial Services Authority in the UK.

The amount attributable to preferred shareholders is US$590 million such that the per share amounts attributable to common shareholders are as set out in Table 12.

Table 12: Stockholders’ equity per share

US$000 2008 2007

Total stockholders’ equity 2,469,235 3,017,004Less: attributable to preferred shares (589,785) (589,785) 1,879,450 2,427,219 Book value per share (US$) $7.57 $9.59Book value per share (sterling) £5.18 £4.82

Net tangible assets per share (US$) $5.30 $6.57Net tangible assets per share (sterling) £3.63 £3.30

Table 10: Summary of Consolidated Balance Sheets

US$000 2008 2007 % change

Investments and cash 5,933,413 6,001,144 (1)Securities lending collateral 32,899 44,662 (26)Intangible assets and goodwill 650,748 884,428 (26)Premiums and other receivables 1,079,551 1,052,849 3Reinsurance recoverable 1,225,631 1,012,781 21Deferred acquisition costs 247,529 247,171 –Other assets 489,880 357,810 37 Loss reserves (4,606,256) (4,237,525) 9Unearned premiums (1,536,203) (1,506,899) 2Subordinated debt (97,881) (100,825) (3)Reinsurance payable (476,485) (232,004) 105Other liabilities (440,692) (461,169) (4)Securities lending payable (32,899) (44,662) (26)Minority interest – (757) (100)Stockholders’ equity 2,469,235 3,017,004 (18)

Chart 11: Change in stockholders’ equity

$3,000

$2,500

$2,000

$1,500

$3,017

1 January2008

($3)

Net Loss

($124)

Common Share

Dividends

($44)

Preferred Share

Dividends

($325)

Currency Translation

Loss1

($52)

Treasury Shares and

Other

$2,469

31 December 2008

Tangible – $125 million

1 Currency Translation Loss:

Intangible – $200 million

41

The growth in sterling book value per share illustrates the material effect of the movement in the dollar-to-sterling exchange rate during 2008. Sterling book value per share growth is relevant when considering Catlin’s market value, which is denominated in sterling. Tangible book value per share in sterling increased by 10 per cent in 2008, whilst total book value grew by 7 per cent.

The Group believes that its capital resources at 31 December 2008 are suffi cient to fund the embedded growth arising from the Wellington acquisition. The Group had a small surplus of economic capital at that date. It had a signifi cant surplus of regulatory capital, whilst its capital position as viewed by rating agencies was stable.

Investments and cashInvestments and cash decreased by US$68 million or 1 per cent to US$5.9 billion (2007: US$6.0 billion).

Cash and cash equivalents increased by $300 million, but this was offset by fair value decreases on investments of US$368 million.

Securities lendingCatlin has continued a securities lending arrangement which was commenced in early 2006. Under this arrangement certain of the fi xed maturity investments are loaned to third parties through a lending agent. The Group maintains control over the securities it lends, retains the earnings and cash fl ows associated with the loaned securities, and receives a fee from the borrower for the temporary use of the securities. Collateral in the form of cash, government securities and letters of credit is required to be established by the borrower at a minimum rate of 102 per cent of the market value of the loaned securities; this is monitored and maintained by the lending agent.

There was a reduced level of lending during the year, largely refl ecting lower fair values as well as reduced holdings by the Group of the types of government securities which are commonly lent.

Business Review

Intangible assets and goodwillThe decrease in intangible assets and goodwill during the year resulted primarily from foreign exchange effects since the majority of the intangibles and goodwill are denominated in sterling and arose on the acquisition of Wellington. Table 13 sets out the principal components of this asset.

The amounts relating to the distribution network and surplus lines licences are amortised over their estimated useful lives. However, the larger part of the balance is not amortised because it is considered to have an indefi nite life, but is subject to annual impairment tests. The decline in value of this asset during 2008 was almost wholly due to foreign exchange effects since the underlying purchase of Wellington and the related acquisition of Names’ capacity were sterling transactions.

Catlin is required under US GAAP to establish a liability for deferred taxation in relation to the value of intangible assets and goodwill arising on the Wellington acquisition. This liability is included in ‘other liabilities’ and amounts to US$87 million (2007: US$119 million), with the decline in value due to foreign exchange effects.

Premiums and other receivablesPremiums and other receivables increased during 2008 by US$27 million or 3 per cent. This growth is in line with the increase in premiums written during the year compared with 2007.

Reinsurance recoverableAmounts receivable, and anticipated recoveries from reinsurers, rose by US$213 million or 21 per cent. Reinsurance recoverables represent 50 per cent of stockholders’ equity (2007: 34 per cent). This is largely due to amounts recoverable on the Names’ quota share contract, which is on a funds-withheld basis. Balanceswill not be settled until the contract is commuted. The Names’ quota share contract covers the 2007 and 2008 underwriting years and therefore two years of balances have accumulated.

Deferred acquisition costsDeferred acquisition costs represented 16 per cent of unearned premiums at 31 December 2008 (2007: 16 per cent).

Table 13: Intangible assets and goodwill

US$000 2008 2007

Purchased Lloyd’s syndicate capacity 571,427 778,867Distribution network 2,190 3,980Surplus lines licenses 7,158 8,535Goodwill on acquisition of Wellington 56,773 75,576Other goodwill 13,200 17,475 650,748 884,433



Loss reservesGross loss reserves have increased by US$369 million or 9 per cent during 2008, refl ecting reserves relating to Hurricanes Ike and Gustav as well as the increased level of single-risk losses during the year.

The Group has seen a steady emergence of surplus from prior accident years. More than 90 per cent of net reserves relate to the 2003 and later accident years, all of which have had good developmental experience. Catlin continues to set loss reserves conservatively relative to the best estimates from the Group’s independent actuarial advisor, refl ecting the inherent uncertainties in estimating insurance liabilities.

The Group released US$118 million from prior year loss reserves during 2008, an amount equal to approximately 3 per cent of opening net reserves.

Reinsurance payableReinsurance payable has increased during the year primarily because the Names’ quota share contract is on a funds-withheld basis, and balances will not be settled until the contract is commuted. The Names’ quota share contract covers the 2007 and 2008 underwriting years and therefore two years of balances have accumulated.

Unearned premiumsUnearned premiums have increased by US$29 million or 2 per cent during the year, in line with the growth in written premiums during the year.

Notes payable and subordinated debtThe subordinated debt represented a total of US$68 million and 118 million variable rate unsecured subordinated notes. The interest payable on the notes is based on market rates for three-month deposits in US dollars plus a margin of up to 317 basis points. The notes, which are redeemable in 2011 at the earliest, qualify as ‘Lower Tier II’ capital under the rules of the Financial Services Authority in the UK. There was no change to the subordinated debt during the year, and the balance sheet movement primarily represented foreign exchange revaluation.

Business StatementsFocus on Finance

Chris StookeChief Financial Officer

Catlin’s fi nancial results in 2008 were most notably impacted by poor investment performance in the light of the historic market volatility. Total investment return swung to a US$91 million loss in 2008 from a US$248 million gain the previous year.

Whilst net underwriting contribution decreased by 44 per cent in 2008, it still amounted to a very respectable $450 million – a good performance in a tough yearfor underwriting.

I see an improved fi nancial picture in 2009 and beyond. Embedded growth from the Wellington acquisition will continue to emerge. Our cash and investments have increased by approximately $400 million in the fi rst quarter of 2009 through the reinsurance to close of Wellington

Syndicate 2020. Furthermore, net premiums written and earned will rise through 2011 due to the cessation at year-end 2008 of the Names’ quota share reinsurance of the Catlin Syndicate. In addition to this, due to our high liquidity levels, we aim to hold our fi xed income assets to recovery, thereby allowing the more than US$100 million in unrealised losses incurred in 2008 to reverse over the next several years.

These factors, combined with the improving market conditions, should improve performance markedly, absent exceptional loss activity.

Loss Reserve DevelopmentCatlin establishes loss reserves conservatively relative to its independent advisor’s best estimate

43Business Review

Reserves for losses and loss expensesCatlin maintains a conservative reserving philosophy. The Group sets loss reserves conservatively relative to the Group’s independent actuarial advisor’s best estimate, refl ecting the inherent uncertainties in estimating insurance liabilities.

A liability is established for unpaid losses and loss expenses when insured events occur. The liability is based on the expected ultimate cost of settling the claims. The reserve for losses and loss expenses includes:

— case reserves for known but unpaid claims as at the balance sheet date;

— incurred but not reported (‘IBNR’) reserves for claims where the insured event has occurred but has not been reported to the Group as at the balance sheet date; and

— loss adjustment expense reserves for the expected handling costs of settling the claims.

The Group’s estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable and would be refl ected in earnings in the period in which the estimates are changed.

The Group receives independent external actuarial analysis of its reserving requirements annually.

The loss reserves are not discounted for the time value of money apart from a minimal amount of individual claims.

Estimate of reinsurance recoveriesThe Group’s estimate of reinsurance recoveries is based on the relevant reinsurance programme in place for the calendar year in which the related losses have been incurred. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim reserves associated with the reinsured policy. An estimate for potential reinsurance failure and possible disputes is provided to reduce the carrying value of reinsurance assets to their net recoverable amount.

The process of establishing reserves is both complex and imprecise, requiring the use of informed estimates and judgments. Reserves for losses and loss expenses are established based on amounts reported from insureds or ceding companies and according to generally accepted actuarial principles. Reserves are based on a number of factors including experience derived from historical claim payments and actuarial assumptions. Such assumptions and other factors include, but are not limited to:

— the effects of infl ation;— estimation of underlying exposures;— 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 legal environment; — damage awards; and— changes in both internal and external

processes which might accelerate or slow down both reporting and settlement of claims.

“ The process of establishing loss reserves is both complex and imprecise, requiring the use of informed estimates and judgments.”


Loss Reserve Development continued

Development of reserves for losses and loss expensesCatlin believes that presentation of the development of net loss provisions by accident year provides greater transparency than presenting on an underwriting year basis that will include estimates of future losses on unearned exposures. However, due to certain data restrictions, some assumptions and allocations are necessary. These adjustments are consistent with the underlying premium earning profi les.

The loss reserve triangles on pages 45 and 46 show how the estimate of ultimate net losses have developed over time. The development is attributable to actual payments made and to the re-estimate of the outstanding claims, including IBNR. The development is shown including and excluding certain large losses as detailed below. Development over time of net paid claims is also shown, including and excluding these large claims.

All historic premium and claim amounts have been restated using exchange rates as at 31 December 2008 for the Group’s functional currencies to remove the distorting effect of changing rates of exchange as far as possible.

Wellington acquisitionThe business combination resulting from the Wellington acquisition was deemed effective 31 December 2006 for accounting purposes; accordingly the net assets acquired are valued as at that date. In the tables below the Wellington reserves arising from the transaction for events occurring prior to 31 December 2006 are shown from the date of the business combination. Premium and reserves relating to business written by Wellington prior to the business combination but earned during future calendar years are included within those accident years for the Group.

With effect from the 2007 underwriting year the Group effectively purchased the remaining Lloyd’s capacity relating to the business previously underwritten by third-party Lloyd’s Names participating on Wellington Syndicate 2020. When the 2006 underwriting year closes, by way of reinsurance to close, the Group will then be responsible for 100 per cent of the liabilities of Syndicate 2020 and will receive consideration of equivalent value. This is expected to take place in early 2009.

The main bodies of the tables on pages 44, 45 and 46 show premium and reserves at the 100 per cent level for any Wellington business, unless otherwise stated. An adjustment for any external share of these reserves is then shown separately.

Since 31 December 2006 the Wellington reserves have been set consistent with Catlin’s reserving philosophy, and Wellington is included within the scope of work undertaken by the Group’s external actuarial advisor.

HighlightsSurplus has continued to emerge from each of the accident years 2003 through to 2007 and also from the Legacy Wellington reserves. This surplus has more than offset the reserve deterioration seen on the Legacy Catlin reserves for 2002 and prior accident years. The reserves from the 2002 and prior accident years represent only 10 per cent of the Group’s net reserves at 31 December 2008.

A summary of the Group’s net reserves is shown in Table 1.

Table 1: Summary of Catlin Group net reserves at 31 December 2008 (US$m)

Legacy % of Catlin net Wellington net Total net total netAccident Year reserves reserves1 reserves reserves

2002 and prior 180 178 358 10%2003 62 40 102 3%2004 85 74 159 5%2005 145 274 419 12%2006 216 188 404 11%20072 656 85 741 21%20082 1,325 13 1,338 38%Sub-total 2,669 852 3,521 100%Other net reserves3 15 0%Total net reserves 3,536 100%1 Catlin share of Legacy Wellington accident year net reserves estimated in line with Catlin’s share of relevant

underwriting period2 Catlin net reserves after external quota share3 Other net reserves include other outwards reinsurance, unallocated claims handling expenses,

potential reinsurance failure and disputes and foreign exchange adjustments

45Business Review

Development tables

Table 2: Estimated ultimate net losses (US$m) Accident Year

Wellington accident years 2006 2002 and prior and prior 2003 2004 2005 2006 2007 2008 Total

Net premiums earned 917 1,155 1,181 1,276 2,740 2,699

Net ultimate excluding large losses

Initial estimate1 5,896 1,514 416 536 578 623 1,361 1,596One year later 5,861 1,532 400 473 524 584 1,341 Two years later 5,735 1,544 373 451 482 569 Three years later 1,583 373 424 461 Four years later 1,596 363 414 Five years later 1,608 361 Net ultimate loss ratio

excluding large lossesInitial estimate 45.4% 46.4% 48.9% 48.8% 49.7% 59.1% One year later 43.6% 41.0% 44.4% 45.8% 48.9% Two years later 40.7% 39.0% 40.8% 44.6% Three years later 40.7% 36.7% 39.0% Four years later 39.6% 35.8% Five years later 39.4% Net ultimate large losses Initial estimate1 20 116 334 254 One year later 19 117 386 Two years later 19 118 397 Three years later 19 117 401 Four years later 20 121 Five years later 23 Net ultimate including

large lossesInitial estimate1 5,896 1,534 416 652 912 623 1,361 1,850 One year later 5,861 1,551 400 590 910 584 1,341 Two years later 5,735 1,563 373 569 879 569 Three years later 1,602 373 541 862 Four years later 1,616 363 535 Five years later 1,631 361 Net ultimate loss ratio

including large losses Initial estimate 45.4% 56.5% 77.2% 48.8% 49.7% 68.5% One year later 43.6% 51.1% 77.0% 45.8% 48.9% Two years later 40.7% 49.3% 74.4% 44.6% Three years later 40.7% 46.8% 73.0% Four years later 39.6% 46.3% Five years later 39.4% Cumulative net paid 4,605 1,451 299 450 717 353 489 394 8,758Estimated net ultimate claims 5,735 1,631 361 535 862 569 1,341 1,850 12,884Estimated net claim reserves 1,130 180 62 85 145 216 852 1,456 4,126 External share of Wellington net reserves (376) (42) (6) (424)External quota share (69) (112) (181)Estimated net claim reserves 754 180 62 85 145 216 741 1,338 3,521Other reserves2 15Booked reserves 3,5361 Initial estimates for 2002 and prior shown as at 31 December 2003; initial estimates for Wellington accident years 2006 and prior are shown as at the date

of business combination2 Other net reserves include other outwards reinsurance, unallocated claims handling expenses, potential reinsurance failure and disputes and foreign

exchange adjustments


Loss Reserve Development continued

Development tables

Table 3: Net paid losses (US$m) Accident Year Wellington accident years 2006 2002 and prior and prior 2003 2004 2005 2006 2007 2008

Net premiums earned 917 1,155 1,181 1,276 2,740 2,699

Net paid excluding large losses

Initial estimate1 3,740 1,066 94 125 118 155 231 293One year later 4,223 1,189 168 219 223 265 489 Two years later 4,605 1,280 224 277 284 353 Three years later 1,332 252 308 339 Four years later 1,393 276 331 Five years later 1,430 299 Net paid loss ratio

excluding large lossesInitial estimate 10.3% 10.8% 10.0% 12.1% 8.4% 10.8%One year later 18.3% 19.0% 18.9% 20.8% 17.8% Two years later 24.4% 24.0% 24.0% 27.7% Three years later 27.5% 26.7% 28.7% Four years later 30.1% 28.7% Five years later 32.6% Net paid large losses Initial estimate1 8 72 94 101One year later 13 113 248 Two years later 15 116 347 Three years later 19 117 378 Four years later 19 119 Five years later 21 Net paid including

large losses Initial estimate1 3,740 1,074 94 197 212 155 231 394One year later 4,223 1,202 168 332 471 265 489 Two years later 4,605 1,295 224 393 631 353 Three years later 1,351 252 425 717 Four years later 1,412 276 450 Five years later 1,451 299 Net paid loss ratio

including large lossesInitial estimate 10.3% 17.1% 18.0% 12.1% 8.4% 14.6%One year later 18.3% 28.7% 39.9% 20.8% 17.8% Two years later 24.4% 34.0% 53.4% 27.7% Three years later 27.5% 36.8% 60.7% Four years later 30.1% 39.0% Five years later 32.6%1 Initial estimates for 2002 and prior shown as at 31 December 2003; initial estimates for Wellington accident years 2006 and prior are shown as at the date

of business combination

47Business Review

Tables 2 and 3 exclude other outwards reinsurance, unallocated claims handling expenses, potential reinsurance failure and disputes and foreign exchange adjustments.

Large LossesThe following events are included in the large loss sections of the tables above.

Accident year Event

2002 & prior World Trade Centre/ US Terrorism 9/11 2004 Hurricane Charley 2004 Hurricane Frances 2004 Hurricane Ivan 2004 Hurricane Jeanne 2005 Hurricane Katrina 2005 Hurricane Rita 2005 Hurricane Wilma 2008 Hurricane Ike

The large loss component of Wellington for accident periods prior to the business combination are not included in the large loss estimates shown in Tables 2 and 3.

Hurricane Gustav, a 2008 event, is not recorded as a large loss in the accident year development tables as it is deemed too small an event for the Group.

Commentary on development tablesAccident year 2008The loss ratio is above prior years at the same stage of development, refl ecting a higher than anticipated frequency of large risk losses.

Accident year 2007The loss ratio has shown a small improvement during the year.

Management considers that the loss reserves and related reinsurance recoveries continue to be held at levels which are conservative relative to the Group’s independent actuarial advisor’s best estimate based on the information currently available. However, the ultimate liability will vary as a result of inherent uncertainties and may result in signifi cant adjustments to the amounts provided. There is a risk that, due to unforeseen circumstances, the reserves carried are not suffi cient to meet ultimate liabilities.

The accident year triangles were constructed using several assumptions and allocation procedures which are consistent with underlying premium earning profi les. Although we believe that these allocation techniques are reasonable, to the extent that the incidence of claims does not follow the underlying assumptions, our allocation of losses to accident year is subject to estimation error.

Accident years 2003 to 2006The loss ratios continue to develop favourably and consistently with recent accident periods.

Accident years 2002 and priorThere has been a small deterioration in these accident periods during 2008. This has mainly arisen from exposure to UK motor excess of loss reinsurance refl ecting the potential increased cost of structured settlements within the UK.

Wellington accident periods 2006 and priorThe reserves in these periods have developed favourably in the aggregate during the year.

LimitationsEstablishing insurance reserves requires the estimation of future liabilities which depend on numerous variables. As a result, whilst reserves represent a good faith estimate of those liabilities, they are no more than an estimate and are subject to uncertainty. It is possible that actual losses could materially exceed reserves.

While the information in the tables above provides a historical perspective on the changes in the estimates of the claims liabilities established in previous years and the estimated profi tability of recent years, users are cautioned against extrapolating future surplus or defi cit on the current reserve estimates. The information may not be a reliable guide to future profi tability as the nature of the business written might change, reserves may prove to be inadequate, the reinsurance programme may be insuffi cient and/or reinsurers may fail or be unwilling to pay claims due.


Investment markets worldwide during 2008 were impacted by unprecedented levels of volatility. This volatility increased markedly in the fi nal quarter of 2008, when returns on all asset classes except government bonds were negatively impacted.

The Group’s total net investment return for 2008 (including net unrealised losses) deteriorated as the year progressed to negative 1.5 per cent at year-end (2007: 4.5 per cent). Total investment return includes US$111.5 million of net losses relating to fi xed income investments. These net unrealised losses reduced total investment return by approximately 2 percentage points. The total cumulative unrealised gains held in the fi xed income portfolio as at 31 December 2008 amounted to US$92.2 million; total cumulative unrealised losses amounted to US$197.5 million. As a result of the high level of liquidity in the investment portfolio, the Group expects to hold its fi xed income assets to maturity or until spreads narrow, thereby eliminating the net unrealised losses.

In view of the risk inherent in such a volatile investment environment, Catlin adopted a defensive investment position during 2008. First, liquidity levels were increased. Second, as the year progressed, the Group chose not to increase its investment in diversifi ed assets nor to maintain existing percentage allocations in this asset category. Third, Catlin decided not to reinvest in asset-backed securities (‘ABS’) and mortgage-backed securities (‘MBS’) as existing securities matured.

The Group is maintaining this strategy of liquidity and defensive asset allocations while the instability in global fi nancial markets continues.

Investment portfolioAt 31 December 2008 Catlin’s total cash and investments amounted to US$5.9 billion (2007: US$6.0 billion).

Fixed income instruments (fi xed maturities and global bond fund) accounted for 49 per cent of the Group’s total cash and investments at 31 December 2008 (2007: 51 per cent), while cash and cash equivalents accounted for 40 per cent (2007: 35 per cent) and diversifi ed investments accounted for 11 per cent (2007: 14 per cent).

The percentage of total cash and investments held in liquid assets – defi ned as cash, cash equivalents, government securities and fi xed income securities with less than six months to maturity – increased during 2008 to 60 per cent at 31 December (2007: 54 per cent). This compares with Catlin’s internal liquidity guidelines, which call for a minimum 40 per cent of cash and investments to be held in liquid assets.

Catlin’s investment managers invest in a variety of fi xed income instruments, including government securities, corporate bonds and securities backed by assets including mortgages, loans and other forms of credit instruments. The breakdown of the Group’s investment assets by detailed category is shown in Chart 2.

Investments The Group’s investment performance was reduced by the unprecedented market volatility during 2008

Chart 1: Investment allocation by major category at 31 December

2007

49% Fixed income

51% Fixed income

40% Cash11% Diversifi edinvestments

35% Cash 14% Diversifi edinvestments

2008

Chart 2: Investment allocation by detailed category at 31 December

40% Cash2% Global Bond Fund4% ABS3% CMBS5% Agency MBS3% Non-agency RMBS20% Government & agencies9% Corporate3% Corporate FDIC 10% Funds of funds 1% Equities

2008

35% Cash2% Global Bond Fund7% ABS4% CMBS5% Agency MBS5% Non-agency RMBS 19% Government & agencies9% Corporate 13% Funds of funds 1% Equities

2007

49Business Review

The percentage of corporate bonds in Catlin’s portfolio increased during 2008 to 12 per cent (2007: 9 per cent) as a result of Catlin’s decision to invest in bonds guaranteed by the US Federal Deposit Insurance Corporation.

The duration of the fi xed income bond portfolio at 31 December 2008 was 2.7 years (2007: 2.7 years). Eighty-four per cent of fi xed income investments was denominated in US dollars at 31 December 2008, whilst 7 per cent was sterling, 5 per cent was Canadian dollars and 4 per cent was euros (2007: 82 per cent US dollars; 8 per cent sterling; 6 per cent Canadian dollars; 4 per cent euros).

US federal government, which provides this portion of the asset portfolio with additional protection.

The fi xed income investments are of high quality: 80 per cent of the fi xed-income portfolio is invested in government and agency instruments or are rated ‘AAA’, with the balance predominantly rated ‘A’ or higher (see Table 3).

The Group’s holdings in diversifi ed assets at 31 December 2008 consists of an internal fund of funds composed of 25 individual hedge funds across a diversifi ed set of managers, strategies and underlying asset classes; six separate funds of funds managed by two managers; and two equity funds. The composition of the Group’s diversifi ed assets in relation to total cash and investments is shown in Chart 4 on page 50.

Asset-backed securities accounted for 4 per cent of the portfolio at 31 December 2008 (2007: 7 per cent). Mortgage-backed securities, including Agency MBS, amounted to 11 per cent of the portfolio (2007: 14 per cent).

Although the reduction in the amount of ABS/MBS instruments held during 2008 is partly attributable to decreases in values that resulted in unrealised losses, the Group also consciously reduced its ABS/MBS holdings by not reinvesting in these instruments as they matured.

The ABS and MBS securities held by the Group consist of senior-rated tranches which are well-protected against current and potentially severe future economic conditions. All of the agency-backed MBS instruments held by the Group now have explicit support from the

Table 3: Fixed maturities by rating

Government/ BBB 31 December 2008 Allocation agency1 AAA AA A or lower

ABS 4% – 88% 6% 3% 3%Agency MBS 5% 100% – – – –Non-agency RMBS1 3% – 85% 6% 3% 6%CMBS1 3% – 96% 2% 2% –Corporate2 12% 24% 6% 17% 50% 3%US government and agency 12% 100% – – – –Other government and agency 8% 100% – – – –Total 47% 58% 22% 5% 13% 2% 31 December 2007

ABS 7% – 97% 1% 1% 1%Agency MBS 5% 100% – – – –Non-agency RMBS1 5% – 96% 4% – –CMBS1 4% – 91% 5% 4% –Corporate2 9% – 8% 32% 55% 5%US government and agency 12% 100% – – – –Other government and agency 7% 100% – – – –Total 49% 51% 33% 6% 9% 1%1 RMBS – residential mortgage-backed securities, CMBS – commercial mortgage-backed securities (collectively MBS – mortgage-backed securities)2 Includes FDIC-guaranteed corporate bonds


Investments continued

of funds, although the performance of these funds was superior to that of the equity funds. Some individual funds did produce positive returns; however, this performance was negated by losses by the other funds.

Estimated net return on average investments during January 2009 amounted to 0.4 per cent, equating to a 4.3 per cent on an annualised basis.

OutlookInvestment volatility has continued into 2009, and there is little sign to date of a return to market stability. In the light of this environment, the Group will maintain its defensive investment strategy, including high levels of liquidity. In addition, Catlin will maintain its allocation to diversifi ed assets at existing levels while current volatile market conditions remain.

Investment performanceThe Group’s investment performance during 2008 by major asset category is analysed in Table 5.

Despite the high credit quality of the portfolio, the Group’s return on its fi xed income portfolio during 2008 was signifi cantly impacted by unrealised losses as spreads widened to unprecedented levels across all non-government asset categories. The Group intends to hold these securities until recovery due to the high liquidity level within its portfolio.

The Group’s equity funds performed poorly during 2008, although equities accounted for only approximately 1 per cent of total cash and investments at year-end. Market volatility signifi cantly reduced the returns produced by the internal and external funds

The Group limits new investments in an individual fund to no more than 0.5 per cent of total cash and investments. The liquidity profi le of the diversifi ed investments is such that equity funds are realisable within a month, the fund of funds within three months and 50 per cent of the internal fund of funds within 180 days.

