Catlin (LSE: CGL), the third-largest Lloyd’s of London insurer listed on the stock market, has just reported on progress in its latest trading update. And the news from the firm is actually quite good – despite the weather.
Flooding in Copenhagen and Thailand, as well as the damage caused by Hurricane Irene, have cost the group $135m (it reports in US dollars). That’s on top of first-half natural disaster hits of $534m.
But despite the “unprecedented number of significant catastrophe-related losses”, says the firm, “losses arising from the Atlantic windstorm season have not been as large as many had predicted”.
Investment-wise, Catlin “continues to maintain a defensive asset allocation – our balance sheet remains strong”, says the firm. It has stacks of cash and no exposure to government bonds issued by Greece, Ireland, Portugal, Spain or Italy.
Further, the firm has been raking in extra business: gross insurance premiums received in the first nine months of 2011 are 12% higher.
Even better for profits, Catlin has been able to charge more for some of the cover it’ll provide in future. The third quarter saw average premium rates for catastrophe-related business climb by 10%.
What’s the outlook?
Despite the “challenging environment”, Catlin “looks ahead with confidence. We expect improvement in rates and conditions for many of the classes of business we write. And our highly-diversified business allows us to take full advantage now and in the future.”
What the analysts are saying
Of the 19 analysts surveyed by Bloomberg, 11 say “buy”, eight say ”hold” and there are no sellers. The average price target is 455p – 15% above the current share price.
Our view
Catlin’s balance sheet remains in great shape. And on a forecast 2012 p/e ratio of below seven, a 6.8% prospective yield and a 15% discount to net asset value, the shares are cheap.
We’ve more on Catlin and other Lloyd’s insurers here.
Category: Economics