Catlin to Target European Markets Through Switzerland-Based Reinsurer

Bermuda-based specialty insurer and reinsurer Catlin Group Ltd. said it will form a reinsurance company based in Switzerland in an effort to "significantly expand" its European reinsurance business.

Pending approval from Swiss regulators, Catlin Re Switzerland will have at least $1 billion (810.7 million euros) in capital from internal sources, and will initially underwrite specialty reinsurance where market conditions are favorable, said Catlin. The group said initial lines of business will include trade credit, political risk and surety reinsurance.

The group anticipates getting regulatory approval in the second half of 2010.

Paul Brand, chief underwriting officer of Catlin Group, will take on the additional role of chief executive of Catlin's European operations. Reporting to him will be Ralf Tillenburg, currently head of Catlin's European hub in Cologne, Germany. He will become CEO of European Direct. Another CEO for European Reinsurance will be named later.

"The formation of Catlin Re Switzerland is a major development in the group's European expansion strategy," Catlin said in a statement. "Whilst the marketplace is currently competitive for most classes of European property/casualty business, the formation of Catlin Re Switzerland will allow the Catlin Group to quickly take advantage of favorable opportunities as they arise in the European reinsurance market, including opportunities created as the result of the forthcoming Solvency II regulatory regime."

Joy Ferneyhough, an equity analyst at Execution Noble in London, said Catlin's plan for the formation of a European reinsurance subsidiary based in Switzerland "appears to be the de-rigueur move of the season following the formation of Novae Re last year and Amlin's set-up of Amlin AG earlier this year, both in Switzerland for tax and regulatory benefits."

"Despite the mention of $1 billion funding, our understanding is that there will be no significant new investment in the immediate term, more a shuffling around of existing capital," said Ferneyhough in a research note. "We see this as another move to broaden the business and move away from being pigeonholed as a highly cyclical Lloyd's-only play."

Novae Re, part of Lloyd's insurer Novae Group plc, opened an office in Zurich, Switzerland in March. Novae, which has been writing reinsurance cover from London, said the Swiss operation will funnel business to Lloyd's Syndicate 2007 (BestWire, March 19, 2010).

Amlin plc said in May that it plans to establish a reinsurance platform in Zurich to underwrite reinsurance business from European markets. The new Zurich-based company will be named Amlin AG and will be capitalized with about $1.4 billion from Amlin's existing resources, the company said (BestWire, May 6, 2010).

Catlin said it will also seek regulatory approval in Bermuda to establish a Bermuda branch of the Switzerland-based reinsurer. The company said the Swiss reinsurer's Bermuda branch will start by underwriting reinsurance for Catlin Group subsidiaries, which is currently written by Catlin Insurance Co. Ltd. "This will provide the group with increased capital flexibility," Catlin said.

According to the company, Catlin Re Switzerland will build on an existing book of reinsurance business developed by Catlin's European offices over the past seven years.

The group's European expansion began in 2003 with the opening of the Cologne office. Catlin now has 10 European offices that wrote $175 million in gross premiums in 2009 on behalf of the Catlin syndicate at Lloyd's and Catlin UK.

Ferneyhough pointed out that Catlin's foray into Switzerland differs from Amlin's in that the latter's set-up of Amlin AG included the movement of all Amlin Bermuda's capital to Switzerland, with Bermuda becoming a branch office. "Catlin have chosen a slightly different route with Catlin Bermuda remaining as a separate legal subsidiary writing its existing third-party reinsurance business," she said.

"However, the Catlin Bermuda capital, which supported the quota shares from the group (mainly Lloyd's syndicate business), will now be utilized by Catlin Reinsurance Switzerland," said Ferneyhough in her report. "There will then be a small initial new investment by the group into the set-up/infrastructure costs of third-party reinsurance business in Switzerland. In essence this is not really a capital story for now, although obviously as this business in Switzerland grows it will require funding."

Certain underwriting units of Catlin Group, along with Lloyd's and Amlin Bermuda Ltd., have a current Best's Financial Strength Rating of A (Excellent).

(By David Pilla, international editor, BestWeek: [email protected])