Chart 4: Diversifi ed investments at 31 December

2007

89% Other cash and investments

86% Other cash and investments

7% Internal fund of funds3% External funds of funds 1% Equity funds

10% Internal fund of funds3% External funds of funds 1% Equity funds

2008

Table 5: Investment performance Allocation at Return to 31 December 31 December 2008 2008

Fixed maturities 46.6% 1.2%Global bond fund 2.2% 0.9%Cash 40.1% 3.7%Diversified assets

Equity funds – US 0.8% (40.2%)Equity funds – global 0.5% (39.7%)Internal fund of funds 7.2% (21.7%)

External funds of funds 2.6% (18.9%)Net return on average investments 100.0% (1.5%)

“ The Group’s fi xed income investments are of high quality: 80 per cent of the fi xed income portfolio is investment in government or agency instruments or are rated ‘AAA’.”

DistributionAn important part of Catlin’s infrastructure is its diverse distribution, including brokers and coverholders

51Business Review

The insurance and reinsurance business underwritten by Catlin is produced through a distinctive and diverse distribution network.

The vast majority of the business that Catlin underwrites is produced by retail and wholesale brokers worldwide, including specialty and regional brokerages. Catlin’s aim is to establish close and long-lasting relationships with its brokers through its reputation for underwriting excellence and through superior levels of service to brokers and clients.

A breakdown of Catlin’s ten largest brokers based on percentage of the Group’s 2008 gross premiums placed appears in Chart 1. These ten brokers accounted for approximately 55 per cent of the gross premiums written by the Group; the fi ve largest brokers accounted for nearly 65 per cent.

Binding authorities and third-party coverholdersCatlin delegates underwriting authority for specifi c classes of business to third-party ‘coverholders’ under standard market contractual agreements. A coverholder is typically a wholesale insurance agent dealing in a variety of classes of local business, but niche brokers are also occasionally used as coverholders.

Writing business through carefully selected coverholders provides Catlin with access to quality business, often smaller to medium-size risks, that would ordinarily be uneconomical to underwrite. This increases the diversity of Catlin’s risk portfolio – both by business class and geographic location – and provides a further source of operational leverage.

The Catlin Syndicate and Catlin UK are leaders in the Lloyd’s and UK binding authority business, particularly in US-based surplus lines property binding authorities, although Catlin’s other underwriting platforms also participate. The Catlin Syndicate and Catlin UK had 917 binding authority agreements in place during 2008.

Catlin US also has a substantial book of binding authority business which is written from its offi ce in Scottsdale, Arizona.

Binding authorities require careful management. Catlin places a strong emphasis on the selection, management and monitoring of its coverholders and has established dedicated teams in both London and Scottsdale to oversee and review current and prospective coverholders. The teams’ main goal is to ensure that all coverholders underwriting business on behalf of Catlin comply with the Group’s rigorous processes and controls. In addition, Catlin makes sure that its own interests are aligned with those of its coverholders, so that all parties are focused on maximising underwriting profi tability.

The superior levels of service that Catlin provides to brokers and clients was validated during 2008 in a survey of 300 London market brokers consulted by Gracechurch Consulting. Ninety per cent of the brokers surveyed said they had used Catlin’s services during the past 12 months, more than any other London managing agent. Catlin rated the highest among the surveyed managing agents in terms of broker satisfaction, and 60 per cent more brokers said they would recommend Catlin based on quality of service compared with any other managing agent (see Charts 2 and 3).

Chart 3: Broker would recommend based on quality of service

Catlin

Agent A

Agent B

Agent C

Agent D

16%

8%

8%

7%

10%

Source: Gracechurch Consulting

Chart 1: Percentage of gross premiums written produced by largest brokers in 2008

Marsh

Benfi eld*

Aon*

Miller

Willis

Price Forbes

JLT

Denis M Clayton

6%

11%

2%

8%

2%

3%

Newman Martin & Buchan

BMS Group

2%

2%

* Aon and Benfield merged in December 2008

16%

14%

7.65

7.57

7.56

1 Question: How satisfied are you with the level of service you have received? (10 is excellent, 1 is poor)

Source: Gracechurch Consulting

Catlin

Agent A

Agent B

Agent C

Agent D

7.44

7.44

Chart 2: Broker satisfaction level1


Claims Management/Operational SupportStrong claims and support services help Catlin’s underwriters improve effi ciency and maintain close relationships

Claims managementCatlin is an acknowledged leader in claims management within the insurance industry. Catlin’s claims service was ranked by brokers as the best overall in the London market in the most recent survey of claims performance by Gracechurch Consulting.

The Group strives to ensure that the same level of quality claims service is provided by Catlin operations worldwide.

Claims management can have a signifi cant impact on Catlin’s performance as reserves for losses and loss expenses constitute the largest single item on the Group’s balance sheets. Catlin’s philosophy is to manage claims proactively to protect the Group’s capital base. Emphasis is placed on the management of large, volatile claims, where the impact of favourable outcomes can be substantial.

However, Catlin also recognises that clients expect high-quality, responsive claim service when they suffer a loss. The Group views claims management as an opportunity to demonstrate Catlin’s focus on customer service and technical excellence. Management puts great emphasis on ensuring that all claims are handled with the highest levels of professionalism, integrity and care and that settlement is made as quickly as possible.

The Catlin claims team – which comprised 98 employees at 31 December 2008 – is a global operation. The Group has claims staff based in the United Kingdom, United States, Bermuda, Canada, Germany, Switzerland, Belgium, France and Singapore. Just as Catlin underwriters around the world adhere to a uniform underwriting philosophy, claims are handled in a consistent manner worldwide, allowing for local laws and practices.

Throughout the Group, claims staff work closely with underwriters, actuaries and other employees to deliver the best possible service to clients and to ensure that pricing, business forecasting and reserving are carried out accurately and in a timely fashion.

Operational supportCatlin invests substantially in the improvement of core processes and supporting systems. This investment is designed to ensure that the Group maximises effi ciency in its operations, offers superior service to clients and brokers, and remains at the forefront of change in the markets in which it operates.

Catlin has structured its operational support services so that the four Catlin underwriting platforms have their own resources which specialise in specifi c processes and services to meet the needs of local clients and employees. In addition, shared services and strategic programmes are delivered at the Group level and then deployed locally, which increases cost-effi ciency and ensures uniform standards across all operating platforms and international offi ces.

Business StatementsFocus on Operations

Paul JardineChief Operating Officer

2008 was a year of challenges for Catlin. However, we face a continuous challenge to ensure that our operating systems and procedures are suffi ciently robust to support the increased demands of the business.

I am happy to say that Catlin performed well during 2008 in meeting this challenge.

During the past fi ve years, Catlin has invested large sums in building an infrastructure that has the capacity to support our growing global underwriting businesses. This encompasses many areas, from information technology to data entry to broker accreditation. Our strategy is to provide centralised services to the entire Group wherever practical. Uniform practices improve quality, eliminate errors and reduce operating costs. However, we

also know that a geographically diverse business will require some bespoke services and we ensure these are available when necessary.

One of our major initiatives in 2008 was to advance further the electronic placement of business in the London market. We are at the forefront of this process, as befi ts the largest syndicate at Lloyd’s. The continued development of electronic processes, including the development of the Lloyd’s Exchange, will further strengthen the London market and therefore Catlin.

We continually improve our processing capabilities because it is simply smart business. At Catlin we truly do aim to build a business for the future.

53Business Review

Catlin’s shared service centre in Kuala Lumpur currently has a primary focus on data entry of underwriting risks. Approximately 90 per cent of all risks underwritten throughout the Group are entered by this team, with accuracy exceeding 98 per cent. In 2008, certain aggregate cleansing and price modelling work was also transferred to Kuala Lumpur, providing faster pricing for clients while improving data quality relating to aggregation models at a reduced cost. Given these successes, the Group intends to extend the shared service centre to other functional areas to continue to reduce costs further and to provide process effi ciency.

Emphasis was placed during 2008 on building core functions that support Catlin’s growing network of offi ces worldwide (see page 34). A non-UK operations team was formed during 2008 to provide dedicated operational support to all of Catlin’s international offi ces. This team minimises duplication of effort throughout the network, whist ensuring uniform processes wherever possible.

Catlin is a leader in the electronic placement of business in the London Market, which has traditionally relied on manual processes and hard copy documentation. The Group has continued the development of ‘peer to peer’ systems through which brokers can transmit detailed data to Catlin electronically, allowing the Group to quote a rate and bind coverage online. Electronic placement sits alongside traditional underwriting processes, allowing Catlin to reduce costs and improve data quality while making it easier to transact business with the Group.

Catlin supports the move by Lloyd’s to establish the Lloyd’s Exchange and is an eager participant in a pilot programme starting in the fi rst quarter of 2009. The Lloyd’s Exchange will allow the Catlin Syndicate and other market participants to transfer risk information using electronic messaging standards and will ensure that one standard is enforced. The Lloyd’s Exchange will provide the platform that will ensure maximum effi ciency, reduction in costs and decrease administrative requirements.

Looking ahead, Catlin will implement a programme of process and system transformation designed to achieve further effi ciencies through streamlining, automation and standardisation, subject to the requirements of individual local markets. This programme will enable the Group to explore new ways to interface with brokers and clients as well as technologies that will enhance internal effi ciency.

Catlin places great emphasis on data quality, consistency and accuracy across the Group. During the past year, the Group has focused on providing the international offi ces with enhanced reporting capabilities to understand and manage their businesses. In addition, an enhanced Group online data analysis tool was introduced during 2008 to provide Catlin underwriters, irrespective of location, with a consistent and real-time view of data so that they can optimise business decisions. The Group’s data quality team established a dedicated help desk to log, monitor and resolve any data issues throughout the Group.

During 2008 Catlin implemented an improved insurance ledger that contains fi nancial data relating to inwards and outwards risks, claims, premiums and settlements. This system, which allows Catlin employees worldwide to share the same fi nancial information, will signifi cantly improve the Group’s accounting and fi nancial processing capabilities.

A new broker accreditation service was established during 2008 to provide all Catlin operations, including the international offi ces, with a standardised, workfl ow-based broker relationship approval process and governance framework. In 2008, 143 worldwide broker approvals were processed, the vast majority of which pertained to the international offi ces.

“ Catlin is a leader in the electronic placement of business in the London Market, which has traditionally relied on manual processes and hard copy documentation.”


Catlin has established a formal risk management programme to analyse its risk profi le and adopt appropriate risk mitigation strategies. Through the Group’s risk management programme, risk identifi cation, assessments and control reviews are updated and refreshed regularly to ensure that risk management adapts to changing conditions and that risk mitigation is continuously strengthened.

The risk management programme is supervised by the Chief Risk Offi cer (‘CRO’) who provides guidance and support for risk management practices across the Group, its operating platforms and its various departments. The CRO reports to the Group’s Chief Executive and to the Catlin Group Board and its Audit Committee. Responsibility for risk management is spread throughout the organisation. The Group Executive Committee (‘GEC’), which comprises the two Executive Directors and other senior managers, meets monthly and considers risk management issues at those meetings. Furthermore, responsibility for risk management is embedded in the operational responsibilities of each manager.

The CRO works with the Group Chief Actuary on risk-based capital modelling and with the Chief Compliance Offi cer and the Head of Internal Audit on risk-based audit planning and compliance reviews.

Management of insurance riskInsurance risk includes the risks of inappropriate underwriting, inadequate pricing and ineffective management of underwriting delegated to third parties. In recent years, Catlin has expanded its network of international offi ces, including locations in North America, South America, Europe, Asia and Australia. This international expansion has increased the inherent risk of underwriting errors or mismanagement. The competitive pressures on pricing and underwriting actions for some classes of business can be intense. To manage this risk, the Group pays particular attention to the underwriting control framework.

The Group Underwriting Board and the underwriting committee of each operating platform are responsible for overseeing the Group’s underwriting operations. The Group Underwriting Board is led by the Group’s Chief Underwriting Offi cer and includes the heads of underwriting of the four platforms as well as senior underwriting managers with Group-wide responsibilities.

The Group Underwriting Board and the GEC develop an annual underwriting plan for the consideration of and approval by the Group Board of Directors and the boards of each underwriting platform. The Group Underwriting Board and the GEC monitor and report on the performance against that plan on a quarterly basis by platform and by class of business. The platform underwriting committees conduct monthly reviews of underwriting results.

Underwriting is conducted in accordance with a number of technical analytic protocols set by the Group Underwriting Board and is supported by pricing models. This includes defi ned underwriting authorities, guidelines by class of business, rate monitoring and underwriting peer reviews.

The Chief Executive of each of the Group’s four underwriting platforms is responsible for developing and executing a strategy and business plan, subject to the approval of the GEC, the Group’s Board of Directors and the platform’s own Board. In managing an underwriting platform’s operations, the Chief Executive is responsible for identifying and managing the risks to the platform’s objectives. The platform CEO is charged with establishing and ensuring compliance with appropriate policy, procedures and other controls that refl ect Group policy and procedures and with all applicable external regulatory requirements.

Risk management frameworkUnder the direction of the CRO, the Group conducts a formal risk assessment process within each of its underwriting platforms. The risks are identifi ed and the effectiveness of the controls is assessed by management and reviewed by the CRO and the risk team. The risk and control assessments are updated periodically.

The risk team works together with the GEC and actuarial staff to review and assess the residual risk remaining following the application of the mitigating controls. The team uses various models including sophisticated stochastic modelling to quantify the capital needed to support Catlin Group’s risk within the risk appetite determined by the Board. They further evaluate capital requirements through stress and scenario tests. The results of this modelling are included in the reports to the Group’s Board of Directors as part of the annual planning discussions. Each platform prepares a formal document annually that details the platform’s risk governance, policies and controls, risk assessment, capital requirements and other aspects of a comprehensive risk management programme.

Risk ManagementA comprehensive risk management programme has been established across the Group

55Business Review

Binding authority arrangements are an important part of Catlin’s business and present a distinct set of operational risks. Catlin has established dedicated binder management teams in London and the United States. The teams oversee pre-appointment reviews and ongoing annual reviews, including periodic on-site third-party audits (see page 51). Underwriting performance is monitored by both individual underwriters and the binder management teams.

Insurance risk includes the risk of inadequate controls around aggregating exposures to catastrophic events.

Catlin’s diversifi ed underwriting portfolio includes a material segment that is exposed to loss from catastrophic events that might impact numerous customers. The inherent risk of a large aggregation of such losses poses one of the most substantial exposures to the Group. Catlin management has put in place a robust control structure to mitigate and transfer this risk.

Catlin utilises the RMS™ and EQECAT risk models in respect of certain natural catastrophe exposures alongside its own internal catastrophe models. Modelling is done as part of the underwriting and pricing of individual accounts that present signifi cant catastrophe exposure. Aggregate exposure is also extensively modelled and tested against severe threat scenarios to ensure conformance with Group risk appetite and alignment with reinsurance programmes and underwriting strategies. The Group actively monitors risk correlation by type of exposure and by geographic region.

The risk is further protected by a reinsurance programme that responds to an array of possible catastrophic events. The Company has made use of catastrophe bonds to transfer some of the risk.

Insurance risk includes the risk of inappropriate claim management and ineffective control over claim authority delegated to third parties.

The Group Head of Claims directs claims operations across the Group. Claims policies and procedures include defi ned authority levels, protocols for management oversight, an automated system to support and report on all major claims activity, and a formal review process for major claims. Internal and, if appropriate, third-party reviews of claims operations are conducted to ensure that the control framework is effective.

Insurance risk includes the risk of inadequate reserves for losses including losses that have been incurred but not reported (IBNR).

Reserves for unpaid losses are the largest single component of the liabilities of the Group. Loss reserve estimates are inherently uncertain. Actual losses that differ from the provisions, or revisions in the estimates, can have a material impact on future earnings and the balance sheet.

Catlin has a large team of experienced actuaries working closely with the underwriting and claims staff within each of the operating platforms to ensure understanding of the Group’s exposures and loss experience. The Group Head of Reserving oversees Catlin’s reserving processes. In addition, the Group receives independent external analyses of its reserve requirements annually.

Underwriting, claims, and actuarial operations and controls all depend on systems and data. There is the risk that these systems and data may not be reliable.

Underwriting and claims systems, procedures and data management are supported and monitored by Group Operations and Group IT teams, both of which report to the Group Chief Operating Offi cer. The Group Chief Underwriting Offi cer, the Group Head of Claims and the Group Chief Actuary are each responsible for identifying the risks to their respective operations, including systems and data risks, and for ensuring that the Group is capable of managing those risks.

Management of investment market riskKey investment risks to the Group relate to inappropriate strategy, misalignment with Group risk appetite and achievement of appropriate diversifi cation. These risks might crystallise as fi nancial loss or insuffi cient risk adjusted returns.

All Catlin Group and subsidiary assets are managed by the Group Chief Investment Offi cer, under the direction of the Group Chief Executive and the Investment Committee of the Board of Directors. The Board – through the Investment Committee – reviews and approves on a regular basis the investment strategy proposed by the Chief Investment Offi cer.

The Group’s fi nancial results are affected by realised and unrealised gains and losses arising from movements in market valuations of its invested assets which include fi xed income instruments as well as a limited allocation to alternative investments and equity funds. There is the risk of volatility in reported earnings and stockholders’ equity arising from instability in the fi nancial markets.

Regular modelling is performed to test the structure, performance and liquidity of the investment portfolio in scenarios that include an extreme insurance event coupled with investment losses.


Risk Management continued

Before a decision is made to contract with an investment manager or invest in a fund, comprehensive due diligence and analysis is carried out by an in-house team, assisted by external professionals where appropriate. Hedge fund managers are reviewed by an independent third-party specialist.

To ensure that the portfolio is appropriately diversifi ed, the Group monitors asset allocation by manager and asset class. The Group on a monthly basis monitors the performance of each fi xed income investment manager and of the investments in equity and hedge funds. The Group performs on-site visits of all fund managers. Each fi xed income manager is given written investment guidelines against which fund activity is monitored. The guidelines are reviewed regularly to ensure their appropriateness, with revisions made as required.

Management of liquidity risk and currency riskThe Group continually monitors its cash and investments to ensure that the Group meets its liquidity requirements. The Group’s asset allocation is designed to enable insurance liabilities to be met with current assets. While some longer term assets might from time to time have reduced market valuations, Catlin expects to be able to hold these assets to recovery and it is therefore not expected that those losses will be realised. The Group sets minimum liquidity requirements; liquidity levels at 31 December 2009 were signifi cantly higher than the minimum required.

The Group Treasurer monitors cash fl ow and manages liquid assets and debt facilities. The Group Treasurer, together with the platform fi nancial offi cers, is responsible for ensuring that suffi cient liquid investments are available as required by the Group and its operating platforms. The Group Treasurer is also responsible for ensuring that cash is not overly concentrated with any one entity.

Management of credit riskThe Group is exposed to credit risk primarily from unpaid reinsurance recoveries and from fi xed income instruments in the investment portfolio.

The risk of recovering reinsurance is managed by Group Chief Financial Offi cer who chairs a Reinsurance Security Committee. This committee establishes security standards applicable to all reinsurance purchases and monitors the fi nancial status of all reinsurance debtors. This committee also reviews and approves all non-traditional risk transfers.

Credit risk arising from fi xed income instruments is managed by the Group Chief Investment Offi cer. The professional fund managers are given guidelines regarding minimum quality of investment instruments to be purchased.

Reinsurers and fi xed income instruments are monitored for the occurrence of a downgrade or other changes that might cause them to fall below Catlin’s security standards. If this occurs, management takes appropriate action to mitigate any loss to the Group.

Management of operational riskThe Group is exposed to operational risk through its relationships with key counterparties. The Group Treasurer is responsible for monitoring and managing banking relationships, including the potential for over-concentration. The Chief Investment Offi cer is responsible for managing any issues relating to fund managers and investment advisors.

The Chief Operating Offi cer manages the risk of rating agency downgrade by maintaining a high level of communication with key rating agencies.

The Group has put in place a banking facility to ensure the availability of credit that might be required from time to time and to support letter of credit (LOC) requirements, particularly related to its operations at Lloyd’s of London and reinsurance of US clients. There is the risk that this facility might not be reliable or otherwise unavailable for renewal.

The Group’s current facility is in place through 2010. It is placed with a consortium of seven banks. The relationship with these banks is managed by the Group Treasurer with oversight by the GEC and the Group Chief Financial Offi cer. Where Catlin has made certain covenants related to banking relationships, management plays close attention to monitor and avoid any potential breaches.

The Group conducts business in a number of different currencies, predominantly US dollars, sterling and euros. While the Group’s reporting currency is the US dollar, some of the Group’s operating subsidiaries report in other currencies. There is the risk of gains and losses arising from transactions in currencies that are different from the reporting currency. There is also the reporting risk of gains and losses arising from the effect of consolidating all valuations to US dollars as well as the possible mismatch of the currency for assets and related liabilities.

The Group Treasurer, together with the platform fi nancial offi cers, considers the Group’s currency requirements and the risks arising from foreign exchange fl uctuations. Each quarter, the actual cash and invested assets are compared with the projected ultimate loss liabilities net of premiums due and reinsurance recoverables by currency. Any shortfall by currency is addressed. Two separate holding companies are in place in Bermuda to manage exchange risk arising from the holding of sterling and euros.

57Business Review

IT system risk and data quality are two of the major elements in operational risk. The Group has taken major steps to upgrade its fi nancial reporting processes to meet the needs of a larger, more geographically dispersed organisation and to comply with accelerated reporting timetables starting with the 2009 interim results.

The Group Chief Operating Offi cer, together with the GEC, is responsible for all IT operations and also directs an Operations team that supports process improvement and controls throughout the Group.

The Chief Executive Offi cer of each underwriting platform and Group heads of function, in conjunction with the GEC, are responsible for managing operational risk. Each CEO is required to establish and adhere to appropriate operational policies and procedures.

Summary of high-level controlsThe Group’s Board of Directors has adopted a number of controls to ensure the satisfactory operations of the Catlin Group. The Board receives fi nancial reports on a monthly basis and more detailed fi nancial data in advance of each Board meeting. These fi nancial reports are reviewed by the Audit Committee. Accounting policy is approved by the Board through the Audit Committee.

In advance of each of its meetings, the Board receives reports from the Chief Executive, Chief Underwriting Offi cer, Chief Operating Offi cer, Chief Financial Offi cer, Chief Investment Offi cer, Chief Risk Offi cer and the General Counsel regarding current operations and on any areas of high risk.

The Board meets annually with the Group’s management to conduct an in-depth review of the annual business plan and to assess the risks embedded in the plan. New initiatives and other major projects are presented and discussed.

Each year, the internal audit team assesses the effectiveness of the Group’s control framework and reports to the Board.

The Audit Committee and the full Board receive reports from the outside auditors, internal auditors and the external actuaries at least once a year. The Audit Committee also regularly meets those parties in private sessions, at which management and Executive Directors are not present. Through its Compensation Committee, the Board reviews human resources policy and the remuneration of senior staff.

Risk-based capitalCatlin has been developing risk-based capital requirements from detailed stochastic models since 2004. In 2006, the modelling was peer-reviewed by an independent actuarial fi rm with extensive experience in the fi eld. The fi rm found Catlin’s modelling process to be at the sophisticated end of that found within the insurance market.

The output of the model is reviewed by the GEC and is used by the Group in numerous ways. The Group’s capital planning relies upon the risk-based capital analysis of business mix and growth strategies. Risk-based profi t requirements have been identifi ed for individual underwriting classes based on modelled volatility, exposure to extreme threat events, and correlation with other classes and other risk categories. Pricing targets are set based on that work. The evaluation of new business initiatives includes risk-based capital requirements and correlations with the existing business. The capital model provides detailed analysis of the uncertainty of claim estimates. Alternative reinsurance programmes, including catastrophe bonds, are modelled for their impact on the risk-based capital requirements. The volatility of the investment portfolio is explicitly considered within the capital model.

Regulators and rating agencies are increasingly taking into account an insurer’s enterprise risk management (‘ERM’) programme, including the assessment of risk-based capital. Catlin’s strategy is to maintain an ERM programme which brings together risk-based capital analysis and strategic and operational processes. The Group anticipates that this strategy will satisfy developing risk management and related capital requirements from rating agencies and regulators worldwide.

AssuranceThe Group Head of Internal Audit directs an internal audit programme across all Group operations and subsidiaries. The programme is designed to provide management and the Board, through its Audit Committee, with reasonable assurance that the Group’s controls and procedures are able to contain risks within acceptable limits.

From time to time, the Group obtains assurance from independent third-party specialists on selected key operations. For example, an independent claim quality review is conducted at least annually. Actuarial reserving is reviewed annually by an independent actuarial fi rm. In compliance with industry standards, the effectiveness of the internal audit function was recently assessed by an independent reviewer. The Group’s capital modelling work has also been reviewed by an independent fi rm.


Corporate Social ResponsibilityCatlin seeks to be a socially responsible company through activities including environmental and charitable endeavours

possible to recycle paper and other renewable products. IT equipment and furniture which are no longer fi t for use by the Group are donated wherever possible to schools and charities. The Group strives to minimise energy consumption through the use of automatic controls that switch off lights when employees are not at their desks.

EthicalCatlin is committed to the highest standards of ethical behaviour. The Board has considered signifi cant risks, including regulatory and reputational risk, that could arise from ethical issues and, as a result, the Group has reviewed, revised and adopted relevant policies and procedures. In particular, the Board has adopted the Catlin Code of Ethical Conduct, which is available on the Group’s website (www.catlin.com/cgl/ir/corporate_governance/ethical_conduct). The Code of Ethical Conduct describes the commitment by Catlin and its employees to conduct its affairs in a fair, proper and ethical manner and in compliance with applicable laws, regulations and professional standards. All new employees are obliged to agree that they will abide by the Code, and existing employees annually reaffi rm their concurrence with the Code.

The Group has put in place other ethical policies regarding such subjects as document retention, broker remuneration, insider information, share dealing, whistle-blowing, data security, fraud prevention and money laundering. All of these policies can be readily accessed by all Catlin employees via the Group’s intranet. The policies are part of how the Group and its employees behave and form an integral part of the Code of Conduct.

The Board recognises that to maintain an ethically aware corporate culture requires not only policies and procedures, but more importantly leadership by example, and it, together with executive management, strives to achieve that goal. Employees are encouraged to seek guidance from managers if they do not understand their responsibilities or have questions.

ClimateWise’s aims include:

— Supporting and undertaking research on climate change, including the evaluation of risks associated with new technologies for tackling climate change;

— Promoting and actively encouraging public debate on climate change and the need for action;

— Reducing the environmental impact of members’ operations; and

— Supporting climate awareness of clients.

During 2008 CUAL made its fi rst disclosure statements in connection with ClimateWise. These statements can be found on the Group’s website (www.catlin.com/cgl/ir/corporate_governance/climatewise). More information about ClimateWise is available at www.climatewise.org.uk.

Since 2007 the Group has offset the carbon dioxide emissions created by UK employees’ business-related air travel through a contract with The Carbon Neutral Company, a leading carbon offset and climate consulting business. To date, Catlin has offset more than 2,500 tonnes of carbon related to air travel. The ‘offset credits’ purchased by Catlin have been used to help fi nance the Sterksel Biogas Project in the Netherlands. This project includes the construction of biogas facilities at fi ve farms, which will reduce methane emissions to the atmosphere and displace fossil fuels used to heat local buildings.

The Group utilises video conferencing capabilities in its offi ces in Bermuda, the United Kingdom, France, Germany and the United States to encourage employees, where possible, to conduct both internal and external meetings via video conference rather than travel.

The Group attempts to make good environmental practice part of its everyday activities. For example, a comprehensive document scanning system enables employees worldwide to view documents electronically rather than on paper, minimising waste. The Group also encourages employees wherever

Catlin’s Board of Directors recognises the importance of high standards of corporate social responsibility. The Group’s operations have social, environmental and ethical implications, and Catlin’s policies and procedures are designed to refl ect its responsibilities to its stakeholders.

EnvironmentalThe Group’s operations as an insurer do not impact the environment to the same extent as many other companies. Nevertheless, the Group is committed to achieving best practice in the areas in which it does have an environmental impact.

During 2008, Catlin made a major fi nancial and operational commitment to become the title sponsor of the Catlin Arctic Survey, a 1,000-kilometre polar expedition that will measure the thickness of the sea ice surrounding the North Pole. The Catlin Arctic Survey is an international collaboration between polar explorers and some of the world’s foremost scientifi c bodies that seeks to provide crucial data regarding how long the Arctic Ocean’s sea ice cover will remain a permanent feature of our planet. Detailed information regarding the Catlin Arctic Survey appears on pages 4 to 11.

Catlin chose to sponsor the expedition because of the serious implications that global warming creates for the insurance industry and its policyholders. By sponsoring the Catlin Arctic Survey, the Group is endeavouring to help scientists obtain the data they need to make more reliable conclusions about the impact of climate change and the risks it will create.

Catlin also participates in ClimateWise, another major initiative related to climate change. In 2007 Catlin Underwriting Agencies Limited (‘CUAL’), a Group subsidiary which manages the Catlin Syndicate at Lloyd’s, joined ClimateWise, which is supported by various organisations participating in the UK insurance sector, including Lloyd’s and the Association of British Insurers.

59Business Review

Catlin offi ces in the United States and in other countries also participate in local charities and community involvement programmes.

The Group made total charitable donations of US$672,135 during 2008 (2007: US$233,131).

Health and safetyThe Group takes all appropriate efforts to ensure the health, safety and welfare of its employees at work and those who may be affected by Catlin’s operations. Employees are expected to take reasonable care for their own health and safety at work as well as those of others and to co-operate with management to create a safe and healthy working environment. The discharge of health and safety responsibilities is accorded equal priority with that of other statutory duties and objectives.

The Group also provides support to the Sick Children’s Trust, a UK-based charity which provides support and accommodation for the families of children undergoing hospital treatment. Stephen Catlin is Chairman of the Sick Children’s Trust and other executives contribute time to the charity. For the past three years, the Group has sponsored the Catlin Cup as part of the London Triathlon to encourage triathletes working in the insurance sector to raise funds for the Sick Children’s Trust and other charities.

In Bermuda, the Group’s charitable activities are focused on two initiatives:

– A partnership with a local secondary school through which Catlin Bermuda will pay tuition and fees and provide other educational benefi ts for eight students in connection with post-secondary education, as long as the students attain certain grades, attendance and conduct standards. As part of the initiative, the students are individually mentored by Catlin employees. The goal of the programme is to help alleviate the shortage of Bermudians with the academic qualifi cations to enter the international insurance industry.

– Sponsorship of the annual ‘End to End’, Bermuda’s largest charitable fund-raising event, for a three-year period which began in 2008. More than 2,500 people participated in the 2008 ‘Catlin End to End’ by either walking, swimming, rowing, paddling, cycling or otherwise making their way across the Island. The 2008 event raised more than US$300,000 for local charities, a record amount.

Community involvement and charitable donationsThe Group makes charitable contributions and encourages employee involvement in community programmes. Catlin during 2007 established a Group-wide Charity Committee to manage the Group’s charitable contributions and activities on a centralised basis; this committee met frequently during 2008 and has directed a marked increase in the Group’s charitable giving and activities.

The Group has instituted several programmes which encourage employee charitable giving and involvement. Through one of these programmes the Group grants time off to employees participating in Catlin- or Lloyd’s-approved community involvement projects, primarily reading and mentoring programmes. Under another programme the Group will match funds raised by an employee on behalf of a qualifi ed charity up to an annual limit of US$1,000. In the UK Catlin also operates a payroll ‘Give As You Earn’ programme through which the Group will match qualifi ed employee charitable contributions up to a limit of £600 per year.

For 2008 and 2009 the Group has selected two charity partners in the UK: Havens Hospices, which provides hospice care for both adults and children who are suffering from life-threatening illnesses, and the Starlight Children’s Foundation, which grants ‘wishes’ to seriously and terminally ill children and provides entertainment to other ill children. Catlin made signifi cant fi nancial donations to both charities during 2008 as well as raising additional funds for the charities through employee activities promoted by the Group.

2008

2007

2006

2005

2004

$672,135

$233,131

$101,137

$118,454

$74,148

Chart 1: Charitable donations (US$)


Employees and CultureCatlin has established a distinctive culture and related employee programmes to attract and retain a high-quality workforce

Catlin’s ambition to be a leader in the specialty property/casualty insurance and reinsurance marketplace is directly tied to the talents and abilities of our employees. The Group seeks employees whose own high ambitions are in line with Catlin’s.

The Catlin CultureCatlin believes that its distinctive corporate culture is an important tool in attracting, retaining and developing high-quality employees. The culture is designed to empower employees to act to the maximum of their abilities and to reinforce the partnerships that exists among Catlin, employees, clients and brokers.

The values on which the Catlin Culture is based include:

— Disciplined underwriting. Catlin’s overriding goal is to produce a bottom-line underwriting profi t, to further both the returns the Group provides to its investors and the fi nancial security it offers to clients.

— Openness and transparency. The Group promotes open communication, both internally and when dealing with clients and brokers. The free and open exchange of information and ideas is encouraged. Wherever possible, offi ces are designed with open plan layouts to encourage communication, support teamwork and discourage hierarchies. Management encourages feedback and suggestions from employees and fully considers employee input when making decisions.

— A ‘Group’ mentality. Catlin employees are expected to act in the best interest of the Group as a whole, not only their own underwriting platform and department. Parochial concerns take second place to the needs of the client and the Group. This mentality reinforces the teamwork essential to Catlin’s success.

— Integrity and ethical behaviour. Catlin employees are expected to conduct themselves in a manner refl ecting the highest ethical standards. Employees are judged not only on the results achieved, but the manner in which they are achieved. Underlying this value is the Catlin Code of Ethical Conduct, by which all employees must abide (see page 58).

— Dignity and mutual respect. Catlin is committed to treating all employees fairly and with respect. It also endeavours to ensure that employees treat clients, brokers and other employees in a like manner.

Employee communicationsTo help reinforce the Catlin Culture amongst the Group’s international workforce, Catlin during 2008 adopted the phrase ‘Underwriting Ambition’ to summarise the values on which the corporate culture is based. Through printed materials and video messages, management discussed with employees the ambitions of the Group and how those ambitions existed in parallel with both clients’ and employees’ own ambitions.

The Group uses a variety of communications methods to provide information to employees, ranging from daily meetings within departments to regular ‘Town Hall’ meetings, led by the Chief Executive in various Catlin offi ces. The key messages from the Town Hall meetings are communicated to employees globally via the Group’s employee intranet, ‘The Catwalk’.

The Catwalk – which contains voluminous amounts of information about the Group, its departments, and policies and procedures – was expanded during 2008 to serve Catlin’s increasingly geographically diverse workforce. A major project, due for completion in early 2009, will result in further signifi cant improvements to The Catwalk.

EmployeesThe Group had 1,180 employees at 31 December 2008, an increase of 12 per cent during the year (2007: 1,051). The growth, as in 2007, was primarily attributable to the development of Catlin US and the international offi ce network.

Chart 2: Employees by location at 31 December 2008

54% UK21% US5% Bermuda20% Rest of World

Chart 1: Employee growth by year at 31 December

1,1802008

2007

2006

2005

2004

1,051

947

316

398

Chart 3: Employees by functionat 31 December 2008

43% Underwriting21% Operations/IT9% Administration 19% Finance8% Claims

61Business Review

During 2008, 429 Catlin employees – approximately 36 per cent per cent of the Group’s total workforce – participated in the Group’s Performance Share Plan (‘PSP’), which is designed to reward participants for delivering growth in shareholder value. The PSP offers employees conditional awards of shares (or nil-cost share options); the vesting of these awards depends on the achievement by the Group of performance conditions based on the increase of net asset value per share. Further details regarding the PSP are also contained in the Directors’ Remuneration Report.

The Group during 2008 promoted employee ownership of Catlin shares by introducing ‘save as you earn’-type share purchase plans for UK and US employees. These are plans which allow options to be granted at a discount to market value with participants making savings from their after-tax salaries to fi nance the exercise price. The UK plan is a three-year programme offering a 20 per cent discount; the US plan is a one-year programme offering a 15 per cent discount. In the US 125 employees – or 62 per cent of those eligible – enrolled in the programme, while 290 employees – or 49 per cent of those eligible – enrolled in the UK plan.

Catlin offers employees a range of non-monetary employee benefi ts, including pension, life insurance and medical plans. As an international employer, the benefi ts offered to employees vary from country to country, taking into account local laws and practices.

RemunerationCatlin offers competitive remuneration packages to attract, retain and motivate staff of appropriate calibre and experience.

Remuneration, particularly with respect to the Executive Directors and other senior executives, is designed to create incentives to meet fi nancial and strategic objectives set by the Board of Directors, primarily through variable bonus and share plan components. This policy is to align executive rewards with the creation of shareholder value.

The Group established a new bonus programme in 2007 following the acquisition of Wellington which includes all permanent employees. This programme replaces all annual bonus schemes previously offered by the two companies. The programme is based on the Group’s profi tability (return on average equity and pre-tax profi t) and is allocated based on team/business/platform performance, as well as the individual’s own contribution and performance. Further details regarding the bonus plan are contained in the Directors’ Remuneration Report on page 77.

Each individual’s bonus potential refl ects his or her role and level of responsibility within the Group. Each employee’s ability to earn their bonus is based on an assessment of their individual performance and contribution to the success of the relevant underwriting platform and the Group overall during the year.

One of the Group’s key performance indicators is employee turnover. Catlin has historically had relatively low rates of employee turnover, but the employee turnover rate increased in 2007 – as was expected – in the light of the Wellington acquisition. Turnover amounted to 25 per cent in 2007, including both voluntary resignations and agreed departures; the 2007 turnover rate excluding the agreed departures was 19 per cent.

As expected, employee turnover decreased during 2008 to 14 per cent, markedly lower than in 2007 (see Chart 4).

The Group is currently upgrading its human resource information system. The new system, which will be implemented during 2009-10, will provide core HR administration and global reporting as well as an integrated UK payroll. It will also support the compensation review, the appraisal process, and training and recruitment administration.

During 2009 the Group will conduct a survey of Catlin employees worldwide to examine employee attitudes and to identify actions that would result in signifi cant improvements across the organisation.

25%

Chart 4: Employee turnover rate (%)*

2008

2007

2006

2005

2004

14%

13%

11%

14%

* Including agreed departures


Employees and Culture continued

Disabled personsCatlin gives full and fair consideration to applications for employment made by disabled persons and provides specialised training and career development for employees with disabilities where appropriate. If an employee were to become disabled, the Group would make arrangements insofar as possible to continue that person’s employment and/or to provide training for another suitable position.

Equal opportunitiesThe Group is committed to fair and equal employment opportunities for all persons and extends fair and equal employment opportunities without regard to race, colour, religious belief, gender, sexual orientation, national or ethnic origin, age or disability.

Catlin seeks at all times to comply with legislation governing non-discrimination in employment. The Group employs individuals for available positions who are qualifi ed on the basis of merit and ability alone. This policy applies to all terms and conditions of employment, including, but not limited to, recruitment, hiring, placement, promotion, demotion, transfer, rates of pay or other forms of compensation, termination, redundancy, training, use of all facilities and participation in all Catlin-sponsored employee activities.

Investing in future leaders and fulfi lling their potential quickly with the appropriate development opportunities is a key requirement to realising the Group’s ambitions and retaining our talent. In the UK Catlin supports the ‘Developing Leaders at Lloyd’s’ programme, and selected various senior managers to attend advanced management programmes at both Ashridge Business School and the Said Business School at Oxford. Senior managers also continued to benefi t from one-to-one executive coaching.

In January 2009 the Group unveiled a new Career Development Programme for both new/recent university graduates and highly performing current employees in the early stages of their careers. The programmes – which will include employees working in Underwriting, Finance, Actuarial, Aggregate Modelling and Claims – will start in September 2009. A separate graduate programme is also being established to meet the workforce needs of our growing business in Asia-Pacifi c region.

Other learning and development initiatives planned during 2009 include the development of a core curriculum to enable all employees to receive fundamental development opportunities during the different stages of their careers. The fi rst components of this curriculum will be a revised orientation programme and a core management programme for mid-level managers.

Learning and developmentCatlin believes employees must be supported by a wide range of learning and development opportunities if they are to perform to their greatest potential.

The Group’s employee performance management process is used to gather information regarding individual employees’ learning and development needs. During 2008 Catlin introduced a new Group-wide appraisal system, which includes at its heart an analysis of individual employees’ performance in relation to Catlin’s core values and competencies. The introduction of this appraisal system will enable the Group to focus employee development activities more effectively.

Also during 2008 Catlin began to introduce a Group-wide framework of formal and informal training and development opportunities based on business needs as well as key milestones in an individual employee’s professional, technical and managerial development. As part of this programme, the Group presented a wide variety of professional and technical seminars to ensure that employees keep up to date with developments in the industry. The Group also continued to give fi nancial support to employees studying for industry-recognised professional qualifi cations.

Enhancing employees’ business and commercial skills is another important part of the Group’s learning and development programme. During the year employees attended various market updates, conferences and seminars. The Group also provided in-house business awareness tutorials on a monthly basis, and offered other personal development initiatives on topics including management skills, presentation skills and interviewing skills.

63Business Review

The Catlin BrandThe development of Catlin’s brand has been furthered by the sponsorship of the Catlin Arctic Survey

A successful and recognisable brand is essential for any international company. Catlin has made substantial investment in building its brand to support the Group’s expansion into new markets as well as to further its relationships with existing brokers and clients.

The development of Catlin’s brand during 2008 focused on two initiatives, supported by a wide range of activities.

In early 2008 Catlin adopted the theme ‘Underwriting Ambition’ to describe the company to brokers and clients. ‘Underwriting Ambition’ underscores Catlin’s aspiration to further the ambitions of its clients while at the same time expresses the Group’s entrepreneurial heritage.

The marketing campaign based on ‘Underwriting Ambition’ demonstrates Catlin’s ability to work in parallel with brokers and clients to provide creative risk management solutions that help assureds further their own goals.

A series of print advertisements – which were published in trade magazines in the United Kingdom, United States and international markets – were based on the theme: ‘If you can conceive it, we can underwrite it’. In addition, print ads appeared in UK and European publications to highlight the fact that Catlin had been ranked by brokers as the best managing agency in the Lloyd’s/London market in terms of overall service and claims service.

The focus of Catlin’s branding/marketing activities during 2009 will be the Catlin Arctic Survey, a major expedition to measure the thickness of the remaining Arctic sea ice (see pages 4 to 11).

Catlin agreed in September 2008 to be the title sponsor of the survey. As a company that bases its underwriting decisions on sound data, Catlin believed that it would be worthwhile to provide fi nancial support to a scientifi c endeavour that will provide crucial information about the speed with which climate change is changing our environment. Catlin’s support for the Catlin Arctic Survey will increase awareness of the Catlin brand and establish the Group’s reputation as an insurance industry leaderin sponsoring climate change research.

While the three Arctic explorers did not begin their 1,000-kilometre trek to the North Pole until late February 2009, numerous reports about the preparations for the expedition had already appeared in the popular and trade media, mentioning Catlin’s sponsorship of the project. The Group expects the Catlin Arctic Survey will receive substantial coverage during the three-month expedition, including live feeds from the Arctic on the BBC, as well as visits by the public to the Catlin Arctic Survey website. In addition, the survey’s scientifi c fi ndings will be presented to participants at the UN Climate Change Conference of Parties in Copenhagen in December 2009, where negotiators will attempt to replace the current Kyoto Protocols. This will likely result in substantial media coverage.

Apart from the media coverage of the Catlin Arctic Survey, Catlin is using the expedition as a centrepiece for communications with brokers and clients, including newsletters, displays within Catlin offi ces and Arctic-related promotional materials. The Survey will also feature in a new Catlin advertising campaign.

The Group continues to sponsor other events, both inside and outside the insurance industry, apart from the Catlin Arctic Survey:

— The Group is the sponsor of the London Triathlon’s Catlin Cup competition, which attracts teams of triathletes from businesses connected with the insurance industry.

— Catlin Bermuda in 2008 became the lead sponsor of the ‘End to End’ event, during which more than 2,500 people traverse the length of Bermuda by running, walking, swimming, rowing, paddling or cycling to raise funds for selected charities; and

— Catlin sponsors the annual Catlin Art Prize, which recognises the talents of recent graduates of UK art schools. Works by more than 1,000 aspiring British artists were considered during the 2008 competition.


Investor RelationsCatlin seeks to communicate with the investment community in an effi cient and transparent manner

FTSE Non-Life InsuranceCatlin shares

Chart 5: Total shareholder return since initial public offering

50

100

150

200

Dec2008

Sept2008

June2008

March2008

Dec2007

Sept2007

June2007

March2007

Dec2006

Sept2006

June2006

March2006

Dec2005

Sept2005

June2005

March2005

Dec2004

Sept2004

June2004

Catlin uses various forms of communications to keep shareholders informed regarding the Group’s activities. All shareholders receive the Annual Report and Accounts and the Half-Yearly Results Statement. The Group regularly updates the Investor Relations section of the Catlin website (www.catlin.com/cgl/ir), including the prompt announcement of regulatory fi lings and commercial news released by the Group.

The Group also makes presentations to analysts following the announcement of the annual and interim results, which are broadcast on the Catlin website on both a live and on-demand basis. In addition, Catlin has held an ‘Investor Day’ for institutional investors and analysts for the past two years; a webcast of each Investor Day presentation, including a question-and-answer session, is available on the Group’s website.

Members of the Group’s management team met with more than 100 existing or potential equity investors based in the UK, Europe, North America and Australia during 2008.

With the assistance of the Group’s corporate brokers and investor relations advisors, management and the Board of Directors receive feedback from investors following major presentations.

Table 1: Catlin share information (pence)

Maximum price during 2008 453.50 Minimum price during 2008 265.75 Price as at 31 December 2008 433.50 Average daily trading

volume during 2008 (000s) 1,215.1

Catlin shares and shareholder baseCatlin Group Limited common shares are listed on the London Stock Exchange (trading symbol ‘CGL’) under ‘Insurance’. The Company’s share price is available on all recognised online databases as well as on a daily basis in UK newspapers including the Financial Times, The Times, The Daily Telegraph, The Independent and the Evening Standard.

At 31 December 2008, there were 1,394 shareholders on the Group’s register. The breakdown of these shareholders is analysed in Table 2 and Charts 3 and 4.

Catlin’s major shareholders (those which hold 3 per cent or more of the Company’s share capital) are listed on the Catlin website and this information is updated regularly.

The average daily trading volume of Catlin shares during 2008 was 1.22 million (2007: 1.82 million).

Total shareholder returnThe total shareholder return produced by Catlin shares from their initial offering in April 2004 through 31 December 2008 is shown in Chart 5 compared with the FTSE Non-Life Insurance Index.

Table 6 shows the total shareholder return produced by Catlin shares from their initial offering in April 2004 through 31 December 2008 compared with appropriate UK share indexes.

Chart 3: Shareholders by type at 31 December 2008

53% Corporate, nominee & institutional47% Private shareholders

Chart 4: Shareholders by percentage of shares held at 31 December 2008

93% Corporate, nominee & institutional7% Private shareholders

Table 2: Breakdown of shareholders at 31 December 2008

Number of Percentage of Total shares Percentage of Shares owned shareholders shareholders owned total shares

0-50,000 1,098 78.8% 6,448,360 2.5%50,001-100,000 65 4.7% 4,745,851 1.9%100,001-500,000 147 10.5% 35,385,531 13.9%500,001-1,000,000 35 2.5% 23,940,697 9.4%1,000,000-5,000,000 36 2.6% 82,216,686 32.2%5,000,000-10,000,000 12 0.9% 88,566,668 34.7%More than 10,000,0000 1 0.1% 13,859,133 5.4%Total 1,394 100.0% 255,162,926 100.0%

65Business Review

Shareholders who wish to receive dividends in US dollars in the future should contact the Company’s registrar, Capita IRG (Telephone: 0871 664 0300 in the UK (calls cost 10 pence per minute plus network extras) or +44 (0)20 8639 3399 elsewhere).

Dividends on the Catlin American Depositary Receipts (‘ADRs’) are payable in US dollars by the US depositary bank.

ADRsCatlin’s American Depositary Receipts trade on the Over the Counter market (‘OTC’) under the following details:

Symbol: CNGRYCUSIP: 149188104ADR/common share ratio: 1:2US ISIN: US1491881041Underlying ISIN: BMG196F11004

ISAs, PEPs and SIPPsThe company’s shares qualify to be held as equities in Individual Savings Accounts (‘ISAs’), Personal Equity Plans (‘PEPs’) and registered pension schemes, including Self Invested Pension Plans (‘SIPPS’), in the United Kingdom.

Debt investorsParticulars of the preferred shares issued by the Catlin Group are as follows:

Issuer: Catlin Insurance Company Ltd.Securities: Non-Cumulative Perpetual Preferred SharesIssue date: 18 January 2007Redemption: Redemption on and after 19 January 2017 at the issuer’s optionNominal total: US$600 millionDividend rate: 7.249% per annum for the fi rst 10 yearsDividend dates: 19 January and 19 JulyRatings: BBB Standard & Poor’s; bbb A.M. Best

Analyst coverageDuring the past year, 14 analysts have published research notes regarding the Group. Current analysts and their contact information are listed in the Investor Relations section of the Catlin website.

DividendsCatlin is committed to providing an attractive return to shareholders through dividends. The payment of dividends is linked to recent trends in the Group’s performance as well as to its future prospects. Chart 7 shows the Group’s dividend history.

The fi nal dividend for the year ended 31 December 2008 of 18.0 pence (26.6 US cents) per share is payable on 15 May 2009 to shareholders of record at the close of business on 20 February 2009, subject to approval at the Annual General Meeting on 7 May 2009. The dividend is payable in sterling, except for shareholders who have elected as at the date of this report (12 February 2009) to receive their dividends in US dollars.

Annual General MeetingThe Annual General Meeting will be held at noon on Wednesday 7 May 2009 at the Catlin Group offi ces at Cumberland House, 6th Floor, 1 Victoria Street, Hamilton, Bermuda HM 11. Shareholders are encouraged to attend the meeting.

Shareholder and investor enquiriesShareholders should contact the Catlin Investor Relations Department (telephone: +44 (0)20 7458 5726; e-mail: [email protected]) if they have questions regarding the Group. For enquiries regarding share or depository interest registration, please contact Catlin’s registrar, Capita IRG (telephone: 0871 664 0300 in the UK; calls cost 10 pence per minute plus network extras; or +44 (0)20 8639 3399 elsewhere).

Events calendar

Date Event

7 May 2009 Annual General Meeting 15 May 2009 Payment of final 2008 dividend7 August 2009 Announcement of half-yearly results for the period ending 30 June 2009 November 2009 Expected payment of interim 2009 dividend February 2010 Expected date of announcement of 2009 financial results

Chart 7: Dividend history (pence)

26.6

25.1

2008

2007

2006

2004

2005

23.0

12.4

15.5

Final dividendInterim dividend

Table 6: Total shareholder return (IPO through 31 December 2008)

Catlin 50.74%FTSE 250 15.92%FTSE 350 19.30%FTSE Non-Life Insurance 86.78%


The Board of Directors

Sir Graham HearneChairmanSir Graham Hearne was appointed Chairman in February 2003. He was formerly Chairman of Enterprise Oil plc, having previously served as Chief Executive. He practised as a lawyer at Pinsent & Co, Herbert Smith & Co and Fried, Frank, Harris, Shriver & Jacobson. He served with the Industrial Reorganisation Corporation before joining NM Rothschild & Sons Ltd, where he remains a Non-Executive Director. He has also served as Deputy Chairman of Gallaher Group plc, Finance Director of Courtaulds Limited, Chief Executive of Tricentrol plc and Group Managing Director of Carless, Capel & Leonard plc. He is currently Non-Executive Chairman of Braemar Seascope Group plc and Stratic Energy Corporation. He is a Non-Executive Director of Rowan Companies Inc and Wellstream Holdings plc. He was High Sheriff of Greater London from 1995 to 1996. Age 71

Stephen CatlinChief Executive and Deputy ChairmanStephen Catlin began his insurance career in 1973 joining BL Evens & Others on Syndicate 264 at Lloyd’s. He founded Catlin Underwriting Agencies Limited in 1984 and was the Active Underwriter of Syndicate 1003 and later Syndicate 2003 until May 2003. From 1996 to 2002, he was the Lloyd’s nominated Director of Equitas Holdings Limited. He served as Chairman of the Lloyd’s Market Association, the trade association representing the interests of Lloyd’s underwriters and underwriting agents, from 2000 until 2003. He was a member of the Council of Lloyd’s from 2002 until 2004 and a member of the Lloyd’s Franchise Board from 2003 until 2006. He is a Visiting Fellow at the Oxford University Centre for Corporate Reputation. Age 54

Christopher StookeChief Financial Offi cerChristopher Stooke joined the Group as Chief Financial Officer in March 2003 after a 24-year career with Price Waterhouse and PricewaterhouseCoopers, where he was a partner from 1990. He specialised in financial services, particularly insurance, holding leadership positions in London and Zurich. He is a Fellow of the Institute of Chartered Accountants in England and Wales. Age 51

Alan BossinIndependent Non-Executive DirectorAlan Bossin was appointed as an Independent Non-Executive Director in March 2004. He is counsel to Appleby, Barristers & Attorneys, of Hamilton, Bermuda, which he joined in 1999. He was previously at the Toronto insurance law firm of Blaney McMurty. He commenced his legal career with the Toronto firm of Gilbert, Wright & Flaherty, practising insurance defence litigation. He later joined the Insurance Bureau of Canada as Counsel and was Senior Vice President and Canadian General Counsel with insurance broker Johnson & Higgins. Age 57

Michael CrallIndependent Non-Executive DirectorMichael Crall was appointed as an Independent Non-Executive Director in October 2003. He was previously Chief Executive of Equitas Holdings Limited. He has also served as President and Chief Executive Officer of Argonaut Insurance Company, a US insurer specialising in casualty classes of business. He began his insurance career with Insurance Company of North America, later CIGNA Corporation, where he held a number of executive posts in the US, Paris and Brussels. He is Non-Executive Chairman of Arrowpoint Capital Corp. Age 65

Jean Claude DamervalIndependent Non-Executive DirectorJean Claude Damerval was appointed as an Independent Non-Executive Director in July 2005. He has owned his own corporate finance consulting practice focusing on the international insurance industry since 1994. Mr Damerval previously served as Group Managing Director and Chief Executive Officer of International Operations for AXA Group and as AXA’s Group Controller. He serves as a Non-Executive Director of Aurigen Re Capital Ltd, a Bermuda-based life reinsurance company. Age 65

67Governance

Michael EisensonNon-Executive DirectorMichael Eisenson was appointed as a Non-Executive Director in November 2002. He is Managing Director and Chief Executive Officer of Charlesbank Capital Partners LLC, a Boston-based private equity firm. Prior to co-founding Charlesbank, he was the President of Harvard Private Capital Group, the private equity and real estate investment unit of Harvard Management Company. He also served with The Boston Consulting Group, a corporate strategy consulting firm. He serves on the boards of several public companies, including Penske Automotive Group and Animal Health International, as well as several privately held portfolio companies. Age 53

Kenneth GoldsteinIndependent Non-Executive DirectorKenneth Goldstein was appointed as an Independent Non-Executive Director in May 2007. He was President and Chief Executive Officer of Universal Underwriters Group until his retirement in 1999. He also served as Executive Vice President of St Paul Fire & Marine Insurance Company, President of Swett & Crawford Management Co. and held various management positions at American International Group Inc. He previously was a Director of DirectFac Inc. and was a member of the advisory board of American Wholesale Insurance Group. Age 64

Michael HarperSenior Independent Non-Executive DirectorMichael Harper was appointed Senior Independent Non-Executive Director in July 2005. He was previously Chief Executive of Kidde plc and held senior management positions at both Kidde and with Vickers plc. He is Chairman of The Vitec Group plc and BBA Aviation plc as well as a Non-Executive Director of Ricardo plc. Age 64

Michael HepherIndependent Non-Executive DirectorMichael Hepher was appointed as an Independent Non-Executive Director in October 2003. He was formerly Chairman of Lane, Clark & Peacock LLP, a firm of consulting actuaries. He was formerly Chairman and Chief Executive Officer of Charterhouse plc and Group Managing Director of British Telecommunications plc. He also served as Chairman and Chief Executive of Abbey Life Group plc and subsequently Lloyd’s Abbey Life plc; President and Chief Executive Officer of Maritime Life Assurance Company of Canada; and Chief Actuary of Commercial Life Assurance Company of Canada. He is also a Non-Executive Director of Kingfisher plc and Great-West Lifeco Inc. He is a Fellow of the Institute of Actuaries. Age 65

Nicholas LyonsIndependent Non-Executive DirectorNicholas Lyons was appointed as an Independent Non-Executive Director in August 2008. He was formerly a Managing Director of Lehman Brothers in London, where he headed the European Financial Institutions Group. Prior to joining Lehman Brothers, he held executive positions at JP Morgan & Co and Salomon Brothers in London. He is Non-Executive Chairman of Miller Insurance Services Limited, a leading international specialist insurance and reinsurance broker based in London. Age 50


Directors’ Report

The Directors present their report and the audited financial statements for the year ended 31 December 2008.

Results and dividendsThe Consolidated Statements of Operations on page 86 shows a net loss available to common shareholders of US$46.4 million (2007: US$461.7 million profit).

The Directors propose a final dividend of 18.0 pence (26.6 cents) per share, payable on 15 May 2009 to shareholders on the register at the close of business on 20 February 2009. An interim dividend of 8.6 pence (16.8 cents) per share was paid on 7 November 2008.

Principal activities and review of businessThrough its consolidated subsidiaries and subsidiary undertakings, the Company’s principal activity is property and casualty insurance and reinsurance underwriting. A review of the Company’s business and developments during the year is included in the Chairman’s Statement, the Chief Executive’s Review, the Business Review and other material on pages 12 to 65.

Substantial shareholdingsAt 30 January 2009 the Company had been notified of the following interests of 5 per cent or more in its issued share capital:

Number of Percentage of shares shares in issue1

Legal & General 19,710,118 7.7% Fidelity International Limited and affiliates 16,904,489 6.6% Bernstein Value Equities 13,914,058 5.5% 1 Based on shares in issue at 30 January 2009 of 255,166,529.

Warrants entitling the holders to purchase shares for US$5 per share are outstanding over 6,037,886 shares as at 6 February 2009.

DirectorsThe current Directors of the Company are named on pages 66 and 67 together with biographical details. Particulars of their interests in shares are given below and in the Directors’ Remuneration Report on pages 77 to 83. Alton Irby resigned as a Director on 6 August 2008, and Nicholas Lyons was appointed as a Director on the same date.

Michael Crall, Jean Claude Damerval, Michael Harper and Michael Hepher will retire by rotation, and each will offer himself for re-election as a Director at the 2009 Annual General Meeting (‘AGM’). Sir Graham Hearne will also stand for re-election, as he is required by the Bye-Laws to do annually upon reaching 70 years of age. Nicholas Lyons, who was appointed as a Director by the Board, will also stand for election at the 2009 AGM. The Board has appraised the performance and reviewed the skills, experience and expected contributions of the candidates in the context of the Board’s objectives and composition, and on that basis recommends their election.

Directors’ interestsDirectors’ interests in sharesThe beneficial interests of the Directors in office at the end of the financial year in the common shares of the Company at 31 December 2008 and at 1 January 2008, including the beneficial interests of any connected person, are set out in the table below:

31 December 2008 1 January 2008 number of number of common shares common shares1

Alan Bossin – –Stephen Catlin 2,831,279 2,760,548Stephen Catlin as one of the trustees of Catlin Settlement Trust 615,000 615,000Michael Crall 14,815 14,815Jean Claude Damerval 10,000 –Michael Eisenson2 – –Kenneth Goldstein 22,500 15,000Michael Harper 40,000 35,000Sir Graham Hearne 22,569 22,569Michael Hepher 59,815 59,815Nicholas Lyons3 – –Christopher Stooke 73,303 39,8451 There has been no change in these interests since 31 December 2008 up to the date of this report.2 Michael Eisenson is affiliated with CB-Catlin Inc (‘Charlesbank’) which may be deemed to be a connected person. Charlesbank held 9,400,751 common shares

as at 1 January and 31 December 2007 along with warrants to purchase 1,237,624 shares for US$5 per share.3 Mr Lyons was appointed as a Director on 6 August 2008.

69Governance

Directors’ share optionsNone of the Non-Executive or Independent Directors hold share options in the Company. Details of the Executive Directors’ share options are disclosed in the Directors’ Remuneration Report on pages 77 to 83.

Corporate governanceThe Corporate Governance Report, which includes reports from the Board’s Audit and Nomination Committees, immediately follows this report. The Directors’ Remuneration Report, which includes details of the Board’s Compensation Committee and is subject to approval by shareholders at the 2009 AGM, starts on page 77.

Business ReviewThe Business Review, which includes details of the Group’s development and performance and the management report requiredby Rule 4.1.8 of the Disclosure and Transparency Rules (DTRs), is set out on pages 12 to 65.

Directors’ Responsibility Statement pursuant to DTR 4The Directors confirm that, to the best of their knowledge:

— the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

— the management report incorporated into the Business Review includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Corporate social responsibilityThe Board and the Company are committed to high standards of corporate social responsibility. Details of the Company’s social, environmental and ethical policies as well as its policy on treatment of its employees are set forth in the Business Review on page 58.

Political and charitable donationsThe Company made no political donations during the year. It is not the Company’s policy to make political donations. Details of the Company’s charitable donations are set forth on page 59. Share capitalGeneralAs at 31 December 2008 the Company had an authorised share capital of $4,000,000 divided into 400,000,000 common shares of $0.01 each (‘Common Shares’), of which 255,162,926 were in issue. The Company’s shares are admitted to the Official List and are traded on the London Stock Exchange (‘LSE’). The Common Shares themselves are not admitted to CREST (the electronic settlement system for the LSE), but dematerialised depositary interests representing the underlying Common Shares issued by Capita IRG Trustees Limited (‘Capita Trustees’) can be held and transferred through the CREST system (‘Depositary Interests’).

The rights attaching to the Common Shares are governed by the Bermuda Companies Act 1981 and the Company’s Bye-Laws.

Rights attaching to sharesSubject to the detailed provisions of the Bye-Laws, shareholders may attend any general meeting of the Company and vote on any resolution put to the meeting by a show of hands. Each shareholder who is present in person or by proxy has one vote.

A poll may be demanded by at least three shareholders present in person or by proxy, or by the Chairman or by any shareholder(s) present in person or by proxy representing one-tenth of the total voting rights of shareholders entitled to vote at such meeting.

On a poll every shareholder who is present in person or by proxy or (being a corporation) is present by a representative has one vote for every Common Share of which he is the holder. No shareholder may vote or be included in a quorum if any call or other sum payable by him to the Company in respect of any share remains unpaid.

The deadline for exercising voting rights by proxy is not less than 48 hours or such other period as the Board may determine prior to the holding of the relevant meeting or adjourned meeting.

The Bye-Laws provide that before a vote of shareholders on any matter, the voting rights held by or attributed to defined shareholders who may be ‘US Persons’ shall be reallocated amongst other shareholders to the extent necessary to ensure that no such US Person shall exercise voting power of greater than 9.5 per cent. As of the date of this report, no such reallocation is required. Rights are granted in favour of the Company to investigate shareholders and apply sanctions restricting or prohibiting voting.


Directors’ Report continued

The Board may, subject to the Bye-Laws and Section 54 of the Bermuda Companies Act, declare a dividend to be paid to shareholders in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in fully or partly paid shares. Dividends unclaimed within six years of declaration are forfeited and revert to the Company.

In respect of the Depositary Interests, under the terms of the arrangements between the Company and Capita Trustees, Capita Trustees will pay dividends due on the underlying Common Shares to the holders of such Depositary Interests, although the Company may pay dividends direct to the holders of the Depositary Interests should it so wish.

On liquidation the liquidator may divide the whole or any part or parts of the assets of the Company among the shareholders, in whole or part, in specie or in kind, for such values as the liquidator may deem fair.

Transfer of sharesThere are no restrictions on the transfer of the Common Shares in the Company other than:

— the Board may in its absolute discretion decline to register any transfer of shares which is not fully paid provided it does not prevent dealings in the Company’s shares taking place on an open and proper basis;

— the Board may also decline to register any transfer if the instrument of transfer is in favour of more than five people or it is not satisfied that all applicable consents and approvals required to be obtained prior to such transfer have been obtained;

— certain restrictions may from time to time be imposed by laws and regulations (for example insider dealing laws);— pursuant to the Company’s share dealing guidelines whereby the Directors and employees of the Company (including their connected

persons) require approval to deal in the Company’s shares; and— where a person with at least a 0.25 per cent interest in the Company’s shares has been served with a disclosure notice and failed

to provide the Company with information concerning interests in those shares.

DirectorsThe Company’s Bye-Laws provide that the number of Directors shall not be less than 11 nor more than such number as the Board may by resolution determine. Directors are subject to retirement by rotation in successive three-year cycles. A retiring Director is eligible for re-election. Shareholders may nominate candidates for appointment as Directors by complying with certain requirements (including minimum notice required) set forth in the Bye-Laws.

The Board may appoint persons to be Directors either to fill a casual vacancy or as an additional Director. The office of a Director shall be vacated in the event of death, disability, bankruptcy, disqualification, resignation or request for removal by not less than three-quarters of the other Directors. The Bye-Laws provide for the appointment of alternate Directors.

The Bye-Laws require any Director wishing to serve beyond age 70 to stand for re-election annually.

A Director may be removed by a resolution of the shareholders at any general meeting provided that the relevant Director has been served with not less than 28 days’ notice and has the right to be heard on the motion for his removal. Section 93 of the Bermuda Companies Act does not apply to the Company. Any removal of a Director shall be without prejudice to any claim such Director may have for damages for breach of any contract of service between him and the Company.

Changes to the Bye-LawsNo Bye-Law may be rescinded, altered or amended and no new Bye-Law shall be made until the same has been approved by a resolution of the Board passed by a majority of the Directors and by a resolution of the shareholders by a 75 per cent majority.

71Governance

Power to issue sharesAt the 2008 AGM, authority was given to the Directors to allot unissued relevant securities (as defined in the Bye-Laws) in the Company up to a maximum aggregate nominal value of US$844,732, being an amount equal to one third of the shares in issue on 14 March 2008. The authority was not used by the Company. The Directors are seeking approval from shareholders to renew this authority at the AGM to be held on 7 May 2009, further details of which are set out in the accompanying circular to shareholders.

A further special resolution passed at the 2008 AGM granted authority to the Directors to allot equity securities (as defined in the Bye-Laws) in the Company for cash on (a) a non-pre-emptive basis pursuant to a rights issue or other offer to shareholders and (b) otherwise up to an aggregate nominal value of US$126,710 (being equal to 5 per cent of the issued share capital of the Company as at 14 March 2008). That authority was not used by the Company. The Directors are also seeking approval from shareholders to renew this authority at the 2009 AGM, further details of which are set out in the accompanying circular to shareholders.

Repurchase of sharesAt the 2008 AGM, shareholders renewed the Company’s authority to purchase a maximum of 25,341,959 common shares. During the year this authority was not used by the Company. The Company is seeking from shareholders a renewal of the Directors’ authority to purchase the Company’s shares at the 2009 AGM, further details of which are set out in the accompanying circular to shareholders.

Signifi cant agreementsThe Company and certain subsidiaries has participated in a Letter of Credit/Revolving Loan Facility (‘Facility’) with a number of banks since November 2003, further details of which are set out in Note 10 in the Notes to the Consolidated Financial Statements. Under the terms of the Facility, upon a change of control at the option of the majority banks which are party to the Facility, all outstanding amounts become immediately due and payable and all liabilities of affected letters of credit shall be reduced to zero or otherwise secured by cash collateral.

Certain reinsurance contracts under which the Company’s subsidiaries are reinsured may be subject to termination at the option of the counterparty in the event of a change of control.

Employee share schemesDetails of the Company’s employee share plans can be found on page 79.

Under the terms of the trust deed governing the Company’s employee benefit trust, the trustees are not allowed to vote in respect of any shares held in the trust.

Annual General MeetingThe notice of Annual General Meeting, to be held at noon on Thursday 7 May 2009 at the Company’s offices at Cumberland House, 6th Floor, 1 Victoria Street, Hamilton, Bermuda HM 11, is contained in a separate circular to shareholders enclosed with this report.

AuditorsResolutions are to be proposed at the Annual General Meeting to reappoint PricewaterhouseCoopers as auditors to the Company and to authorise the Directors to fix the auditors’ remuneration. PricewaterhouseCoopers was first appointed in 1999.

By Order of the Board

Daniel PrimerCompany Secretary12 February 2009


Corporate Governance Report

Overview, basis of reporting and the Combined CodeThe Company is incorporated in Bermuda and as a result is not bound by the Combined Code on Corporate Governance. The Company does however aim to apply best practice in corporate governance and complies not only with all Bermuda statutory requirements but also intends to comply voluntarily with the Combined Code. During 2008, the Company did in fact comply with the Code other than with respect to the minor variances described below. The Company’s auditors have reviewed the Company’s compliance with the Combined Code to the extent required by the UK Financial Services Authority for review by auditors of UK-listed companies.

Board of DirectorsThe Board of Directors comprises a Non-Executive Chairman, two Executive Directors, seven Independent Non-Executive Directors (‘Independent Directors’), and one Non-Executive Director affiliated with a shareholder, Charlesbank (‘Non-Executive Director’).

The Board composition changed on 6 August 2008 when Alton Irby resigned due to the pressure of other commitments. The Board appointed a new Independent Director, Nicholas Lyons, on the same date. There were no other changes to Board membership during 2008 and 2009 up to the date of this Report.

Michael Eisenson, a Non-Executive Director, was originally appointed (in 2002) to the Board by a shareholder pursuant to a right of appointment included in the Bye-Laws that has now lapsed; he was re-elected to the Board by shareholders generally most recently at the 2008 Annual General Meeting.

During 2008 there were no material changes to the Chairman’s other commitments.

Independence of DirectorsThe Board considers Alan Bossin, Michael Crall, Jean Claude Damerval, Kenneth Goldstein, Michael Harper, Michael Hepher and Nicholas Lyons to be independent within the meaning of the Combined Code. None of them has any executive or other role or relationship with the Company or management that would affect his objectivity, and all have proven to be independent in character and judgment. Mr Bossin is counsel at the Bermudian law firm Appleby, which acts as an advisor to the Company on Bermuda law, but the Board believes that the relationship between the Company and Appleby (including the level of fees) is not of sufficient significance to any of the Company, Appleby or Mr Bossin to compromise his independence. With seven Independent Directors, the Board composition complied with the Combined Code during 2008.

The Board also considers that the Non-Executive Director, Michael Eisenson, is fully independent of management, fulfils his duty to all shareholders, and executes his responsibilities with independence of character and judgment. However, due to his affiliation with a shareholder he technically is not ‘independent’ as defined by the Combined Code.

The Company complies with the Combined Code other than in respect of the following:

— One member of the Compensation Committee, Michael Eisenson, is a Non-Executive Director. The other three members are Independent Directors. The Board is aware of the Combined Code recommendation that all members be independent directors. However, the Board believes that Mr Eisenson’s affiliation with a shareholder does not serve to align him with management or otherwise undermine his independent judgement and in fact aligns him with shareholders in general. The Board also considers that his contributions to the Committee over a period of years demonstrate his independence as a matter of fact, notwithstanding technical non-compliance with the Code.

— Certain Directors’ appointment letters, originally issued some years ago, do not specify a minimum time commitment. The affected individuals have been Directors for at least four years, and over that time each has demonstrably devoted sufficient time and attention to their responsibilities. During 2008 each of them attended all Board and relevant Committee meetings.

Board performance evaluationThe Board is committed to ongoing improvement in its procedures and performance, and during 2008 implemented a variety of measures to achieve this. The Board undertook a formal self-appraisal process involving a questionnaire, discussions and consideration of current governance best practice. The Board also continued implementing recommendations adopted from previous performance evaluations and reviewed on an ongoing basis the quality, content and frequency of information being provided to it by the Company. The self-appraisal process focused on the skill-sets of Directors, the membership of the Board and its committees, the level and quality of the Board’s involvement in establishing Group strategy, the Board’s access to employees and information throughout the Group, and the mechanisms to enable the Board to monitor key performance indicators and achievement of the Group business plan. Steps taken following the review included reconfiguration of the membership of the Board committees, regular meetings of all non-executive Directors in the absence of the Executive Directors, a rolling programme of presentations by executives on specific areas of risk and enhanced continuing professional development.

73Governance

Other performance reviews undertaken during 2008 include:

— A Board review of the effectiveness of all Board committees together with self-appraisals by each committee;— Performance appraisals of individual Directors; and— Meetings between the Senior Independent Director and the Independent and Non-Executive Directors, in the absence

of the Chairman, to assess the Chairman’s effectiveness.

The reviews were conducted through a combination of meetings and appraisal forms, and recommendations arising from these reviews were implemented during 2008. A similar process is being undertaken early in 2009.

In November 2008, the Board retained Independent Audit Limited, a third-party consultant, to conduct detailed performance assessments of the Board and its committees. The output of that work will be considered – and to the extent deemed appropriate implemented – during 2009.

Board meetingsThe Board held five meetings in 2008, and all Directors attended all meetings. In addition, the Board held a two-day strategic planning session with senior management.

The Chairman met during the year with the Independent and Non-Executive Directors.

Responsibilities and proceduresThe Board is responsible for the leadership, strategic direction, prudential control and long-term performance of the Company. It has adopted a schedule of matters reserved to the Board for decision, to which there were no changes during 2008. These include the adoption of strategic or business plans, major transactions, investment strategy, major treasury or financial decisions, significant borrowing, changes to capital structure, issuance of equity or debt securities, approval of public financial statements and the appointment of selected members of senior management.

The Board is responsible for ensuring the maintenance of proper accounting records which disclose with reasonable accuracy the financial position of the Company. It is required to ensure that the financial statements present a fair view for each financial period.

During 2008 the Board considered succession planning for senior executives and at the Board level.

The Board has delegated to the Chief Executive Officer and to the Group Executive Committee (comprising the Executive Directors and other senior executives) authority to execute Board strategy and to manage the Company on a day-to-day basis, including approval of financial commitments below the levels requiring Board approval.

The Board has delegated authority to the Nomination, Compensation and Audit Committees in accordance with governance best practice. The level of delegation is defined in terms of reference and described in the reports that follow. The Board has also delegated certain authority over management of the Company’s investments to an Investment Committee of the Board.

Management regularly provides to the Board information necessary to enable the Board to perform its duties; that information is provided principally in standard monthly reports covering key performance indicators and in comprehensive meeting papers. Further information is provided on an ad hoc basis as issues of interest arise. Directors are free to request from the Executive Directors and from other executives such information as they consider appropriate. The Board and its committees have unrestricted access to the Company’s professional advisors and are authorised to take independent professional advice at the Company’s expense.

The Board is regularly updated on regulatory and compliance developments including Board governance matters. Additional briefing materials are available to any Director upon request. The Board is able to discuss the business with employees at all levels.

The Board has adopted a formal division of responsibilities between the Chairman, who is responsible for running the Board and related matters such as Board induction and evaluation, and the Chief Executive, who is responsible for the day-to-day management of the business.

Upon their appointments, new Directors receive a comprehensive induction programme covering amongst other things the Group’s history and business, the competitive environment, business plans and strategy, finance, investor relations, governance and Directors’ responsibilities, and corporate social responsibility.


Corporate Governance Report continued

Relations with shareholdersThe Company is committed to ongoing dialogue with its shareholders. Presentations to analysts and investors are made by senior management, including the Executive Directors, following the half-year and full-year results announcements and at other times during the year including an Investor Day held in November 2008. The Executive Directors and other senior executives undertake an extensive programme of one-on-one investor meetings throughout the year.

With the assistance of its corporate brokers and investor relations advisors, the Company seeks feedback from investors following major presentations. This feedback is communicated to the Board. The Chairman, Non-Executive Directors and Independent Directors are also available to meet major shareholders upon request.

Shareholders are encouraged to attend the 2009 AGM.

Accountability and internal controlThe Directors are responsible for the Company’s systems of internal control and for taking reasonable steps to safeguard the assets of the Company and to prevent and detect reporting irregularities. For the year ended 31 December 2008, the Directors have reviewed the effectiveness of these systems, which are designed to provide reasonable, although not absolute, assurance against material avoidable loss or misstatement of financial information. These systems are also designed to manage rather than eliminate the risk of failure to achieve these objectives. Regular reports regarding internal controls are also made to the Board directly and/or through the Audit Committee.

During January 2009 a review of the effectiveness of the Company’s internal controls and risk management systems during 2008 was conducted under the direction of the Audit Committee and the Board pursuant to the Turnbull Report and related guidance. It included a review of the documentation of internal control systems, including the extent to which those controls are risk-based and are embedded in the organisation. The results of this review were presented to the Audit Committee and Board in February 2009.

The Company has an ongoing process for identifying, evaluating and managing significant risks (the risk management programme) and this has been in place throughout 2008 and up to the date of this report. The Board receives periodic reports from the Chief Risk Officer and/or the Audit Committee on the risk management programme.

The Chief Executives of each of the Company’s underwriting platforms are responsible for directing the risk management programme within their operations. The Chief Risk Officer, the Group Executive Committee and other senior executives review and monitor the identification and assessment of significant risks and the relevant control and monitoring procedures. In addition, they monitor the Company’s significant risks on an ongoing basis. Action is taken where the need for further risk mitigation is identified. Internal audits are conducted on an ongoing basis as part of a risk-based plan approved and monitored by the Audit Committee.

Going concernThe Board is satisfied that the Company has adequate resources to continue in operation for the foreseeable future. The Company’s financial statements therefore continue to be prepared on a going concern basis.

Report from the Nomination CommitteeThe Nomination Committee is chaired by Sir Graham Hearne, Non-Executive Chairman. Other members of the Committee are Michael Crall, Michael Harper and Michael Hepher.

Terms of referenceThe Committee’s terms of reference, which are available on request from the Company Secretary and are published on the Company’s website, include identifying potential nominees for election to the Board; advising the Board on succession, retirement and re-election of Directors; reviewing the Board’s structure, size and composition; and participating in the Directors’ appraisal process.

MeetingsThe Nomination Committee meets as and when required; it met twice during 2008. All members attended both meetings. Members also communicated as needed outside of the meeting.

75Governance

ActivitiesThe Nomination Committee focused on three areas during 2008:

— As described above, one Director (Alton Irby) resigned during the year due to other commitments. Mr Irby had joined the Board only one year earlier, and had been recruited following a search by an external consultant in part based upon his relevant insurance and financial services experience. The Board identified Nicholas Lyons, who had since 2005 served as an independent director on the Boards of Catlin Syndicate and Catlin UK and had satisfied UK Financial Services Authority requirements for independent directors at those regulated entities. Mr Lyons, who has extensive financial services experience and is Non-Executive Chairman of Miller Insurance Services Limited, satisfied the Board’s specification and upon resignation from the subsidiary boards was appointed to the Board subject to election at the 2009 AGM.

— Three Directors – Sir Graham Hearne, Alan Bossin and Michael Eisenson – were due to retire by rotation at the 2008 AGM. The Committee appraised the performance of each and concluded that all three continued to be effective in and dedicated to their roles, and accordingly recommended them for re-election. Following the Committee’s recommendation and the Board’s approval, they were re-elected to the Board at the 2008 AGM.

— The Committee considered the membership of the Board committees in the light of Mr Irby’s departure. The Committee recommended, and the Board agreed, to changes in the membership of the Audit and Compensation Committees.

Report from the Audit CommitteeThe Audit Committee is chaired by Michael Hepher, an Independent Director. The other members who served for the full year are Jean Claude Damerval and Kenneth Goldstein. Nicholas Lyons replaced Michael Crall on the Committee with effect from the date of his appointment to the Board, 6 August 2008. The Chief Executive Officer, the Chief Financial Officer and other members of the Company’s management attend meetings by invitation of the Committee. The Board is satisfied that throughout the year there has been at least one Committee member with recent and relevant financial experience.

Terms of referenceThe Committee’s terms of reference, which are available on request from the Company Secretary and are published on the Company’s website, require it to monitor the integrity of the Company’s financial statements and the systems and controls supporting them.

The Committee is also required to:

— Recommend to the Board the appointment, removal and remuneration of independent external auditors;— Monitor and assess the effectiveness of the Company’s systems of internal controls and risk management;— Discuss major financial risk exposures with management, including risk assessment and risk management policies; and— Monitor and review the effectiveness of the Company’s internal audit function.

The Committee is responsible for approving all appointments of the external auditors (or their associated entities) to provide non-audit services, subject to a de minimis threshold of $25,000. Such appointments are approved only if the Committee is satisfied that the independence and objectivity of the auditors will not be undermined by the nature or size of the non-audit work and that there are compelling reasons to use the external auditors rather than another service provider. The total paid to the external auditors in 2008 for audit services amounted to US$3,100,630 (2007: $3,166,658); the total paid in 2008 for non-audit services amounted to US$11,140 (2007: $13,640). The non-audit services comprised subscriptions to a Bermuda industry compensation survey and to on-line accounting reference materials. The fees were below the de minimis threshold, and the Committee is satisfied that the services will not undermine the role of PricewaterhouseCoopers (‘PwC’) as external auditor.

MeetingsThe Committee met five times during 2008, and all members attended all meetings.


Corporate Governance Report continued

ActivitiesFinancial reporting— The Committee reviewed the 2007 year-end and 2008 half-year financial results. It considered updates on accounting policy matters

including the adoption of FAS 159 relating to the recognition of investment gains and losses.

— It met with external and company actuaries to discuss technical loss reserves and areas of greatest reserving uncertainty. Following full meeting reports, the Committee met privately with the external actuaries without management present.

— It reviewed proposed public financial statements including expanded public reporting on loss development triangles and extreme threat analysis.

— The Committee met with members of the Catlin finance team to discuss progress on improvements in the financial reporting systems.

External audit— The Committee met with the external auditors regarding their 2007 full-year audit, 2008 half-year review and the plan for the 2008

year-end audit. Following the full meeting reports, the Committee met privately with the external auditors without management present.

— The plan for the annual external audit work was approved, along with related fees.

— The Committee assessed the effectiveness of the external auditors. It discussed the auditors’ independence and rotation plans.

Internal audit and risk— The Committee received regular reports on the findings from the programme of internal audits. Following the full meeting reports,

the Committee met with the internal auditors without management present.

— The 2008 internal audit programme was reviewed and agreed.

— Key financial risks and other risks were identified and discussed with management. The Committee considered special reports on risks related to delegated underwriting authority, tax risks, investment performance, and the risks and controls around underwriting pricing.

— The Committee directed and reviewed the assessment of effectiveness of internal controls and risk management systems.

— The Committee reviewed reports on regulatory compliance. Following the full meeting reports, the Committee met with the Group Compliance Officer without management present.

Other— The Committee received regular reports from the General Counsel on legal matters.

— The Committee reviewed Directors’ expenses.

— The Committee considered reports on costs of integration following the Wellington acquisition and savings from synergies arising from the combined operations.

— The Committee reviewed its terms of reference and conducted an assessment of its effectiveness and how it had discharged its responsibilities.

— The Committee has undertaken an ongoing training and education programme to keep up-to-date with accounting, regulatory and other relevant developments.

By Order of the Board

Daniel PrimerCompany Secretary12 February 2009

77Governance

Directors’ Remuneration Report

This report to shareholders describes the Company’s remuneration policy and the remuneration of its Directors for the year ended 31 December 2008. The report has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002 and the Listing Rules of the UK Listing Authority. The sections of this report entitled ‘Directors’ Emoluments’ and ‘Options Over Shares’ have been audited by PricewaterhouseCoopers. The remainder of the report is unaudited.

This report continues with the prospective reporting philosophy adopted for the 2007 report to provide the most up-to-date information on Directors’ remuneration. Bonuses are disclosed on an accrued, rather than paid, basis. That is, bonuses relating to performance during 2008 are reported here, although they will be paid early in 2009. Bonuses paid during 2008 but referable to 2007 performance were disclosed in last year’s report and are not repeated here.

Compensation CommitteeThere were two changes to the membership of the Compensation Committee during 2008. Alton Irby left the Committee with effect from 5 August 2008, when he resigned from the Board. Michael Crall, who until May 2007 was Chairman of the Committee, was re-appointed on 6 August 2008. Michael Harper, Senior Independent Director, was Chairman throughout the year. Jean Claude Damerval, Independent Director, and Michael Eisenson, Non-Executive Director, were the other members during 2008.

The Committee met five times in 2008, with full attendance at all meetings.

Terms of referenceThere was no change to the Committee’s terms of reference during 2008. Its role and responsibilities include assisting the Board in setting policy for the remuneration of the Chairman, the Executive Directors, other senior executives and all Group employees. Within that policy, the Committee establishes remuneration packages for the Chairman, the Executive Directors and other senior executives. It is also responsible for agreeing aggregate salary increases for all Group employees, agreeing bonus schemes, establishing performance targets and individual awards under share incentive plans, and recommending to the Board any major changes to employee benefit structures throughout the Group. The Committee’s terms of reference are available on request from the Company Secretary and appear on the Company’s website.

Use of advisorsThe Committee from time to time uses external consultants to provide advice on the Group’s executive compensation structure. Deloitte LLP provided advice to the Committee during 2008 with respect to the Group’s overall compensation structure and the development of US and UK ‘all-employee’ share plans. Deloitte from time to time provides non-material accounting and actuarial services to the Group, but is not the Group’s auditor or primary actuarial consulting firm. The Committee believes that the objectivity of the advice received from Deloitte is not affected by the other services it provides to the Group.

The Committee has also retained New Bridge Street Consultants from time to time to provide data on specific projects.

The Committee receives information and assistance from various members of management, including the Chief Executive, the Chief Investment Officer and Head of Strategic Human Resources. However, they are excluded from any discussions regarding their own remuneration. The Company Secretary or Head of Strategic Human Resources acts as secretary to the Committee.

Policy on remuneration of Executive Directors and senior executivesThe Company’s policy is to offer remuneration packages that attract, retain and motivate staff of suitable calibre and experience. Remuneration, particularly with respect to Executive Directors and other senior executives, is designed to create incentives to meet the financial and strategic objectives set by the Board for the Company, primarily through variable bonus and share plan components. This policy aims to align executive rewards with the creation of shareholder value over time rather than with short-term or revenue-driven measures. Accordingly, variable elements of compensation depend on the financial performance of the business, primarily return on equity, profit before tax and growth in net asset value per share measured over periods of one to four years. In addition to those factors, the Committee has authority to consider all aspects of Company performance – including its performance on environmental, social and governance issues – in establishing remuneration.

The committee undertook a major review of Group compensation structures during 2007, as reported last year, and implemented changes arising from that review during 2008. No further material changes were adopted during 2008, but the Committee approved and the Group implemented a new performance evaluation programme for all staff, including Executive Directors, to measure better individual performance and to link performance to compensation.


Directors’ Remuneration Report continued

In the wake of the banking crisis commencing during 2008, there has been extensive market commentary, along with pronouncements from the UK Financial Services Authority and shareholder advocacy groups including the Association of British Insurers (‘ABI’) and Risk Metrics, regarding executive compensation structure. The debate has focused on issues such as whether executives are being ‘rewarded for failure’, incentives encourage excessive risk-taking and compensation is proportionate within a business. The Committee has considered and will continue to review these issues, but it believes that the Group’s incentive schemes, including those applicable to Executive Directors, are practically and philosophically consistent with emerging best practice. Further detail is provided below in the commentary relating to specifi c aspects of Group compensation, but in summary the Committee believes that:

— overall compensation aligns executives with shareholders;— the incentives do not encourage risk-taking that is excessive or beyond the risk appetite defi ned by the Board and refl ected

in the annual business plan;— failure is not rewarded;— there is an appropriate balance between fi xed and variable compensation and between short-term and long-term incentives;— proportionality exists across all employees; and— compensation policy for 2009 fairly refl ects the challenging economic and operating environment.

Basic salaryBasic salaries and related benefits are determined having regard to employees’ responsibilities, contributions, qualifications and the distribution of salary across all employees in the Group and are set at a level sufficient so that employees are not unduly dependent on bonuses. Basic salaries are intended to be competitive with those offered by similar organisations in the jurisdictions where the Company operates. Salaries are reviewed annually before year-end, and any increases are based upon changes in the scope of employee responsibilities, achievement of individual performance targets, relative compensation levels throughout the Company, inflation, market trends and such other considerations as the Committee considers relevant. For comparative purposes, the Company periodically researches competitors’ remuneration structures but uses such comparisons cautiously to avoid unwarranted increases.

In reviewing basic salary for 2009, the Committee considered the performance of the Executive Directors against their personal goals, the overall performance of the Company, the trading and economic environment, and compensation levels across the Group. The Committee considered that the Executive Directors’ performance was of a high level, but given the difficult economic and trading conditions and management’s preference for focusing salary increases on staff below the senior executive level, the Executive Directors and executive persons discharging managerial responsibility (‘PDMRs’) received no salary increase for 2009. This follows a nil pay increase for 2008.

Bonus arrangementsThe Group operates a single bonus plan (‘Bonus Plan’). The Bonus Plan, adopted late in 2007 for the 2008 and future financial years, is non-pensionable and applies to all Group employees, including the Executive Directors. Bonuses relating to the 2008 financial year are payable early in 2009.

The Bonus Plan is designed to create alignment between shareholders and staff and to reward superior individual performance without encouraging excessive risk-taking. The bonus pool comprises two elements. The first is a profit-related fund, the amount of which depends on return on equity and profits before tax for each financial year. For 2008, no profit-related element is payable unless return on equity is at least 5 per cent, at which level a percentage of profits before tax is payable. The percentage starts at zero and rises on a steepening curve to a maximum (both in percentage and absolute terms) of 9 per cent of profits before tax at a 25 per cent return on equity. The increasing steepness of the curve is intended to create greater incentives for superior performance, particularly for exceeding a 20 per cent return on equity. However, because the overall pool is capped at a level of return on equity consistent with the Group’s risk appetite as reflected in the annual business plan, the Committee believes that it has struck a reasonable balance between encouraging personal performance and not rewarding excessive risk. The second element of the pool is related to personal performance and is in the aggregate equal to approximately 10 per cent of basic payroll. (In last year’s report, it was erroneously stated that the threshold return on equity was 10 per cent. This should have read 5 per cent.)

The Committee retains discretion over all elements of the Bonus Plan and may make such adjustments to the formula that it may consider to be in the interests of the Company. No adjustments were made during 2008. The Committee will continue to review the suitability of the Bonus Plan and individual awards in light of the business environment and the Company’s objectives for each year.

The value of the bonus pool available for distribution to all employees is driven largely by Group financial performance. However, individual allocations, including those to Executive Directors, are at the discretion of the Committee and are based upon overall individual performance and not merely financial results; the Committee considers all aspects of Company performance – including its performance on environmental, social and governance issues – in establishing bonuses payable to Executive Directors. There is no formal cap on individual awards, but the total pool is capped. The Committee is responsible for ensuring that bonus awards to the Executive Directors are not excessive, reflect the performance of the business and the recipients, and are proportionate to the bonuses paid to employees across the Group.

79Governance

The financial targets required for payment under the profit-related element of the Bonus Plan were not achieved during 2008, so no profit-related pool was created. The Committee considered that the personal performance of the Executive Directors merited a bonus under the personal performance element of the Bonus Plan equal to 10 per cent of basic salary, which is in line with the bonus levels paid to employees across the Group.

As disclosed in last year’s report, in March 2008 the Executive Directors (along with 30 other employees) received an integration bonus relating to achievement of integration targets following the acquisition of Wellington Underwriting plc during the period up to March 2008. The amounts paid are included in the ‘Total 2007’ column of the Directors’ emoluments table.

Share plansThe Company seeks further to align interests between Executive Directors, employees and shareholders by facilitating share ownership. This is achieved through share incentive plans, of which five are in existence, although awards during the period have been made only under three:

— The Performance Share Plan (‘PSP’), adopted by the Company in 2004. Awards are made under the PSP annually; awards made during 2008 and planned for 2009 are set forth below.

— A UK Inland Revenue-approved save-as-you-earn plan (‘SAYE’), open to all UK employees.

— A US Internal Revenue Service-approved employee share purchase plan (‘ESPP’), open to all US employees.

There are two other plans: a Share Option Plan adopted contemporaneously with the PSP, under which no awards have ever been or are currently planned to be made, and the Long Term Incentive Plan (‘LTIP’), adopted in 2002. The last LTIP awards were made prior to the Company’s initial public offering in 2004, and no further awards will be made.

Executive Directors are also encouraged to develop and maintain a meaningful shareholding (equal in value to 100 per cent of base salary over a period of three years and 200 per cent over five years from December 2007). The stake can be built over time through the share incentive plans referred to above. The Committee considers this desirable particularly given the ‘long-tail’ of insurance liabilities reflected on the Company’s balance sheet.

Performance Share PlanThe PSP was adopted by the Board immediately prior to the Company’s initial public offering in 2004 and is designed to reward participants for delivering growth in shareholder value. PSP participation is spread broadly across the Group, with more than 400 participants in 2008 and more than 500 in 2009. The PSP provides for conditional awards of shares (or nil-cost options), vesting of which depends on achievement of performance conditions calibrated to the creation of shareholder value. The performance conditions require that growth in net asset value plus dividends declared per share during the Relevant Period exceed US dollar Libor plus 5 per cent per annum. At that level, 30 per cent of the award would vest, increasing on a straight-line basis to 100 per cent vesting at US dollar Libor plus 10 per cent. For awards made during 2008, the Relevant Period is 2008 to 2010 (inclusive) as to half of the award, and 2008 to 2011 for the balance. The Relevant Period for awards made during 2009 is 2009 to 2011/2012. In addition, upon vesting participants are entitled to receive shares purchased in the market with notional dividends accrued on the underlying PSP award (‘Dividend Shares’), but only to the extent that the underlying awards vest. Subject to limited exceptions, individual awards normally vest only if the participant is still employed by the Group upon vesting.

The PSP is limited such that no award may be granted if the total number of shares to be issued to satisfy awards under the PSP and other share plans during the period of ten years prior to such grant (but excluding any awards granted prior to IPO) would exceed 10 per cent of the issued ordinary share capital of the Company on the date of grant. The Company also has discretion to satisfy awards under the PSP (or other subsisting share plans) with shares purchased in the market (up to a further 5 per cent). Subject to Committee discretion, individual annual awards will not ordinarily exceed twice the participant’s basic salary.

The Committee reviews the PSP on an ongoing basis to ensure that it remains effective to align employees with shareholders and for retention. The Committee has also considered the PSP in light of current commentary on financial services compensation generally. The Committee has concluded that the performance conditions (which have not been changed) remain appropriate, and the three- and four-year measurement periods – when considered together with the annual Bonus Plan – create a good balance of multi-year incentives.



Directors’ PSP participation during 2008 and 2009Annual awards under the PSP were made to the Executive Directors during 2008 and will be made during 2009. Stephen Catlin received an award of nil-cost options over 243,598 shares in March 2008 and will on 12 February 2009 receive an award of options over 246,385 shares. Christopher Stooke received (or will receive) awards of nil-cost options over 149,906 shares and 151,898 shares on the same dates. The value of the awards (subject to vesting and not including potential Dividend Shares) was approximately £975,000 and £600,000 for Mr Catlin and Mr Stooke, respectively. The awards, both of in terms of number of shares and nominal value, were roughly equivalent to previous years. The total PSP awards granted to Executive Directors, expressed as a percentage of total PSP awards to all participating employees, was 7.7 per cent for 2008 and 6.3 per cent for 2009. The Committee considers this to be a fair allocation.

In March 2009, one-half of the PSP awards made in each of 2005 and 2006 are eligible for vesting. Based upon the extent to which the performance conditions were achieved, the 2005 award will vest as to 32 per cent and the 2006 award will vest in full. Executive Directors’ awards vesting in March 2009 are as follows:

Vested 2005 Vested 2005 Vested 2006 Vested 2006 award dividend shares award dividend shares

Stephen Catlin 21,025 4,272 99,076 16,505 Christopher Stooke 15,216 3,091 77,041 11,667

LTIPThe LTIP was adopted in 2002 in a form agreed between the Company and its major shareholders. Subsisting awards under the LTIP comprise options to purchase shares at $5 per share, and all outstanding options have vested. No options have been issued under the LTIP since the Company’s initial public offering and listing on the London Stock Exchange in 2004, and no further awards will be made. Details of outstanding awards to Directors are set forth below.

SAYEThe SAYE was adopted at the 2008 AGM and is an ‘all-employee’ plan on standard UK Inland Revenue-approved terms. Under the SAYE, eligible employees are able to apply for options over the Company’s Common Shares which vest in three years under a savings contract of equal duration. The option exercise price for the 2008 plan is at a discount of 20 per cent compared with the share price at the time employees were invited to participate in the Scheme. It is anticipated that the SAYE will be offered again in 2009 on substantially identical terms.

No Directors participate in the SAYE.

ESPPThe ESPP was adopted at the 2009 AGM, and is an ‘all-employee’ plan on standard US Internal Revenue Service terms. Under the ESPP, eligible employees are able to apply for options over the Company’s Common Shares which become exercisable at the end of a 12-month savings period. Participants will fund the exercise of their options by way of salary deductions throughout the period. The option exercise price for the 2008 plan is a discount of 15 per cent off the share price at the time employees were invited to participate in the scheme. It is anticipated that the ESPP will be offered again in 2009 on substantially identical terms.

No Directors participate in the ESPP.

All share plans will be adjusted pursuant to standard anti-dilution provisions if and when the Rights Issue announced on 12 February 2009 becomes unconditional.

81Governance

Other benefi tsPermanent health insurance, private medical insurance, personal accident/travel insurance and life insurance are purchased for the benefit of the Executive Directors. In addition, Mr Catlin, along with other executives, has use of a Bermuda residence leased by the Group.

Service contractsStephen Catlin is employed as Chief Executive pursuant to a contract dated 5 April 2006. Christopher Stooke is employed as Chief Financial Officer pursuant to contracts dated 30 October 2002 and 18 January 2007. The contracts require 12 months’ notice of termination of employment and do not provide for additional compensation to be paid in the event of termination. Both serve as Directors subject to the Bye-Laws and to re-election from time to time at the Company’s AGMs. No additional compensation is payable to either for serving as a Director or upon ceasing to serve as a Director.

External appointmentsAt the discretion of the Board, an Executive Director is permitted to accept directorships or similar positions in non-competing ventures to the extent that they do not interfere or conflict with the Director’s obligations to the Company. In normal circumstances, the Director is permitted to retain remuneration received in that capacity.

During the reporting period and up to March 2009, neither Executive Director served as a director for remuneration with any other entity.

Independent and Non-Executive DirectorsIndependent and Non-Executive Directors serve pursuant to letters of appointment, details of which are as follows:

Director Date of current appointment letter Unexpired term

Alan Bossin 29 March 2004 Until 2011 AGMMichael Crall 20 September 2004 Until 2009 AGMJean Claude Damerval 6 July 2005 Until 2009 AGMMichael Eisenson 16 June 2004 Until 2011 AGMKenneth Goldstein 7 June 2007 Until 2010 AGMMichael Harper 7 July 2005 Until 2009 AGMSir Graham Hearne 13 January 2005 Until 2009 AGMMichael Hepher 20 September 2004 Until 2009 AGMAlton Irby 7 June 2007 Retired 5 August 2008Nicholas Lyons 11 August 2008 Until 2009 AGM

The ‘Unexpired term’ shown above reflects the mandatory ‘retirement by rotation’ mechanics included in the Bye-Laws. In addition, all Independent and Non-Executive Directors’ appointments are subject to 90 days’ notice of termination. Sir Graham Hearne and Messrs Crall and Hepher are entitled, subject to re-election at AGM, to nine months’ compensation (in addition to the 90-day notice period) if their appointments are terminated by the Company without cause, with a maximum liability to the Company of US$87,875, US$27,750 and US$32,375, respectively. None of those Directors has any executive role with the Company.

The appointment letters and service agreements are available for inspection at the Company’s registered office and at Catlin Holdings Limited, 3 Minster Court, Mincing Lane, London EC3R 7DD during normal office hours.



Directors’ emolumentsThe aggregate emoluments paid to or receivable by Directors for services to the Company and its subsidiary undertakings for the 2008 financial year, together with comparatives for the previous year, are as follows:

US$ Salary Fees Bonus1 Benefits Total 2008 Total 2007 2

Alan Bossin – 86,960 – – 86,960 86,044Stephen Catlin 1,359,787 3 – 120,250 151,045 1,631,082 4,286,453Michael Crall – 107,593 – – 107,593 109,549Jean Claude Damerval – 90,818 – – 90,818 89,066Michael Eisenson4 – 86,960 – – 86,960 86,044Kenneth Goldstein – 90,819 – – 90,819 58,268Michael Harper – 142,460 – – 142,460 138,132Alton Irby5 – 49,859 – – 49,859 54,396Sir Graham Hearne – 334,881 – – 334,861 326,264Michael Hepher – 123,960 – – 123,960 122,088Nicholas Lyons6 – 38,957 – – 38,957 –Christopher Stooke 740,000 – 74,000 15,284 829,284 2,406,2161 Bonuses were earned during 2008 but will be paid early in 2009.2 As disclosed last year, the 2007 totals for Mr Catlin and Mr Stooke include US$501,472 and US$343,200, respectively, for integration bonuses related to the

Wellington acquisition, which were paid in March 2008.3 Included within Mr Catlin’s salary is US$177,860 which is a cash supplement, equal to 13.08 per cent of his base salary, paid in lieu of Company

pension contributions.4 Fees payable in respect of Michael Eisenson are payable to Charlesbank Capital Partners LLP.5 Resigned 6 August 2008.6 Appointed 6 August 2008.

The Board determines the fees paid to the Independent and Non-Executive Directors by reference to market rates and the time, skills and commitment required. Independent and Non-Executive Directors do not participate in pension, bonus or share plans.

The Board reviews Independent and Non-Executive Directors’ fees annually. Having considered market comparables, the quality of the Board’s contribution and pay structures across the Group, the fees payable to Independent and Non-Executive Directors were increased with effect 6 August 2008. The Chairman’s fee increased from US$323,750 to US$351,500, and the Senior Independent Director’s fee increased from US$138,750 to US$148,000, which includes the fee of US$18,500 payable for serving as Chairman of the Compensation Committee. The basic fee for Independent and Non-Executive Directors increased from US$83,250 to US$92,500 per annum. In addition, a fee is payable to the Chairman of the Audit Committee (Mr Hepher) of US$37,000, and the other members of the Audit Committee receive a further fee of $4,625. The Chairman of the Investment Committee (Mr Crall) receives an additional fee of US$18,500.

Directors’ fees are denominated in sterling but are reported here in US dollars.

PensionsFollowing changes in UK pension legislation, the Company on 5 April 2006 ceased contributing to Mr Catlin’s pension. Instead, the Company now pays a cash supplement amounting to 13.08 per cent of base salary per annum. This payment is at the same net cost to the Company as the former pension arrangement. Mr Stooke participates in the Company’s money purchase scheme and is entitled to a contribution paid by the Company equal to 15 per cent of his base salary; the total amount paid in 2008 was US$111,000 (2007: US$120,000).

Options over sharesThe closing price for the Company’s shares on 31 December 2008 was 433.5 pence, and the range during the year was 265.75 pence to 453.50 pence. The closing price for shares on 6 February 2009 was 395 pence.

83Governance

The table below shows options outstanding under the LTIP at year end. All of those awards were granted during prior financial years.

Number of Number of Exercise period shares subject shares subject to option at to option at 1 January 2008 31 December 2008 Exercise price From To

Stephen Catlin 2,568,256 2,568,256 $5 Now 4 July 2012Christopher Stooke 128,412 128,412 $5 Now 4 July 2012 64,206 64,206 £3.50 Now 4 July 2012

The table below shows awards made during 2008 under the PSP. All remained outstanding at year end.

Number of Awarded Number of Number of shares subject during 2008 shares subject options to option at (number of shares to option at exercised Award date 1 January 2008 subject to option) 31 December 2008 during 2008 Vesting date

Stephen Catlin 6 March 2008 520,740 243,599 698,632 65,7061 Up to 164,782 in March 2009 Up to 194,664 in March 2010 Up to 217,387 in March 2011 Up to 121,799 in March 2012Christopher Stooke 6 March 2008 352,830 149,906 455,185 47,551 1 Up to 117,591 in March 2009 Up to 128,864 in March 2010 Up to 133,777 in March 2011 Up to 74,953 in March 20121 In addition, Mr Catlin received 7,805 Dividend Shares upon the exercise of his options and Mr Stooke received 5,648 Dividend Shares. The closing price of the

Company’s shares on 6 March 2008 was 400.25 pence.

Subject to vesting of the underlying PSP awards, as at 31 December 2008 the Executive Directors have beneficial interests in the Dividend Shares held by the trustees of the Catlin Group Employee Benefit Trust in up to the following number of shares: Number of common shares

Stephen Catlin 85,332Christopher Stooke 56,974

Performance graphThe graph below shows the total shareholder return for the Company’s common shares since they began trading on 1 April 2004 to 31 December 2008 compared with that of the FTSE 350, which the Board considers to be an appropriate comparator group. Total shareholder return comprises changes in share price plus dividends paid.

The Directors’ Remuneration Report was approved by the Board of Directors on 8 February 2009 and was signed on its behalf by:

Daniel PrimerCompany Secretary

80

100

120

140

160

180

200

Dec2008

Sept2008

June2008

March2008

Dec2007

Sept2007

June2007

March2007

Dec2006

Sept2006

June2006

March2006

Dec2005

Sept2005

June2005

March2005

Dec2004

Sept2004

June2004

FTSE 350Catlin shares


Report of the Independent AuditorsTo the Board of Directors and Stockholders of Catlin Group Limited

In our opinion, the accompanying Consolidated Balance Sheets and the related Consolidated Statements of Operations, Consolidated Statements of Changes in Stockholders’ Equity, Consolidated Statements of Cash Flows and Notes to the Financial Statements present fairly, in all material respects, the financial position of Catlin Group Limited and its subsidiaries at 31 December 2008 and 31 December 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the Consolidated Financial Statements, the Company changed the manner in which it accounts for its fixed maturities and short-term investments with effect from 1 January 2008 with the adoption of a new accounting pronouncement.

PricewaterhouseCoopersBermuda12 February 2009

85Financial Statements

Consolidated Balance SheetsAs at 31 December 2008 and 2007 (US dollars in thousands, except for share amounts)

2008 2007

Assets Investments

Fixed maturities, at fair value (amortised cost 2008: $2,813,554; 2007: $2,928,717) $2,708,221 $2,948,950

Short-term investments, at fair value 68,982 47,605Investments in funds, at fair value 800,787 946,418Investment in associate – 2,537Total investments 3,577,990 3,945,510 Cash and cash equivalents 2,355,423 2,055,634Securities lending collateral 32,899 44,662Accrued investment income 31,211 37,274Premiums and other receivables 1,079,551 1,052,849Reinsurance recoverable 1,225,631 1,012,781Reinsurers’ share of unearned premiums 302,157 224,235Deferred policy acquisition costs 247,529 247,171Intangible assets and goodwill 650,748 884,428Derivatives, at fair value 6,602 9,035Other assets 149,910 87,266Total assets $9,659,651 $9,600,845

Liabilities, Minority Interest and Stockholders’ Equity Liabilities: Reserves for losses and loss expenses $4,606,256 $4,237,525Unearned premiums 1,536,203 1,506,899Reinsurance payable 476,485 232,004Accounts payable and other liabilities 247,203 227,228Subordinated debt 97,881 100,825Derivatives, at fair value 17,163 9,099Securities lending payable 32,899 44,662Deferred tax liability (net) 176,326 224,842Total liabilities $7,190,416 $6,583,084 Minority interest – 757

Stockholders’ equity Ordinary common stock $2,552 $2,531Preferred shares 589,785 589,785Additional paid-in capital 1,623,842 1,622,876Treasury stock (55,186) (5,849)Accumulated other comprehensive (loss)/income (300,652) 38,820Retained earnings 608,894 768,841Total stockholders’ equity 2,469,235 3,017,004Total liabilities, minority interest and stockholders’ equity $9,659,651 $9,600,845

The accompanying notes are an integral part of the consolidated financial statements.

Approved by the Board of Directors on 12 February 2009

Stephen CatlinDirector

Christopher StookeDirector


2008 2007

Revenues Gross premiums written $3,437,004 $3,360,626Reinsurance premiums ceded (825,561) (787,108)Net premiums written 2,611,443 2,573,518Change in net unearned premiums (15,402) (83,984)Net premiums earned 2,596,041 2,489,534Net investment income 232,945 260,289Net (losses)/gains on investments in funds (212,495) 29,824Net losses on fixed maturities and short-term investments (111,488) –Net realised losses on investments available for sale – (78,970)Change in fair values of derivatives (12,527) (30,088) Net realised losses on foreign currency exchange (20,631) (4,035)Other income 14,991 23,354Total revenues 2,486,836 2,689,908 Expenses Losses and loss expenses 1,631,837 1,154,670Policy acquisition costs 510,238 530,972Administrative and other expenses 357,312 460,898Total expenses 2,499,387 2,146,540

Net (loss)/income before minority interest and income tax expense (12,551) 543,368Minority interest 23 8Income tax benefit/(expense) 9,639 (59,790)Net (loss)/income (2,889) 483,586Preferred share dividend (43,500) (21,868)Net (loss)/income available to common stockholders $(46,389) $461,718 Earnings per common share Basic $(0.19) $1.84Diluted $(0.19) $1.74


Consolidated Statements of OperationsFor the years ended 31 December 2008 and 2007 (US dollars in thousands, except for share amounts)


Consolidated Statements of Changes in Stockholders’ EquityFor the years ended 31 December 2008 and 2007 (US dollars in thousands, except for share amounts)

Additional Accumulated other Total Common Preferred paid-in Treasury Retained comprehensive stockholders’ stock shares capital stock earnings (loss)/income equity

Balance 1 January 2007 $2,383 $– $1,610,725 $(6,600) $437,862 $(26,090) $2,018,280

Comprehensive income: Net income available to

common stockholders – – – – 461,718 – 461,718Other comprehensive income – – – – – 64,910 64,910Total comprehensive income – – – – 461,718 64,910 526,628Issuance of common shares

in connection with acquisition of Wellington 117 – (117) – – – –

Issuance of preferred shares – 589,785 – – – – 589,785Stock compensation expense – – 13,668 – – – 13,668Stock options and warrants exercised 31 – (31) – – – –Dividends – – – – (126,860) – (126,860)Deferred compensation obligation – – 3,879 – (3,879) – –Treasury stock purchased – – – (4,497) – – (4,497)Distribution of treasury stock held

by Employee Benefit Trust – – (5,248) 5,248 – – –Balance 31 December 2007 $2,531 $589,785 $1,622,876 $(5,849) $768,841 $38,820 $3,017,004 Comprehensive income: Cumulative effect of adoption of FAS 159 – – – – 14,424 (14,424) –Net loss to common stockholders – – – – (46,389) – (46,389)Other comprehensive loss – – – – – (325,048) (325,048)Total comprehensive loss – – – – (31,965) (339,472) (371,437)Stock compensation benefit – – (1,777) – – – (1,777)Stock options and warrants exercised 21 – (21) – – – –Dividends – – – – (124,429) – (124,429)Deferred compensation obligation – – 3,553 – (3,553) – –Treasury stock purchased – – – (50,126) – – (50,126)Distribution of treasury stock held

by Employee Benefit Trust – – (789) 789 – – –Balance 31 December 2008 $2,552 $589,785 $1,623,842 $(55,186) $608,894 $(300,652) $2,469,235



2008 2007

Cash fl ows (used in)/provided by operating activities Net (loss)/income $(2,889) $483,586Adjustments to reconcile net (loss) income to net cash provided by operations:

Amortisation and depreciation 22,198 18,733Amortisation on (net discounts) of fixed maturities (4,260) (3,450)Net losses on investments 323,983 49,146

Changes in operating assets and liabilities Reserves for losses and loss expenses 731,316 174,357Unearned premiums 157,794 198,928Premiums and other receivables (124,021) 520,649Deferred policy acquisition costs (23,962) (101,131)Value of in-force business acquired – 120,705Reinsurance payable 285,134 388,945Reinsurance recoverable (355,400) (349,302)Reinsurers’ share of unearned premiums (121,979) (118,384)Accounts payable and other liabilities 36,833 (351,312)Deferred taxes 13,788 136,545Other (19,707) (208,643)

Net cash flows provided by operating activities 918,828 959,372 Cash fl ows (used in)/provided by investing activities Purchases of fixed maturities (1,393,257) (2,918,053)Proceeds from sales of fixed maturities 1,359,981 2,593,971Proceeds from maturities of fixed maturities 49,981 139,295Net proceeds from purchases, sales and maturities of short-term investments (21,131) (34,984)Cash flows arising from investment in associate 6,892 1,064Purchase of subsidiaries, net of cash acquired – (40,909)Purchases of investment in funds (84,000) (551,210)Redemptions of investments in funds 7,049 –Purchases of intangible assets – 68Purchases of property and equipment (11,673) (21,247)Proceeds from sales of property and equipment 85 1,808Investment of securities lending collateral, net 11,763 96,991Net cash flows used in investing activities (74,310) (733,206)

Cash fl ows (used in)/provided by fi nancing activities Dividends paid on common stock (125,691) (124,586)Net proceeds from issue of preferred shares – 589,785Dividends paid on preferred shares (43,500) (21,868)Repayment of notes payable – (550,290)Securities lending collateral repaid (11,763) (96,991)Purchase of treasury stock (50,127) (4,582)Net cash flows used in financing activities (231,081) (208,532)Net increase in cash and cash equivalents 613,437 17,634Cash and cash equivalents – beginning of year 2,055,634 1,987,882Effect of exchange rate changes (313,648) 50,118Cash and cash equivalents – end of year $2,355,423 $2,055,634 Supplemental cash fl ow information Taxes (received)/paid $(9,481) $20,140Interest paid $7,093 $8,031

Cash and cash equivalents comprise the following: Cash at bank and in hand $2,028,461 $1,611,718Cash equivalents $326,962 $443,916


Consolidated Statements of Cash FlowsFor the years ended 31 December 2008 and 2007 (US dollars in thousands, except for share amounts)


Notes to the Consolidated Financial StatementsFor the years ended 31 December 2008 and 2007 (US dollars in thousands, except for share amounts)

1 Nature of operationsCatlin Group Limited (‘Catlin’ or the ‘Company’) is a holding company incorporated on 25 June 1999 under the laws of Bermuda. Through its subsidiaries, which together with the Company are referred as the ‘Group’, Catlin underwrites specialty classes of insurance and reinsurance on a global basis.

The Group consists of four underwriting platforms:

— Catlin Syndicate, which operates at Lloyd’s of London;— Catlin Bermuda (Catlin Insurance Company Ltd.);— Catlin UK (Catlin Insurance Company (UK) Limited); and— Catlin US, which is the trading name for the Company’s various subsidiaries in the United States. Catlin US includes Catlin Inc.

as well as two insurance companies: Catlin Insurance Company Inc. and Catlin Specialty Insurance Company Inc.

At 31 December 2008, the Company, through intermediate companies, also had established operations in Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Guernsey, Italy, Japan, Malaysia, Singapore, Spain and Switzerland.

Through its subsidiaries, the Company writes a broad range of products, including property, casualty, energy, marine and aerospace insurance products and property, catastrophe and per-risk excess, non-proportional treaty, aviation, marine, casualty and motor reinsurance business. Business is written from many countries, although business from the United States predominates.

On 18 December 2006, the Company declared unconditional its offer to acquire all of the issued and to be issued share capital of Wellington Underwriting plc (‘Wellington’).

2 Signifi cant accounting policiesBasis of presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (‘US GAAP’). The preparation of financial statements in conformity with US GAAP requires management to make estimates when recording transactions resulting from business operations based on information currently available. The most significant items on the Group’s balance sheet that involve accounting estimates and actuarial determinations are reserves for losses and loss expenses, deferred policy acquisition costs, reinsurance recoverables, valuation of investments, intangible assets and goodwill. The accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, commissions and other policy acquisition costs. As additional information becomes available, or actual amounts are determinable, the recorded estimates will be revised and reflected in operating results. Although some variability is inherent in these estimates and actual results may differ from the estimates used in preparing the consolidated financial statements, management believes the amounts recorded are reasonable.

Certain insignificant reclassifications have been made to prior year amounts to conform to the 2008 presentation.

Principles of consolidationThe consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant inter-company transactions and balances are eliminated on consolidation.

Reporting currencyThe financial information is reported in United States dollars (‘US dollars’ or ‘$’).


Notes to the Consolidated Financial Statements continuedFor the years ended 31 December 2008 and 2007 (US dollars in thousands, except for share amounts)

Investments in fi xed maturities and short-term investmentsThe Group’s investments in fixed maturities and short-term investments are carried at fair value. The fair value is based on the quoted market price of these securities provided by either independent pricing services, or, when such prices are not available, by reference to broker or underwriter bid indications. Short-term investments are composed of securities due to mature between 90 days and one year from the date of purchase.

Net investment income includes interest income together with amortisation of market premiums and discounts and is net of investment management and custodian fees. Interest income is recognised when earned. Premiums and discounts are amortised or accreted over the lives of the related securities as an adjustment to yield using the effective-interest method and amortisation is recorded in current period income. For mortgage-backed securities and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognised prospectively.

Effective 1 January 2008, the Group applied the fair value option permitted by the Financial Accounting Standards Board (‘FASB’) Statement of Financial Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (‘FAS 159’) to its fixed maturities and short-term investments. In 2008, following the adoption of FAS 159, all gains or losses on fixed maturities and short-term investments are included in net income. In 2007 realised gains or losses were included in net income and unrealised gains or losses were included in accumulated other comprehensive income in stockholders’ equity, subject to impairment as discussed below. On adoption of FAS 159, unrealised gains have been reclassified from accumulated other comprehensive income to opening retained earnings as at 1 January 2008.

Other than temporary impairmentsIn 2007, prior to adoption of FAS 159, the Group regularly monitored its investment portfolio to ensure that investments that may have been other than temporarily impaired were identified in a timely fashion and properly valued, and that any impairments were charged against net income (through net realised losses on investments) in the proper period. The Group’s decision to make an impairment provision was based on regular objective reviews of the issuer’s current financial position and future prospects, its financial strength rating and an assessment of the probability that the current market value would recover to former levels and required the judgment of management. In assessing the potential recovery of market value for debt securities, the Group also took into account the timing of such recovery by considering whether it had the ability and intent to hold the investment to the earlier of (a) settlement or (b) market price recovery. Any security whose price decrease was deemed other-than-temporary was written down to its then current market level and the cumulative net loss previously recognised in stockholders’ equity was removed and charged to net income. Inherently, there were risks and uncertainties involved in making these judgments. Changes in circumstances and critical assumptions such as a continued weak economy, financial market disruption or unforeseen events which affect one or more companies, industry sectors or countries could have resulted in additional write-downs in future periods for impairments that were deemed to be other-than-temporary. Additionally, unforeseen catastrophic events may have required the Group to sell investments prior to the forecast market price recovery. In 2008, following adoption of FAS 159, all unrealised gains and losses are recorded in the income statement and therefore the Group is no longer required to assess whether investments are other than temporarily impaired.

Investments in fundsThe Group’s investments in funds are considered to be trading and are carried at fair value. The fair value is based on either the net asset value provided by the funds’ administrators or, where available, the quoted market price of the funds. Management assesses the reasonableness of the valuation principles that the administrators use as described in the funds prospectus and articles of association. The gains or losses resulting from changes in fair value are included within net income.

Investment in associateInvestment in associate comprised an investment in a limited liability corporation which was disposed of in 2008. This investment was accounted for using the equity method.

DerivativesIn accordance with Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities (‘FAS 133’), the Group recognises derivative financial instruments as either assets or liabilities measured at fair value. Gains and losses resulting from changes in fair value are included in net income.

The fair values of the catastrophe swap agreements described in Note 9 are determined by management using internal models based on the valuation of the underlying notes issued by the counterparty. The determination of the fair values takes into account changes in the market for catastrophic reinsurance contracts with similar economic characteristics and the potential for recoveries from events preceding the valuation date. The fair values of other derivative financial instruments are derived from independent valuation sources.


Cash and cash equivalents Cash equivalents are carried at cost, which approximates fair value, and include all investments with original maturities of 90 days or less.

Securities lending Certain entities within the Group participate in securities lending arrangements whereby specific securities are loaned to other institutions, primarily banks and brokerage firms, for short periods of time. Under the terms of the securities lending agreements, the loaned securities remain under the Group’s control and therefore remain on the Group’s balance sheet. Collateral in the form of cash, government securities and letters of credit is required and is monitored and maintained by the lending agent. The Group receives interest income on the invested collateral, which is included in net investment income in the Consolidated Statements of Operations.

PremiumsPremiums written are primarily earned on a daily pro rata basis over the terms of the policies to which they relate. Accordingly, unearned premiums represent the portion of premiums written which is applicable to the unexpired risk portion of the policies in force.

Reinsurance premiums assumed are recorded at the inception of the policy and are estimated based on information provided by ceding companies. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned over the terms of the related reinsurance contracts.

For multi-year policies written which are payable in annual instalments, and where the insured or reinsured has the ability to commute or cancel coverage within the term of the policy, only the annual premium is included as written premium at policy inception. Annual instalments are included as written premium at each successive anniversary date within the multi-year term.

Reinstatement premiums are recognised and fully earned as they fall due.

Deferred policy acquisition costsCertain policy acquisition costs, consisting primarily of commissions and premium taxes, that vary with and are primarily related to the production of premium, are deferred and amortised over the period in which the related premiums are earned.

A premium deficiency is recognised immediately by a charge to net income to the extent that future policy premiums, including anticipation of interest income, are not adequate to recover all deferred policy acquisition costs (‘DPAC’) and related losses and loss expenses. If the premium deficiency is greater than unamortised DPAC, a liability will be accrued for the excess deficiency.

Reserves for losses and loss expensesA liability is established for unpaid losses and loss expenses when insured events occur. The liability is based on the expected ultimate cost of settling the claims. The reserve for losses and loss expenses includes: (1) case reserves for known but unpaid claims as at the balance sheet date; (2) incurred but not reported (‘IBNR’) reserves for claims where the insured event has occurred but has not been reported to the Group as at the balance sheet date; and (3) loss adjustment expense reserves for the expected handling costs of settling the claims.

Reserves for losses and loss expenses are established based on amounts reported from insureds or ceding companies and according to generally accepted actuarial principals. Reserves are based on a number of factors, including experience derived from historical claim payments and actuarial assumptions to arrive at loss development factors. Such assumptions and other factors include trends, the incidence of incurred claims, the extent to which all claims have been reported, and internal claims processing charges. The process used in establishing reserves cannot be exact, particularly for liability coverages, since actual claim costs are dependent upon such complex factors as inflation, changes in doctrines of legal liability and damage awards. The methods of making such estimates and establishing the related liabilities are periodically reviewed and updated.

ReinsuranceIn the ordinary course of business, the Company’s insurance subsidiaries cede reinsurance to other insurance companies. These arrangements allow for greater diversification of business and minimise the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve the Group of its obligation to its insureds. Reinsurance premiums ceded are recognised and commissions thereon are earned over the period that the reinsurance coverage is provided.

Reinstatement premiums are recorded and fully expensed as they fall due. Return premiums due from reinsurers are included in premiums and other receivables in the Consolidated Balance Sheets.

Reinsurers’ share of unearned premiums represents the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force.

Reinsurance recoverables include the balances due from reinsurance companies for paid and unpaid losses and loss expenses that will be recovered from reinsurers, based on contracts in force. A reserve for uncollectible reinsurance has been determined based upon a review of the financial condition of the reinsurers and an assessment of other available information.


Contract depositsContracts written by the Group which are not deemed to transfer significant underwriting and/or timing risk are accounted for as contract deposits and are included in premiums and other receivables. Liabilities are initially recorded at an amount equal to the assets received and are included in accounts payable and other liabilities in the Consolidated Balance Sheets.

The Group uses the risk-free rate of return of equivalent duration to the liabilities in determining risk transfer and records the transactions using the interest method. The Group periodically reassesses the estimated ultimate liability. Any changes to this liability are reflected as an adjustment to interest expense to reflect the cumulative effect of the period the contract has been in force and by an adjustment to the future internal rate of return of the liability over the remaining estimated contract term.

Goodwill and intangible assetsGoodwill represents the excess of acquisition costs over the net fair values of identifiable assets acquired and liabilities assumed in a business combination. Pursuant to Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (‘FAS 142’), goodwill is deemed to have an indefinite life and is not amortised, but rather tested at least annually for impairment.

The goodwill impairment test has two steps. The first step identifies potential impairments by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not required. If the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, a write-down would be recorded. The measurement of fair values of the reporting units is determined based on an evaluation of a number of factors, including ranges of future discounted earnings. Certain key assumptions considered include forecasted trends in revenues, operating expenses and effective tax rates.

Intangible assets are valued at their fair value at the time of acquisition. The Group’s intangible assets relate to the purchase of syndicate capacity, the distribution network and admitted as well as surplus lines licenses.

Purchased syndicate capacity and admitted licenses are considered to have an indefinite life and as such are subject to annual impairment testing. Surplus lines authorisations are considered to have a finite life and are amortised over their estimated useful lives of five years. Distribution channels are amortised over their useful lives of five years.

The Group evaluates the recoverability of its intangible assets whenever changes in circumstances indicate that an intangible asset may not be recoverable. If it is determined that an impairment exists, the excess of the unamortised balance over the fair value of the intangible asset is recognised as a change in net income.

Other assetsOther assets include prepaid items, property and equipment and income tax recoverable.

Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of four to ten years for fixtures and fittings, four years for automobiles and two years for computer equipment. Leasehold improvements are amortised over the life of the lease or the life of the improvement, whichever is shorter. Computer software development costs are capitalised when incurred and depreciated over their estimated useful lives of five years.

Comprehensive income/(loss)Comprehensive income/(loss) represents all changes in equity that result from recognised transactions and other economic events during the period. Other comprehensive income/(loss) refers to revenues, expenses, gains and losses that are included in comprehensive income/(loss) but excluded from net income/(loss), such as foreign currency translation adjustments.

Foreign currency translation and transactionsForeign currency translation The presentation currency of the Group is US dollars. The financial statements of each of the Group’s entities are initially measured using the entity’s functional currency, which is determined based on its operating environment and underlying cash flows. For entities with a functional currency other than US dollars, foreign currency assets and liabilities are translated into US dollars using period-end rates of exchange, while statements of operations are translated at average rates of exchange for the period. The resulting translation differences are recorded as a separate component of accumulated other comprehensive income/(loss) within stockholders’ equity.

Foreign currency transactionsMonetary assets and liabilities denominated in currencies other than the functional currency are revalued at period-end rates of exchange, with the resulting gains and losses included in income. Revenues and expenses denominated in foreign currencies are translated at average rates of exchange for the period.



Income taxesIncome taxes have been provided for those operations that are subject to income taxes. Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of the Group’s assets and liabilities. Such temporary differences are primarily due to the recognition of untaxed profits, and intangible assets arising from the acquisition of Wellington in December 2006. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all or some portion of the benefits related to deferred tax assets will not be realised.

Stock compensation The Group accounts for stock-based compensation arrangements under the provisions of Statement of Financial Accounting Standard No. 123 (Revised 2004), Accounting for Stock-Based Compensation (‘FAS 123R’).

The fair value of options is calculated at the date of grant based on the Black-Scholes Option Pricing Model. The corresponding compensation charge is recognised on a straight-line basis over the requisite service period.

The fair value of non-vested shares is calculated on the grant date based on the share price and the exchange rate in effect on that date and is recognised on a straight-line basis over the vesting period. This calculation is updated on a regular basis to reflect revised expectations and/or actual experience.

WarrantsIn 2002, the Group issued convertible preference shares with detachable stock purchase warrants. The preference shares were converted into common shares in 2004. The portion of the proceeds allocatable to the warrants has been accounted for as additional paid-in capital. This allocation was based on the relative fair values of the two securities at the time of issuance. Warrant contracts are classified as equity so long as they meet all the conditions of equity outlined in EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Subsequent changes in fair value are not recognised in the Statement of Operations as long as the warrant contracts continue to be classified as equity.

PensionsThe Group operates defined contribution pension schemes for eligible employees, the costs of which are expensed as incurred.

As a result of the acquisition of Wellington in December 2006, the Group also sponsors a defined benefit pension scheme which was closed to new members in 1993. The recorded asset related to the plan was set equal to the value of plan assets in excess of the defined benefit obligation at the date of the business combination.

Risk and uncertainties In addition to the risks and uncertainties associated with unpaid losses and loss expenses described above and in Note 7, cash balances, investment securities and reinsurance recoveries are exposed to various risks, such as interest rate, market, foreign exchange and credit risks. Due to the level of risk associated with investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect the amounts reported in the financial statements. The cash balances and investment portfolio are managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single institution issue and issuers. Similar diversification provisions are in place governing the Group’s reinsurance programme. Management believes that there are no significant concentrations of credit risk associated with its investments and its reinsurance programme.

New accounting pronouncementsEffective 1 January 2008, the Group adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements (‘FAS 157’). FAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value under US GAAP more consistent and comparable. FAS 157 requires expanded disclosures about the Group’s assets and liabilities that are carried at fair value, as described in Note 5. The adoption of FAS 157 did not result in any cumulative-effect adjustment to the Group’s opening retained earnings at 1 January 2008, or any material impact on the Group’s results of operations, financial position or liquidity.

Effective 1 January 2008, the Group adopted FAS 159. FAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value with gains and losses recorded in the statement of operations. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Group elected to adopt the FAS 159 fair value option to its available for sale investment portfolio. On adoption of FAS 159, net unrealised gains of $14,424, after allowing for tax effects, have been reclassified from accumulated other comprehensive income to opening retained earnings as at 1 January 2008.

In October 2008 the FASB issued the FASB Staff Position Statement of Financial Accounting Standard No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (‘FAS 157-3’), clarifying the application of FAS 157 in a market that is not active. It offers an illustrative example of the valuation of a security in an inactive market as guidance. FAS 157-3 is effective upon issuance. The adoption of FAS 157-3 has not resulted in a material effect on the Group’s financial position or results of operations.


In September 2006, the FASB issued Statement of Financial Accounting Standard No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132 (R) (‘FAS 158’). This statement requires recognition of the overfunded or underfunded status of defined benefit pension and other post-retirement plans as an asset or liability in the balance sheet and changes in that funded status to be recognised in comprehensive income in the year in which the changes occur. FAS 158 also require measurement of the funded status of a plan as at the balance sheet date. The recognition provisions of FAS 158 are effective for reporting periods ending after 15 December 2006, while the measurement date provisions are effective for reporting periods ending after 15 December 2008. The adoption of the measurement date provisions of FAS 158 in 2009 will not have a material effect on the Group’s financial position or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141 (R), Business Combinations – a replacement of Statement of Financial Accounting Standard No. 141 (‘FAS 141R’), which changes the principles and requirements for how the acquirer of a business recognises and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognising and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective prospectively for fiscal years beginning after 15 December 2008. The Group will adopt FAS 141R in 2009. The adoption of FAS 141R is not expected to have a material effect on the Group’s current financial position or results of operations but may affect future acquisitions.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160, Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (‘FAS 160’). This statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosures to be on the face of the consolidated statement of operations, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This statement is effective prospectively, except for certain retrospective disclosure requirements, for reporting periods beginning after 15 December 2008. The Group will adopt FAS 160 in 2009. The adoption of FAS 160 is not expected to have a material effect on the Group’s financial position or results of operations.

In March 2008 the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures About Derivative Instruments and Hedging Activities, an Amendment to Statement of Financial Accounting Standard No. 133 (‘FAS 161’). FAS 161 establishes the disclosure requirements for derivative instruments and for hedging activities. The Standard requires expanded disclosure of how and why an entity uses derivative instruments, how derivatives and related hedged items are accounted for under FAS 133 and its related interpretation, and how derivatives and related hedged items affect an entity’s financial position, financial performance and cash flows. FAS 161 is effective for financial statements issued for fiscal years beginning after 15 November 2008; however, early adoption is encouraged. The Group will adopt FAS 161 in 2009. The adoption of FAS 161 is not expected to have a material effect on the Group’s financial position.

In May 2008 FASB issued Statement of Financial Accounting Standard No. 162, The Hierarchy of Generally Accepted Accounting Principles (‘FAS 162’). FAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with US GAAP. FAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of FAS 162 will not have a material effect on the Group’s financial position or results of operations.

3 Segmental information The Group determines its reportable segments by platform, consistent with the manner in which results are reviewed by management. The four reportable segments are:

— Catlin Syndicate, which comprises direct insurance and reinsurance business underwritten by the Group’s syndicates at Lloyd’s;— Catlin Bermuda, which primarily underwrites reinsurance business, excluding intra-Group reinsurance;— Catlin UK, which primarily underwrites direct insurance; and— Catlin US, which primarily underwrites specialty business in the United States.

At 31 December 2008, there were four intra-Group reinsurance contracts in place: the 50 per cent Corporate Quota Share (‘CQS’), which cedes Catlin Syndicate risk to Catlin Bermuda; the 60 per cent Quota Share contract (‘CUK QS’) which cedes Catlin UK risk to Catlin Bermuda; and also two 75 per cent Quota Share contracts (‘CUS QS’) which cede Catlin US risk to Catlin Bermuda. The effects of each of these reinsurance contracts are excluded from segmental revenue and results, as this is the basis upon which the performance of each segment is assessed.



Net underwriting contribution by operating segment for the year ended 31 December 2008 is as follows:

Catlin Catlin Syndicate Bermuda Catlin UK Catlin US Total

Gross premiums written $2,416,416 $391,781 $486,420 $142,387 $3,437,004Reinsurance premiums ceded (682,998) (61,189) (61,259) (20,115) (825,561)Net premiums written 1,733,418 330,592 425,161 122,272 2,611,443Net premiums earned 1,792,979 304,101 407,429 91,532 2,596,041Losses and loss expenses (1,097,575) (159,477) (310,757) (64,028) (1,631,837)Policy acquisition costs (339,088) (63,150) (88,030) (19,970) (510,238)Net underwriting contribution $356,316 $81,474 $8,642 $7,534 $453,966

Net underwriting contribution by operating segment for the year ended 31 December 2007 is as follows:

Catlin Catlin Syndicate Bermuda Catlin UK Catlin US Total

Gross premiums written $2,537,904 $311,976 $439,440 $71,306 $3,360,626Reinsurance premiums ceded (665,581) (48,151) (69,427) (3,949) (787,108)Net premiums written 1,872,323 263,825 370,013 67,357 2,573,518Net premiums earned 1,903,044 228,647 305,198 52,645 2,489,534Losses and loss expenses (835,089) (88,925) (200,010) (30,646) (1,154,670)Policy acquisition costs (399,137) (43,427) (72,649) (15,759) (530,972)Net underwriting contribution $668,818 $96,295 $32,539 $6,240 $803,892

Of total revenue as reported in the Group’s Consolidated Statement of Operations, only net premiums earned are measured and managed on a segmental basis.

Assets are reviewed in total by management for purposes of decision making. The Group does not allocate assets to its segments.

4 InvestmentsFair value optionAs described in Note 2, the Group elected to apply the fair value option to its available for sale investment portfolio with effect from 1 January 2008. Fixed maturity and short-term investments reported at 31 December 2008 are carried at fair value with gains and losses reported in income. The comparative balances as at 31 December 2007 represent securities classified as available for sale.

Fixed maturitiesThe fair values and amortised costs of fixed maturities at 31 December 2008 and 2007 are as follows:

2008 2007

Fair Amortised Fair Amortised value cost value cost

US government and agencies $673,323 $629,536 $721,952 $704,623Non-US governments 394,211 372,393 424,098 426,520Corporate securities 763,420 775,923 529,906 527,476Asset-backed securities 256,702 289,867 428,508 429,438Mortgage-backed securities 620,565 745,835 844,486 840,660Total fixed maturities $2,708,221 $2,813,554 $2,948,950 $2,928,717

$273,473 (2007: $289,091) of the total mortgage-backed securities at 31 December 2008 are represented by investments in Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Bank and Federal Home Loan Mortgage Corporation bonds.


The composition of the fair values of fixed maturities by ratings assigned by ratings agencies is as follows:

2008 2007

Fair value % Fair value %

US government and agencies $673,323 25 $721,952 24Non-US governments 394,211 15 424,098 14AAA 1,102,689 41 1,305,150 45AA 134,098 5 182,208 6A 364,421 13 285,556 10BBB 31,678 1 27,174 1Other 7,801 – 2,812 –Total fixed maturities $2,708,221 100 $2,948,950 100

The gross unrealised gains and losses related to fixed maturities at 31 December 2008 and 2007 are as follows:

2008 2007

Gross Gross Gross Gross unrealised unrealised unrealised unrealised gains losses gains losses

US government and agencies $45,781 $1,994 $17,409 $80Non-US governments 21,818 – 3,243 5,665Corporate securities 15,217 27,720 5,226 2,796Asset-backed securities 629 33,794 1,381 2,311Mortgage-backed securities 8,761 134,031 5,754 1,928Total fixed maturities $92,206 $197,539 $33,013 $12,780

Fixed maturities at 31 December 2008, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

Fair value Amortised cost

Due in one year or less $159,809 $162,325Due after one through five years 1,336,298 1,298,917Due after five years through ten years 274,507 260,458Due after ten years 60,340 56,152 1,830,954 1,777,852Asset-backed securities 256,702 289,867Mortgage-backed securities 620,565 745,835Total $2,708,221 $2,813,554

The Group did not have an aggregate investment with a single counterparty, other than the US government securities, in excess of 10 per cent of total investments at 31 December 2008 and 2007.

Investments in fundsThe Group has classified its investments in funds as trading securities and, accordingly, all realised and unrealised gains and losses on these investments are recorded in net income in the Consolidated Statements of Operations. The investments comprise investments in bond funds, equity funds, internal fund of funds, funds of funds and cash on deposit with fund managers. The internal fund of funds comprises 25 individual hedge funds across a diversified set of managers, strategies and underlying asset classes.

Values of investments in funds by category at 31 December 2008 and 2007 are as follows:

2008 2007

Equity funds $78,824 $112,293Internal fund of funds 432,578 541,621Funds of funds 158,385 162,510Bond funds 131,000 129,994Total investments in funds $800,787 $946,418



Net investment incomeThe components of net investment income for the years ended 31 December 2008 and 2007 are as follows:

2008 2007

Interest income $234,050 $262,614Investment in associate 5,203 983Investment expenses (6,308) (3,308)Net investment income $232,945 $260,289

Restricted assetsThe Group is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. These funds on deposit are available to settle insurance and reinsurance liabilities. The Group also has investments in segregated portfolios primarily to provide collateral or guarantees for Letters of Credit (‘LOC’), as described in Note 10. Finally, the Group also utilises trust funds set up for the benefit of the ceding companies, and generally in place of LOC requirements.

The total value of these restricted assets by category at 31 December 2008 and 2007 is as follows:

2008 2007

Fixed maturities $1,565,661 $1,422,521Short-term investments 5,000 22,881Cash and cash equivalents 350,100 558,868Total restricted assets $1,920,761 $2,004,270

Securities lendingThe Group participates in a securities lending programme under which certain of its fixed maturity investments are loaned to third parties through a lending agent. Collateral in the form of cash, government securities and letters of credit is required at a minimum rate of 102 per cent of the market value of the loaned securities and is monitored and maintained by the lending agent. The Group had $32,350 (2007: $43,917) of securities on loan at 31 December 2008.

5 Fair value measurementFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e. the ‘exit price’) in an orderly transaction between market participants at the measurement date. In determining fair value, management uses various valuation approaches, including market and income approaches. FAS 157 establishes a hierarchy for inputs used in measuring fair value that maximises the use of observable inputs and minimises the use of unobservable inputs by requiring that the most observable inputs be used when available. The three levels of the FAS 157 hierarchy are described below. Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Group has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Assets utilising Level 1 inputs comprise investments in equity funds. Level 2 – Valuations based on quoted prices in markets that are not active or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

Assets and liabilities utilising Level 2 inputs include: US government and agency securities; non-US government obligations, corporate and municipal bonds, mortgage-backed securities (‘MBS’) and asset-backed securities (‘ABS’) to the extent that they are not identified as Level 3 items; over-the-counter (‘OTC’) derivatives (e.g. foreign currency options and forward contracts); and hedge fund investments with few restrictions on redemptions or new investors.


Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect our own assumptions about assumptions that market participants might use.

Assets and liabilities utilising Level 3 inputs include: insurance and reinsurance derivative contracts; hedge funds with significant redemption restrictions; sub-prime and Alt-A securities where the unobservable inputs reflect individual assumptions and judgments regarding ultimate delinquency and foreclosure rates and estimates regarding the likelihood and timing of events of defaults.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorised in Level 3. The Group uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between levels.

Assets and liabilities measured at fair value on a recurring basisThe table below shows the values at 31 December 2008 of assets and liabilities measured at fair value on a recurring basis, analysed by the level of inputs used. Balance as at 31 December Level 1 Level 2 Level 3 2008 inputs inputs inputs

Assets Fixed maturities $2,708,221 $– $2,671,132 $37,089Short-term investments 68,982 – 68,982 –Investments in funds 800,787 158,385 308,872 333,530Derivative assets 6,602 – – 6,602Total assets at fair value $3,584,592 $158,385 $3,048,986 $377,221 Liabilities Derivative liabilities $17,163 $– $17,163 $–

The changes in the period in balances measured at fair value on a recurring basis using Level 3 inputs were as follows:

Fixed Investments Derivative maturities in funds (liabilities)/assets

Balance, 1 January 2008 $82,370 $241,121 $(9,099)Total net (losses)/gains included in income (24,304) (91,211) 15,701Net (disposals)/purchases (20,977) 34,000 –Level 3 transfers in – 152,441 –Foreign exchange – (2,821) –Balance, 31 December 2008 $37,089 $333,530 $6,602 Amount of net (losses)/gains relating to balances still held at the year end $(24,824) $(91,211) $15,701

Gains and losses on fixed maturities are recorded in the statement of operations. Gains and losses on derivative instruments are recorded in change in fair value of derivatives.

Fair value optionThe Group has elected to adopt the FAS 159 fair value option to its fixed maturities and short-term investments. In 2008, net losses of $111,488 have been included in net income in relation to changes in the fair values of these assets in the Consolidated Statements of Operations.

6 Investment in associateOn 2 September 2008 the Group, through Catlin Inc., one of its US subsidiaries, sold its 25 per cent membership interest in Southern Risk Operations, L.L.C. (‘SRO’) which was accounted for using the equity method. The Group received cash distributions from SRO during the year ended 31 December 2008 of $1,240 (2007: $1,064). The share of SRO’s profit included within the Consolidated Statements of Operations during 2008 was $560 (2007: $983). The Group’s share of the gain on sale was $4,643 and its share of the proceeds was $6,500. Under the terms of the sale, the Group may be entitled to further contingent consideration dependent on further thresholds being met in the next five years.



7 Reserves for losses and loss expensesThe Group establishes reserves for losses and loss expenses, which are estimates of future payments of reported and unreported losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves is complex and imprecise, requiring the use of informed estimates and judgments. The Group’s estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable, and would be reflected in earnings in the period in which the estimates are changed. Management believes that they have made a reasonable estimate of the level of reserves at 31 December 2008 and 2007.

The reconciliation of unpaid losses and loss expenses for the years ended 31 December 2008 and 2007 is as follows:

2008 2007

Gross unpaid losses and loss expenses, beginning of year $4,237,525 $4,005,133Reinsurance recoverable on unpaid loss and loss expenses (860,181) (996,896)Net unpaid losses and loss expenses, beginning of year 3,377,344 3,008,237Net incurred losses and loss expenses for claims related to:

Current year 1,750,110 1,293,914Prior years (118,273) (139,244)

Total net incurred losses and loss expenses 1,631,837 1,154,670Net paid losses and loss expenses for claims related to:

Current year 60,337 (105,218)Prior years (1,211,494) (832,278)

Total net paid losses and loss expenses (1,151,157) (937,496)Foreign exchange and other (326,191) 50,930Loss portfolio transfer 4,384 101,003Net unpaid losses and loss expenses, end of year 3,536,217 3,377,344Reinsurance recoverable on unpaid losses and loss expenses 1,070,039 860,181Gross unpaid losses and loss expenses, end of year $4,606,256 $4,237,525

As a result of the changes in estimates of insured events in prior years, the 2008 reserves for losses and loss expenses net of reinsurance recoveries decreased by $118,273 (2007: $139,244). The decrease in reserves relating to prior years was due to reductions in expected ultimate loss costs and reductions in uncertainty surrounding the quantification of the net cost claim events.

2008 hurricanesThe table below shows the Group’s estimated ultimate loss relating to Hurricanes Ike and Gustav as at 31 December 2008.

2008

Gross loss $334,706Reinsurance recoveries (61,317)Net loss prior to reinstatement premiums 273,389Net reinstatement premiums (24,380)Net loss $249,009

The figures above represent management’s best estimate of the likely final losses to the Group from the 2008 hurricanes. In making this estimate, management has used the best information available, including estimates performed by the Group’s underwriters, actuarial and claims staff, retained external actuaries, outside agencies and market studies. Allowance is made in the overall management best estimate of net unpaid losses for an appropriate level of sensitivity, for both individual large losses and the overall portfolio of business. In respect of the 2008 hurricanes, management have particularly considered sensitivities relating to gross losses on direct and reinsurance accounts, underlying loss experience of cedants and reinsurance coverage and security issues.

Loss portfolio transferIn 2008, Syndicate 2020 closed the 2005 Lloyd’s underwriting year of account by way of a Lloyd’s reinsurance to close. In closing the 2005 year of account, all outstanding losses were transferred into the 2006 year of account. The Group had an additional ownership of approximately 0.59 per cent acquired from the external Names in respect of the 2006 year of account, which resulted in an increase in loss reserves of $4,384; this has been treated as a loss portfolio transfer. In 2007, the 2004 Lloyd’s underwriting year of account was closed, resulting in an increase in loss reserves of $101,003. To the extent that the future run-off of the 2005 and 2004 year of account differs from what has been recorded, that development will be recorded in the Consolidated Statements of Operations in the period that it is incurred.


8 ReinsuranceThe Group purchases reinsurance to limit various exposures including catastrophe risks. Although reinsurance agreements contractually obligate the Group’s reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge the primary liability of the Group. The effect of reinsurance and retrocessional activity on premiums written and earned is as follows:

2008 2007 Premiums Premiums Premiums Premiums written earned written earned

Direct $2,466,600 $2,372,052 $2,505,216 $2,355,056Assumed 970,404 936,351 855,410 804,110Ceded (825,561) (712,362) (787,108) (669,632)Net premiums $2,611,443 $2,596,041 $2,573,518 $2,489,534

On 21 February 2008, the Group entered into a reinsurance contract with Newton Re Limited (‘Newton Re’) for $150,000 of annual aggregate protection against accumulated losses from US windstorm, US earthquake, European windstorm, Japanese typhoon and Japanese earthquake events in the Group’s property treaty book. The transaction provides coverage on a first-event and accumulated aggregate retrocession protection on a collateralised basis. No claims have arisen to date.

The collateral value (and interest payable under associated notes issued by Newton Re to investors not affiliated with the Group) were supported by a total return swap. The bankruptcy of the total return swap counterparty, Lehman Brothers Inc, on 15 September 2008 resulted in the termination of the total return swap. The total return swap has not been replaced and, as at 31 December 2008, the collateral value is less than the full indemnity limit of $150,000. Given the likelihood of claims at that level and the current value of the collateral, the Group’s incremental exposure is not considered to be material.

The Group’s provision for reinsurance recoverable as at 31 December 2008 and 2007 is as follows:

2008 2007

Gross reinsurance recoverable $1,259,927 $1,046,241Provision for uncollectible balances (34,296) (33,460)Net reinsurance recoverable $1,225,631 $1,012,781

The Group evaluates the financial condition of its reinsurers and potential reinsurers on a regular basis and also monitors concentrations of credit risk with reinsurers. All current reinsurers have financial strength rating of at least ‘A’ from Standard and Poor’s or ‘A-‘ from A.M. Best at the time of placement, or provide appropriate collateral. However, certain reinsurers from prior years have experienced reduced ratings which has led to the need for the provision. At 31 December 2008, there were three reinsurers which accounted for 5 per cent or more of the total reinsurance recoverable balance.

% of reinsurance recoverable Best rating

Munich Re 12% A+Hannover Ruck-AG 8% ASwiss Re 7% A+

9 Derivative fi nancial instrumentsCatastrophe swap agreementsNewton ReOn 17 December 2007, Catlin Bermuda entered into a contract that provides up to $225,000 in coverage in the event of one or more natural catastrophes. Catlin Bermuda’s counterparty in the catastrophe swap (‘cat swap’) is a special purpose vehicle, Newton Re. Newton Re has issued to investors $225,000 in three-year floating rate notes, divided into Class A and Class B notes. The proceeds of those notes provide the collateral for Newton Re’s potential obligations to Catlin Bermuda under the cat swap.

The Newton Re cat swap responds to certain covered risk events occurring during a three-year period. The categories of risk events covered by the transaction are US hurricanes and US earthquakes. Newton Re will pay a maximum of $137,500 for US hurricane events and $87,500 for US earthquake events.

The Newton Re cat swap will be triggered for risk events if aggregate insurance industry losses, as estimated by Property Claims Services (‘PCS’), meet or exceed defined threshold amounts.

The cat swap has not been triggered as at 31 December 2008.



Bay HavenOn 17 November 2006, Catlin Bermuda entered into a cat swap that provides up to $200,250 in coverage in the event of a series of natural catastrophes. Catlin Bermuda’s counterparty in the cat swap is a special purpose vehicle, Bay Haven Limited (‘Bay Haven’). Bay Haven has issued to investors $200,250 in three-year floating rate notes, divided into Class A and Class B notes. The proceeds of those notes provide the collateral for Bay Haven’s potential obligations to Catlin Bermuda under the cat swap.

The Bay Haven cat swap responds to certain covered risk events occurring during a three-year period. No payment will be made for the first three such risk events. Bay Haven will pay Catlin Bermuda $33,375 per covered risk event thereafter, up to a maximum of six events. The aggregate limit potentially payable to Catlin Bermuda is $200,250.

The categories of risk events covered by the Bay Haven cat swap are: US hurricanes, California earthquakes, US Midwest earthquakes, UK windstorms, European (excluding UK) windstorms, Japanese typhoons and Japanese earthquakes. Only one payment will be made for each covered risk event, but the cat swap will respond to multiple occurrences of a given category of risk event, such as if more than one qualifying US hurricane occurs during the period.

The Bay Haven cat swap will be triggered for US risk events if aggregate insurance industry losses, as estimated by PCS, meet or exceed defined threshold amounts. Coverage for non-US risk events will be triggered if specific parametric criteria, such as wind speeds or ground motions, are met or exceeded. The first two events paid under the cat swap would impact the Class B notes; subsequent events, up to the limit of six events over the three-year period, would impact the Class A notes.

In addition, on 17 November 2006 Catlin Bermuda entered into a further cat swap agreement with Royal Bank of Scotland (formerly ABN AMRO Bank N.V. London Branch) which will respond to the third covered risk event (that is, the covered risk event before the Class B notes are triggered). The terms are otherwise as described for the Class A and Class B notes, except that the limit payable is $56,500.

Values of Catastrophe Swap AgreementsThe Newton Re and Bay Haven cat swaps fall within the scope of FAS 133 and are therefore measured in the balance sheet at fair value with any changes in the fair value included in the change in fair value of derivatives in the Statements of Operations. As at 31 December 2008, the fair value of the cat swaps is an asset of $6,602 (2007: a liability of $9,099). Because there is no liquid market in these derivatives, the fair values are determined by management based on the valuation of the notes issued by Newton Re and Bay Haven. The fair value of the Newton Re cat swap is derived from indicative prices for the Class A and Class B notes issued by Newton Re. The fair value of the Bay Haven cat swap is determined using an internal model that takes into account changes in the market for catastrophe reinsurance contracts with similar economic characteristics and the potential for recoveries from events preceding the valuation date.

Other derivative instrumentsOn acquisition of Wellington, the Group acquired various foreign currency derivatives (forward contracts, caps and collars) and options to purchase shares in Aspen Insurance Group (‘Aspen’). As at 31 December 2008, the fair value of the foreign currency derivatives was a liability of $17,163 (2007: asset of $9,035), of which $17,163 (2007: $6,139) had a remaining term of less than 12 months.

In March 2007, the Group exercised the share options it held with respect to Aspen. Following the exercise of the options to purchase 3,781,120 shares on a cash-less basis at an exercise price of $22.52 and a share price of $25.38, Catlin received 426,083 shares. The sale of the shares began 30 March and was completed on 12 April 2007. The resulting sale resulted in a capital loss of $6,354 recorded in change in fair value of derivatives.


10 Subordinated debt and fi nancing arrangementsThe Group’s outstanding subordinated debt as at 31 December 2008 and 2007 consisted of the following:

2008 2007

Variable rate, face amount 17,000, due 15 March 2035 $10,247 $10,873Variable rate, face amount $27,000, due 15 March 2036 28,264 28,831Variable rate, face amount $31,300, due 15 September 2036 32,879 33,480Variable rate, face amount $9,800, due 15 September 2036 10,287 10,482Variable rate, face amount 111,000, due 15 September 2036 16,204 17,159Total subordinated debt $97,881 $100,825

Subordinated debtOn 12 May 2006 Catlin Underwriting (formerly ‘Wellington Underwriting plc’) issued $27,000 and 17,000 of variable rate unsecured subordinated notes. The notes are subordinated to the claims of all Senior Creditors, as defined in the agreement. The notes pay interest based on the rate on three-month deposits in US dollars plus a margin of 317 basis points for the dollar note and 295 basis points for the euro note. Interest is payable quarterly in arrears. The notes are redeemable at the discretion of the issuer beginning on 15 March 2011 with respect to the dollar notes and 22 May 2011 with respect to the euro notes.

On 20 July 2006 Catlin Underwriting issued $31,300, $9,800 and 111,000 of variable rate unsecured subordinated notes. The notes are subordinated to the claims of all Senior Creditors, as defined in the agreement. The notes pay interest based on the rate on three-month deposits in US dollars plus a margin of 310 basis points for the $31,300 notes and 300 basis points for the other two notes. Interest is payable quarterly in arrears. The notes are each redeemable at the discretion of the issuer on 15 September 2011.

Bank facilitiesSince November 2003, the Group has participated in a Letter of Credit/Revolving Loan Facility (the ‘Club Facility’). The Club Facility has been varied, amended and restated since it was originally entered into, most recently on 10 September 2008, when the credit available under the Club Facility increased from $400,000 and £275,000 to $600,000 and £320,000, respectively. The facility initially included three banks; on 15 December 2006 it increased to four banks and on 25 January 2007 it expanded to seven banks. The Club Facility is composed of three tranches as detailed below. The following amounts were outstanding under the Club Facility as at 31 December 2008:

— A 364-day $100,000 revolving facility with a one-year term-out option (‘Facility A’) is available for utilisation by the Group. Facility A, while not directly collateralised, is secured by floating charges on Group assets and cross-guarantees from material subsidiaries (together with Facilities B and C). Facility A has not been drawn down.

— Clean, irrevocable standby LOCs of $467,200 (£320,000) are available to support the Catlin Syndicate’s underwriting at Lloyd’s (‘Facility B’). As at 31 December 2008, the Catlin Corporate Names and Syndicate have utilised Facility B and deposited with Lloyd’s 13 LOCs which total the amount of $386,900 (£265,000). In the event that the Catlin Syndicate fails to meet its obligations under policies of insurance written on its behalf, Lloyd’s could draw down this letter of credit. These LOCs have an initial expiry date of 27 November 2012.

— A two-year $500,000 standby LOC facility is available for utilisation by Catlin Bermuda and Catlin UK (‘Facility C’). It is further split into two equal tranches of $250,000 with the first being fully secured by OECD Government Bonds, US Agencies, Corporate and Asset Backed securities and or cash discounted at varying rates. The second tranche is unsecured. At 31 December 2008, $231,783 in LOCs were outstanding, of which $228,352 were issued for the benefit of insureds and re-insureds of Catlin Bermuda, and $3,431 (£1,675) issued for the benefit of an insured of Catlin UK. $120,652 of the LOCs were issued on an unsecured basis. Facility C hasan expiry date of 31 December 2010.

The terms of the Club Facility require that certain financial covenants be met on a quarterly basis through the filing of Compliance Certificates. These include maximum levels of possible exposures to realistic disaster scenarios for the Group, as well as requirements to maintain minimum tangible net worth. The Group was in compliance with all covenants during 2008.

A second LOC Facility administered by Citibank on behalf of Lloyd’s acting for the Lloyd’s Syndicates had LOCs totalling $6,954 outstanding at 31 December 2008. These LOCs are fully secured.

Catlin US issued LOCs to state regulators and other parties. These LOCs amount to $5,912 and are secured.



11 Intangible assets and goodwillThe Group’s intangibles relate to the purchase of syndicate capacity, customer relationships, distribution channels and US insurance licenses (as admitted and eligible surplus lines insurers).

Net intangible assets and goodwill as at 31 December 2008 and 2007 consist of the following:

Indefinite life Finite life Goodwill intangibles intangibles Total

Net value at 1 January 2007 $86,235 $770,495 $11,296 $868,026Movements during 2007:

Amendments to purchase price allocation 5,542 – – 5,542Foreign exchange revaluation 1,274 11,721 80 13,075Amortisation charge – – (2,215) (2,215)

Total movements during 2007 6,816 11,721 (2,135) 16,402Net value at 31 December 2007 93,051 782,216 9,161 884,428Movements during 2008:

Foreign exchange revaluation (23,078) (207,437) (921) (231,436)Amortisation charge – – (2,244) (2,244)

Total movements during 2008 (23,078) (207,437) (3,165) (233,680)Net value at 31 December 2008 $69,973 $574,779 $5,996 $650,748

Goodwill, purchased syndicate capacity and admitted licences are considered to have an indefinite life and as such are subject to annual impairment testing. Neither goodwill nor intangibles were impaired in 2008 or 2007.

Distribution channels and surplus lines authorisations are considered to have a finite life and are amortised over their estimated useful lives of five years. As at 31 December 2008, the gross carrying amount of finite life intangibles was $10,015 (2007: $11,456) and accumulated amortisation was $4,019 (2007: $2,295). Amortisation of intangible assets at current exchange rates will amount to approximately $2,015 per annum for the next three years and nil thereafter.

Changes in 2007 to the purchase price allocation in relation to the Wellington acquisition in 2006 resulted in an increase in related goodwill from $68,970 to $74,512. This increase was primarily due to additional acquisition expenses of $1,366 and an increase of $2,664 in the liability for restructuring costs.

Syndicate capacityThe syndicate capacity comprises underwriting capacity that the Group purchased in connection with the acquisition of Wellington in December 2006 and the cessation of Syndicate 2020 and amounts purchased by Catlin in 2002.

Syndicate capacity is tested annually for impairment by comparing management’s estimate of its fair value to the amount at which it is carried in the Group’s balance sheet.

The fair value of the Group’s syndicate capacity is assessed by reference to market activity and internally developed cash flow models. In 2008 and 2007, management determined that the fair value of syndicate capacity exceeded its carrying value and no impairment has been recorded.

Effective 1 January 2007, Syndicate 2020 ceased underwriting and the purchased capacity (and that falling to the Group by way of cessation of Syndicate 2020) has been re-deployed to increase the capacity of Syndicate 2003.


12 Taxation BermudaUnder current Bermuda law neither the Company nor its Bermuda subsidiary, Catlin Bermuda, is required to pay any taxes in Bermuda on their income or capital gains. Both the Company and Catlin Bermuda have received undertakings from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, they will be exempt from taxation in Bermuda until March 2016.

United KingdomThe Group also operates in the UK through its UK subsidiaries and the income of the UK companies is subject to UK corporation taxes.

Income from the Group’s operations at Lloyd’s is also subject to US income taxes. Under a Closing Agreement between Lloyd’s and the Internal Revenue Service (‘IRS’), Lloyd’s Members pay US income tax on US-connected income written by Lloyd’s syndicates. US income tax due on this US-connected income is calculated by Lloyd’s and remitted directly to the IRS and is charged by Lloyd’s to Members in proportion to their participation on the relevant syndicates. The Group’s Corporate Members are all subject to this arrangement but, as UK residents, will receive UK corporation tax credits for any US income tax incurred up to the value of the equivalent UK corporation income tax charge on the US income.

United StatesThe Group also operates in the United States through its subsidiaries and their income is subject to both US state and federal income taxes.

Other international income taxesThe Group has a network of international operations and they also are subject to income taxes imposed by the jurisdictions in which they operate, but they do not constitute a material component of the Group’s tax charge.

The Group is not subject to taxation other than as stated above. There can be no assurance that there will not be changes in applicable laws, regulations or treaties, which might require the Group to change the way it operates or become subject to taxation.

The income tax (benefit)/expense for the years ended 31 December 2008 and 2007 is as follows:

2008 2007

Current tax benefit $(40,780) $–Deferred tax expense 31,141 59,790(Benefit)/expense for income taxes $(9,639) $59,790

The weighted average expected tax (benefit)/expense has been calculated using pre-tax accounting income/(loss) in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. The weighted average tax rate for the Group is 76.9 per cent (2007: 11.0 per cent). A reconciliation of the difference between the (benefit)/expense for income taxes and the expected tax (benefit)/expense at the weighted average tax rate for the years ended 31 December 2008 and 2007 is provided below.

2008 2007

Expected tax (benefit)/expense at weighted average rate $(26,122) $98,206Permanent differences:

Disallowed expenses 2,479 1,938Valuation allowances 11,032 –Prior year adjustments including changes in uncertain tax positions 2,972 (23,385)Impact of tax rate changes – (16,969)

(Benefit)/expense for income taxes $(9,639) $59,790



The components of the Group’s net deferred tax liability as at 31 December 2008 and 2007 are as follows:

2008 2007

Deferred tax assets: Net operating loss carryforwards $65,122 $56,911Stock options 4,184 7,839Deep discount security unwind – 1,146Accelerated capital allowances 2,557 1,989Compensation accruals 382 12,329Syndicate capacity amortisation and other 1,450 3,093Valuation allowance (20,249) (9,217)

Total deferred tax assets $53,446 $74,090Deferred tax liabilities:

Untaxed profits (142,562) (179,784)Intangible assets arising on business combination (87,210) (119,148)

Total deferred tax liabilities $(229,772) $(298,932)Net deferred tax liability $(176,326) $(224,842)

As at 31 December 2008, there are potential deferred tax assets of $20,249 (2007: $9,217) in the US companies relating to 2008 calendar year losses but a 100 per cent valuation allowance has been recognised in respect of the losses in both 2008 and 2007.

As at 31 December 2008, the Group has net operating loss carry forwards of $161,984 (2007: $170,336) which are available to offset future taxable income. The net operating loss carry forwards primarily arise in the UK subsidiaries where they are expected to be fully used. There are no time restrictions on the use of these losses.

Uncertain tax benefi tsWith effect from 1 January 2007, the Group adopted FASB Interpretation No. 48, Accounting for Uncertainly in Income Taxes – an Interpretation of Statement of Financial Accounting Standard No. 109 (‘FIN 48’). On adoption of FIN 48, the total amount of the Group’s unrecognised tax benefits arising from uncertain tax positions was $11,201. As at 31 December 2008, this amount was $7,800 (2007: $9,300). All unrecognised tax benefits would affect the effective tax rate if recognised.

A reconciliation of the beginning and ending amount of unrecognised tax benefits arising from uncertain tax positions is as follows:

2008 2007

Unrecognised tax benefits balance at 1 January $9,300 $–Gross increases for tax positions in current year – 11,201Gross increases for tax positions of prior years – 7,031Gross decreases for tax positions of prior years (1,500) (8,932)Unrecognised tax benefits balance at 31 December $7,800 $9,300

The Group does not believe it would be subject to any penalties in any open tax years and has not accrued any such amounts. The Group accrues interest and penalties (if applicable) as income tax expenses in the consolidated financial statements. The Group did not pay or accrue any interest or penalties in 2008 or 2007 relating to uncertain tax positions.

The following table lists the open tax years that are still subject to examinations by local tax authorities in major tax jurisdictions:

Major tax jurisdiction Years

United Kingdom 2006-2008United States 2006-2008


13 Stockholders’ equityThe following sets out the number and par value of shares authorised, issued and outstanding as at 31 December 2008 and 2007:

2008 2007

Common stock, par value $0.01 Authorised 400,000,000 400,000,000 Issued 255,162,926 253,122,072Shares in Employee Benefit Trust (6,725,149) (639,486)Outstanding 248,437,777 252,482,586 Preferred shares, par value $0.01 Authorised, issued and outstanding 600,000 600,000

The following table outlines the changes in common stock issued during 2008 and 2007:

2008 2007

Balance, 1 January 253,122,072 238,283,281Exercise of stock options and warrants 2,040,854 3,159,154Business combination – 11,679,637Balance, 31 December 255,162,926 253,122,072

Business combination In 2007, 11,679,637 shares were issued in connection with the acquisition of Wellington in 2006.

Preferred sharesOn 18 January 2007, Catlin Bermuda issued 600,000 of non-cumulative perpetual preferred shares, par value of $0.01 per share, with liquidation preference of $1,000 per share, plus declared and unpaid dividends. Dividends are payable semi-annually in arrears only if, as and when declared by the Board of Directors, on 19 January and 19 July, commencing on 19 July 2007, at a rate of 7.249 per cent on the liquidation preference, up to but not including 19 January 2017. Thereafter, if the shares have not yet been redeemed, dividends will be payable quarterly at a rate equal to 2.975 per cent plus the three-month LIBOR rate of the liquidation preference. Catlin Bermuda received proceeds of approximately $589,785, net of issuance costs, which were used to repay a $500,000 bridge facility as well as Facility A described in Note 10, and for general corporate purposes. The preference shares do not have a maturity date and are not convertible into or exchangeable into any of Catlin Bermuda’s or the Group’s other securities.

Treasury stockIn connection with the Performance Share Plan (‘PSP’), at each dividend date, an amount equal to the dividend that would be payable in respect of the shares to be issued under the PSP (assuming full vesting) is paid into an Employee Benefit Trust (‘EBT’). The EBT uses these funds to purchase Group common stock in the open market. These shares will ultimately be distributed to PSP holders to the extent that the PSP awards vest. In 2008 the Group also purchased shares that will be used to satisfy the 2008 PSP awards if and when they vest and become exercisable from March 2011 onwards. During 2008, the Group, through the EBT, purchased 6,184,556 of common stock at an average of $8.10 (£4.08) per share. The total cumulative amount of treasury stock of $55,186 is measured at cost and is shown as a deduction to stockholders’ equity.

In conjunction with the Wellington acquisition, the Group agreed to compensate legacy Wellington employees that held units in the Wellington EBT. There were no costs associated with the distribution of these shares during 2008 or 2007.



WarrantsIn 2002, the Company issued 20,064,516 warrants to stockholders to purchase common stock. Warrants may be exercised in whole or in part, at any time, until 4 July 2012 and are exercisable at a price share of $5.00. During 2008, 2,942,796 warrants to purchase common stock were exercised and settled net for 1,060,547 shares of common stock, leaving 6,037,886 warrants outstanding at 31 December 2008.

DividendsDividends on common stockOn 23 May 2008, the Group paid a final dividend on the common stock relating to the 2007 financial year of $0.338 (£0.17) per share to stockholders of record at the close of business on 25 April 2008. The total dividend paid for the 2007 financial year was $0.502 (£0.251) per share.

On 7 November 2008, the Group paid an interim dividend relating to the 2008 financial year of $0.168 per share (£0.086 per share) to stockholders of record as at 12 October 2008.

Dividends on preferred sharesOn 19 January and 19 July 2008, the Board of Catlin Bermuda paid a dividend of $21,750 to the stockholders of the non-cumulative perpetual preferred shares.

14 Employee stock compensation schemesThe Group has two stock compensation schemes in place under which awards are outstanding: the Performance Share Plan (‘PSP’), adopted in 2004, and a Long Term Incentive Plan (‘LTIP’), adopted in 2002. The Group also has two Employee Share Plans in place, both of which were adopted in 2008. These financial statements include the total cost of stock compensation for all plans, calculated using the fair value method of accounting for stock-based employee compensation.

The total amount credited to income in respect of the plans in the year ended 31 December 2008 was $1,777 (2007: expense of $13,668) included in administrative and other expenses. Remaining stock compensation to be expensed in future periods relating to these plans is $3,136. As described below, the valuation of the PSP is periodically revised to take into account changes in performance against vesting conditions. During 2008, performance against these conditions has been adversely affected, primarily by the decrease in reported net assets. Expected total compensation relating to PSP awards part of which was expensed in previous periods, has therefore reduced, which has resulted in a credit to income in the year.

Performance Share PlanOn 6 March 2008, a total of 3,944,268 options with $nil exercise price and 1,129,047 non-vested shares (total of 5,073,315 securities) were awarded to Group employees under the PSP. On 6 August 2008, a further 109,766 options with $nil exercise price and 49,816 non-vested shares (total of 159,582 securities) were awarded, resulting in a total of 5,232,897 securities granted to Group employees under the PSP in 2008. Up to half of the securities will vest in 2011 and up to half will vest in 2012, subject to certain performance conditions.

These securities have been treated as non-vested shares and as such have been measured at their fair value on the grant date as if they were fully vested and issued and assuming an annual attrition rate amongst participating employees of 5 per cent for grants made in 2008, 7 per cent for grants made in 2007, 4 per cent for grants made in 2006 and 3 per cent for grants made in 2005. This initial valuation is revised at each balance sheet date to take account of actual achievement of the performance condition that governs the level of vesting and any changes that may be required to the attrition assumption. The difference is charged or credited to the income statement, with a corresponding adjustment to equity. The total number of PSP securities outstanding at 31 December 2008 was 11,473,623 (2007: 7,732,772) and the total amount credited to income relating to the PSP for the year ended 31 December 2008 was $1,777 (2007: expense of $13,313).


The weighted average grant date fair value of the options awarded in 2008 is $8.74 and the total fair value of shares vested during the year is $8,999 (2007: $nil).

The table below shows the PSP securities as at 31 December 2008:

Outstanding Non-vested Vested

Beginning of year 7,732,772 7,732,772 –Granted during year 5,232,897 5,232,897 –Vested during the year – (1,023,771) 1,023,771Forfeited during year (703,745) (703,745) –Exercised during the year (788,301) – (788,301)End of year 11,473,623 11,238,153 235,470Exercisable, end of year 235,470 – 235,470

In addition, at each dividend payment date, an amount equal to the dividend that would be payable in respect of the shares to be issued under the PSP (assuming full vesting), is paid into an Employee Benefit Trust. This amount, totalling $3,553 in 2008, is treated as a deferred compensation obligation and as such is taken directly to retained earnings and capitalised in stockholders’ equity within additional paid-in capital.

Employee Share PlansThe UK Savings-Related Share Option Scheme (‘SharesaveUK’ or ‘plan’) was approved by the stockholders of the Group on 14 May 2008. The plan is administered by an external party. Employees in the UK that met minimum employment criteria of the designated participating subsidiaries are eligible for participation in the plan. Eligible employees can elect to invest up to a maximum of £0.25 per month for the full three-year period of the plan. Employees who participate in the SharesaveUK can, at the end of the plan period, purchase the Group’s shares at a 20 per cent discount on the market price at the grant date of the award. At 31 December 2008, a total of 551,742 shares have been awarded at an option price of £3.18 per share ($6.30 per share).

The US Employee Stock Purchase Plan (‘ESPP’ or ‘plan’) was also approved by the stockholders of the Group on 14 May 2008 and is administered by an external party. Employees in the US that met minimum employment criteria of the designated participating subsidiaries were eligible for participation in the plan. Eligible employees could contribute up to 15 per cent of their base salary, subject to a maximum of $21.25, during the approximately 12-month offering period towards the purchase of the Group’s shares, up to a total fair market value of $25 in each plan year. For the 2008-2009 plan year, employees who participate in the ESPP could purchase the Group’s shares at a 15 percent discount on the fair market price at the grant date. At 31 December 2008, employees enrolled to purchase a total of 70,103 shares for the 2008-2009 plan year at a share price of $7.05 per share (£3.58 per share).

The expense related to the Employee Share Plans is considered to be insignificant.



Long Term Incentive PlanInterests in a total of 16,791,592 ordinary common shares were granted to eligible employees in 2004 and prior years. The LTIP options were fully exercised and expensed by 31 December 2007. There was no compensation expense in relation to the LTIP for the year ended 31 December 2008 (2007: $359).

The options are fully vested as at 31 December 2008 and all options will expire by 4 July 2012. The table below shows the vesting dates and the number of options that have vested on those dates:

Number ofDate options vesting

4 July 2003 1,576,1106 April 2004 (IPO date) 4,815,4844 July 2004 1,668,2614 July 2005 1,655,1584 July 2006 1,647,5644 July 2007 5,429,015Total 16,791,592

The table below shows the status of the interests in shares as at 31 December 2008 and 2007:

2008 2007

Weighted average Weighted average Number exercise price ($) Number exercise price ($)

Outstanding, beginning of year 5,144,109 4.94 15,270,679 9.76Exercised during year (510,734) 4.94 (501,044) 5.92Forfeited during year – – (130,168) 12.32Expired during year – – (9,495,358) 12.53Outstanding, end of year 4,633,375 4.94 5,144,109 4.94Exercisable, end of year 4,633,375 4.94 5,144,109 4.94

Number of Average remaining options contractual lifeExercise price outstanding (years)

$5.00 4,454,882 3.5£3.50 178,493 3.5Total 4,633,375 3.5

As at year end, there was no amount receivable from stockholders on the exercise of interests in shares.

The fair value of the options granted during 2004 was calculated using the Black-Scholes valuation model and is amortised over the expected vesting period of the options, being four years for the £3.50 tranche, 1.875 for the performance-based tranche that vested on admission and 3.625 for the performance-based tranche that vested on 4 July 2007. The valuation has assumed an average volatility of 40 per cent, no expected dividends and a risk-free rate using US dollar swap rates appropriate for the expected life assumptions: 2.8 per cent for four years; 1.79 per cent for 1.875 years; and 2.64 per cent for 3.625 years.

The fair value of the options granted prior to 2004 was calculated using the Black-Scholes valuation model and is being amortised over the expected vesting period of the options, being 4.0 years from the date of the subscription agreement. The valuation has assumed a risk-free rate of return at the average of the four- and five-year US dollar swap rates of 3.39 per cent and no expected volatility (as the minimum value method was utilised because the Company was not listed on the date the options were issued).


15 Earnings per shareBasic earnings per share is calculated by dividing the earnings attributable to common stockholders by the weighted average number of common shares in issue during the year.

Diluted earnings per share is calculated by dividing the earnings attributable to all common stockholders by the weighted average number of common shares in issue adjusted to assume conversion of all dilutive potential common shares. The company has the following potentially dilutive instruments outstanding during the periods presented:

(i) PSP;(ii) LTIP; (iii) Warrants; and(iv) Employee share plans

(Loss)/income available to common stockholders is arrived after deducting preferred share dividends of $43,500 (2007: $21,868).

Reconciliations of the number of shares used in the calculations are set out below.

2008 2007

Weighted average number of shares 249,839,605 250,311,588Dilution effect of warrants – 4,258,094Dilution effect of stock options and non-vested shares – 10,130,761Dilution effect of stock options and warrants exercised in the year – 927,684Weighted average number of shares on a diluted basis 249,839,605 265,628,127 (Loss)/earnings per common share Basic $(0.19) $1.84Diluted $(0.19) $1.74

Potentially issuable securities that would result in a reduction in loss per share if issued are not considered to have a dilution effect. In 2008, due to the loss incurred, no potentially issuable securities are considered dilutive. As a result, there is no difference between basic and diluted amounts.

In 2007, all securities awarded under the PSP were included in the computation of diluted earnings per share because the performance conditions necessary for these securities to vest were met as at 31 December 2007. All options to purchase shares under the LTIP were included in the computation of diluted earnings per share.



16 Other comprehensive (loss)/income

The following table details the individual components of other comprehensive (loss)/income for 2008 and 2007:

Amount Tax benefit/ Amount2008 before tax (expense) after tax

Cumulative effect of adoption of FAS 159 $(20,233) $5,809 $(14,424)Defined benefit pension plan 1,121 (314) 807Cumulative translation adjustments (307,031) (18,824) (325,855)Change in accumulated other comprehensive loss $(326,143) $(13,329) $(339,472)

Amount Tax benefit/ Amount2007 before tax (expense) after tax

Unrealised losses arising during the year $(42,547) $6,450 $(36,097)Reclassification for losses realised in income 78,970 (13,259) 65,711Net unrealised losses on investments 36,423 (6,809) 29,614Defined benefit pension plan (818) 264 (554)Cumulative translation adjustments 42,097 (6,247) 35,850Change in accumulated other comprehensive income $77,702 $(12,792) $64,910

The following table details the components of accumulated other comprehensive (loss)/income as at 31 December:

2008 2007

Net unrealised gains (losses) on investments $– $14,424Cumulative translation adjustments (300,905) 24,950Funded status of defined benefit pension plan adjustment 253 (554)Accumulated other comprehensive (loss)/income $(300,652) $38,820

17 Pension commitmentsThe Group operates various pension schemes for the different countries of operation. In addition, the Group acquired a defined benefit pension plan and defined contribution plans as a part of the Wellington acquisition.

In the UK, the Group operates defined contribution schemes for certain directors and employees, which are administered by third-party insurance companies. The pension cost for the UK scheme was $8,664 for the year ended 31 December 2008 (2007: $8,035).

In Bermuda, the Group operates a defined contribution scheme, under which the Group contributes a specified percentage of each employee’s earnings. The pension cost for the Bermuda scheme was $662 for the year ended 31 December 2008 (2007: $733).

In the US, Catlin Inc. has adopted a 401(k) Profit Sharing Plan (‘the Plan’) qualified under the Internal Revenue Code in which all employees meeting specified minimum age and service requirements are eligible to participate. The Plan allows eligible participants to contribute a portion of their salary to the Plan on a tax-deferred basis. Catlin Inc. will match the employee contributions up to 100 per cent of the first 6 per cent of salary contributed. An additional discretionary contribution may be made to the plan as determined by the Board of Directors of Catlin Inc. on an annual basis and allocated on a pro rata basis to individual employees based on eligible compensation. The pension cost for the Plan for the year ended 31 December 2008 was $4,412 (2007: $2,875). In 2005, Catlin Inc. established a Non-Qualified Deferred Compensation Plan (‘Non-Qualified Plan’) under which higher-paid employees are eligible for supplemental retirement benefits in excess of statutory limitations on Plan contributions and benefits. The expense related to the Non-Qualified Plan in for the year ended 31 December 2008 was $1,636 (2007: $575).


Defi ned benefi t pension schemeIn connection with the acquisition of Wellington in December 2006, the Group assumed liabilities associated with a defined benefit pension scheme which Wellington sponsored. The scheme has been closed to new members since 1993. The current membership consists only of pensioners and deferred members. The movements in the period are shown in the table below:

2008 2007

Projected benefit obligation, beginning of year $31,860 $32,720Change in projected benefit obligation:

Interest cost 1,665 1,654Actuarial gain (4,475) (1,074)Benefits paid (1,811) (1,948)Foreign exchange (7,511) 508

Projected benefit obligation, end of year 19,728 31,860Fair value of plan assets, beginning of year 32,781 34,429Change in plan assets:

Expected return on plan assets 1,728 1,742Actuarial loss (4,274) (1,970)Contributions by the company 857 –Benefits paid (1,811) (1,938)Foreign exchange (7,993) 518

Fair value of plan assets, end of year 21,288 32,781Reconciliation of funded status:

Funded status 1,560 921Net pension asset recognised at year end $1,560 $921

The amounts recognised in net income were as follows:

2008 2007

Interest cost $1,665 $1,654Expected return on plan assets (1,728) (1,742)Net credit recognised in net income $(63) $(88)

The actuarial assumptions used to value the benefit obligation at 31 December were as follows:

2008 2007

Discount rate 7.2% 5.8%Price inflation 2.6% 3.4%Pension increases to pensions in payment 3.0% 3.0%

The objectives in managing the scheme’s investments are to ensure that sufficient assets are available to pay members’ benefits as they arise, with due regard to minimum regulatory requirements and the employer’s ability to meet contribution payments. It is believed that, in relation to membership consisting only of pensioners and deferred members, these objectives are best met by investment in fixed income securities. The investments are in a pooled, non-government bond fund which is diversified across a large number of securities in order to reduce specific risk.

As at 31 December 2008, 100 per cent of plan assets were held in debt securities. No plan assets are expected to be returned to the Group during 2009.



The overall expected return on assets is calculated as the weighted average of the expected returns on each individual asset class. The return on debt securities is the current market yield on debt securities. The expected return on other assets is derived from the prevailing interest rate set by the Bank of England as at the measurement date.

Estimated future benefit payments for the defined benefit pension plan, are as follows:

2009 $1,7372010 $1,6062011 $1,8692012 $1,7812013 $1,8832014-2018 $11,023

Contributions of $657 are expected to be paid to the defined benefit plan in 2009.

18 Statutory fi nancial dataThe Group’s subsidiaries’ statutory capital and surplus was $2,370,569 at 31 December 2008 (2007: $3,283,887). The statutory capital and surplus of each of its principal operating subsidiaries is in excess of regulatory requirements.

The Group’s ability to pay dividends is subject to certain regulatory restrictions on the payment of dividends by its subsidiaries. The payment of such dividends is limited by applicable laws and statutory requirements of the jurisdictions in which the Group operates.

The Group is also subject to restrictions on some of its assets to support its insurance and reinsurance operations, as described in Note 4.

19 Commitments and contingenciesLegal proceedingsThe Group is party to a number of legal proceedings arising in the ordinary course of the Group’s business which have not been finally adjudicated. While the results of the litigation cannot be predicted with certainty, management believes that the outcome of these matters will not have a material impact on the results of operations or financial condition of the Group.

Concentrations of credit riskAreas where significant concentration of risk may exist include investments, reinsurance recoverable and cash and cash equivalent balances.

The cash balances and investment portfolio are managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single institution issue and issuers. Similar principles are followed for the purchase of reinsurance. The Group believes that there are no significant concentrations of credit risk associated with its investments or its reinsurers. Note 8 describes concentrations of more than 5 per cent of the Group’s total reinsurance recoverable asset.

Letters of creditThe Group provides finance under its Club Facility to enable its subsidiaries to continue trading and to meet its liabilities as they fall due, as described in Note 10.

Future lease commitmentsThe Group leases office space and equipment under non-cancellable operating lease agreements, which expire at various times. Future minimum annual lease commitments for non-cancellable operating as at 31 December 2008 are as follows:

2009 $12,0612010 $11,5512011 $11,0172012 $9,7432013 and thereafter $32,550Total $76,922

Under non-cancellable sub-lease agreements, the Group is entitled to receive future minimum sub-lease payments of $13,685 (2007: $1,298).



20 Related partiesThe Group purchased services from Catlin Estates Limited and Burnhope Lodge, both of which are controlled by a Director of the Group. The cost of the services purchased from Catlin Estates Limited and Burnhope Lodge was $397 (2007: $242).

During 2007 the Group entered into a lease agreement with The Whitfield Group Ltd., the president of which is related to a Director of Catlin Bermuda. The agreement expires on 30 June 2009. Total rent incurred during 2008 amounted to $162 (2007: $141).

All transactions with related parties were entered into on normal commercial terms.

21 Subsequent eventsProposed dividendOn 8 February 2009 the Board approved a proposed final dividend of $0.266 per share (£0.18 per share), payable on 15 May 2009 to stockholders of record at the close of business on 20 February 2009. The final dividend is determined in US dollars but partially payable in sterling based on the exchange rate of £1 = $1.48 on 6 February 2009.

Preferred share dividendThe Board of Catlin Bermuda approved a dividend of $21,750 to the shareholders of the non-cumulative perpetual preference shares. This dividend was paid on 19 January 2009.

Rights IssueOn 12 February 2009 the Group announced that it was proposing to raise $288 million (£200 million), net of expenses, by way of a Rights Issue of new common shares at 295 cents (205 pence) per share on the basis of two new common shares for every five existing common shares.

Reinsurance to closeOn 11 February 2009 Catlin Underwriting Agencies Limited agreed that Syndicate 2020 would close its 2006 Lloyd’s underwriting year of account by way of a Lloyd’s reinsurance to close. Under the reinsurance to close, liability for Syndicate 2020’s outstanding losses was assumed by Syndicate 2003 for the payment of a premium equal to loss reserves. As a result of the transaction, the Group (via Syndicate 2003) has assumed the 33 per cent of Syndicate 2020’s outstanding losses previously attributable to third-party members of Syndicate 2020, in addition to the 67 per cent share already held by the Group.

115

Five-Year Financial Summary(US dollars in thousands, except share amounts)

Financial Statements

2006 2006 2008 2007 combined as reported 2005 2004

Operational information Revenues Gross premiums written $3,437,004 $3,360,626 $2,721,800 $1,605,019 $1,386,600 $1,433,836Reinsurance premiums ceded (825,561) (787,108) (398,539) (194,896) (197,501) (187,331)Net premiums earned 2,596,041 2,489,534 2,228,162 1,325,861 1,216,442 1,161,110Net investment return (91,038) 211,143 188,346 88,948 80,627 50,332Net realised loss on derivatives (12,527) (30,088) (1,321) (1,321) – –Net realised (losses)/gains

on foreign currency (20,631) (4,035) 31,202 38,746 (13,791) 8,865Other income 14,991 23,354 42,061 3,528 741 759Total revenues 2,486,836 2,689,908 2,488,451 1,455,762 1,284,019 1,221,066 Expenses Losses and loss expenses 1,631,837 1,154,670 1,113,393 681,549 865,285 660,437Policy acquisition costs 510,238 530,992 540,714 285,732 261,497 257,143Administrative and other expenses 357,312 460,878 313,830 213,064 129,572 129,544Total expenses 2,499,387 2,146,540 1,967,937 1,180,345 1,256,354 1,047,124 (Loss)/income before minority

interest and income tax (12,551) 543,368 520,514 275,417 27,665 173,942Minority interest 23 8 (22) (22) – –Income tax benefit/(expense) 9,639 (59,790) (92,011) (16,606) (8,003) (19,886)Net (loss)/income before

preferred share dividends (2,889) 483,586 428,481 258,789 19,662 154,056Preferred share dividends (43,500) (21,868) – – – –Net (loss)/income to

common stockholders $(46,389) $461,718 $428,481 $258,789 $19,662 $154,056 Basic earnings per share $(0.19) $1.84 $1.73 $1.59 $0.13 $1.31Diluted earnings per share $(0.19) $1.74 $1.64 $1.47 $0.12 $1.00Basic weighted average

shares outstanding 249,839,605 250,311,588 248,281,207 162,598,043 154,984,097 117,379,304Diluted weighted average

shares outstanding 249,839,605 265,628,127 261,758,165 176,075,001 163,037,976 154,158,785 Balance sheet information Total cash and investments $5,933,413 $6,001,144 $5,013,709 $5,013,709 $2,371,360 $1,982,712Total assets 9,659,651 9,600,845 8,606,318 8,606,318 3,859,983 3,373,126Unpaid losses and loss expenses 4,606,256 4,237,525 4,005,133 4,005,133 1,995,485 1,472,819Unearned premiums 1,536,203 1,506,899 1,290,379 1,290,379 663,659 722,891Total stockholders’ equity 2,469,235 3,017,004 2,018,280 2,018,280 931,081 971,187 Key statistics Loss ratio 62.9% 46.4% 50.0% 51.4% 71.1% 56.9%Expense ratio 32.1% 37.7% 37.3% 36.8% 32.0% 32.5%Combined ratio 95.0% 84.1% 87.3% 88.2% 103.1% 89.4%Return on average equity (2.2%) 20.8% 23.8% 24.2% 2.1% 19.1%Effective tax rate NM 11.0% 17.7% 6.0% 28.9% 11.4%NM: Not meaningful


Glossary

Active UnderwriterThe individual at a Lloyd’s syndicate with principal authority to accept insurance and reinsurance risk on behalf of the syndicate.

Binding authorityAn agreement under which an insurer delegates its authority, subject to certain limits, to enter into a insurance contracts to a coverholder.

Combined ratioThe sum of the loss ratio plus the expense ratio. A combined ratio of less than 100 per cent means an insurer has achieved an underwriting profi t.

CoverholderA fi rm that is authorised by an insurer/Lloyd’s syndicate to underwrite insurance or reinsurance contracts on its behalf.

Excess of lossA type of reinsurance that covers specifi ed losses incurred by the reassured in excess of a stated amount (the excess) up to a higher amount.

Expense ratioPolicy acquisition costs, administrative expenses and other expenses (excluding fi nancing and amortisation expenses) divided by net premiums earned.

Facultative riskA risk that is placed by means of a separately negotiated contract as opposed to one that is part of a larger programme or treaty.

Inception dateThe date on which an insurance or reinsurance contract comes into force.

Lead underwriterThe insurer or Lloyd’s syndicate responsible for setting the terms of an insurance or reinsurance contract that is subscribed by more than one insurer and/or syndicate. The lead underwriter generally has primary responsibility for handling any claims arising under such a contract.

Loss ratioLosses and less expenses divided by net premiums earned.

NameAn individual member of Lloyd’s.

PremiumsThe amount paid to an insurer for coverage. Written premiums refer to the entire premium paid by the assured. Earned premiums refer to the amount of premiums relating to expired portions of contracts underwritten; unearned premiums refer to premiums applicable to unexpired portions of policy periods. Gross premiums refer to the amount of premium underwritten before reinsurance costs; net premiums refer to the amount of premium minus premiums paid for reinsurance.

Proportional reinsuranceA type of reinsurance in which the reinsurer shares similar proportions of the premiums earned and the claims incurred as the reassured, plus certain associated expenses.

Quota shareA reinsurance treaty under which the reassured cedes a specifi ed percentage of all premiums received over a given period; in return, the reinsurer is obliged to pay the same percentage of any claims and specifi ed expenses arising on the reinsured account.

Single-risk lossA major loss occurring at one location (as opposed to catastrophe losses, which are the combination of losses occurring from one cause at numerous locations).

US GAAPAccounting principles generally accepted in the United States of America. Catlin’s consolidated fi nancial statements are prepared in accordance with US GAAP.

Catlin Group LimitedCumberland House6th Floor1 Victoria StreetHamiltonBermuda HM11+1 441 296 0060

crea

ted

by

Nav

yblu

e

Documents

AnnualReports.co.uk · 2016. 9. 28. · Catlin Group Limited is an international specialist property/casualty insurer and reinsurer writing more than 30 classes of business worldwide