The following Key Performance Indicators (KPIs) have been set by Catlin to measure the Group’s performance against its strategic objectives.
Book value per share plus dividends (US$)
The Group believes that the change in book value per share, plus the common share dividend paid during a calendar year, is an appropriate measure of shareholder value creation. Shareholder value using this metric increased by 12 per cent during 2012. The vesting conditions of Catlin’s Employee Performance Share Plan are based on growth in book value per share plus dividends paid during rolling three- and four-year periods.
Net tangible assets per share plus dividends (US$)
Shareholder value can also be measured on a similar basis by combining the annual increase in net tangible assets per share with the dividends paid to shareholders during a calendar year. Growth in net tangible assets per share more accurately assesses the Group’s performance against its underwriting capital, which excludes goodwill and other intangibles. Measured on this basis, shareholder value increased by 15 per cent during 2012.
Return on equity/Return on net tangible assets (%)
Catlin aims to produce a return on equity that is 10 percentage points above the risk-free rate over an underwriting cycle. Catlin has exceeded this target on a cumulative basis since its IPO in 2004. In 2012 return on equity amounted to 11.3 per cent, whilst return on net tangible assets was 14.6 per cent.
Income before income tax (US$m)
Pre-tax profitability is an effective measure of the combination of underwriting performance, expense control and investment return. A strong underwriting performance during 2012 was the primary driver of a 377 per cent increase in profits before tax to US$339 million. Profits in 2012, however, were adversely impacted by losses from Hurricane Sandy and an investment return in line with the low-yield environment.
Net underwriting contribution (US$m)
Net underwriting contribution is the principal measure of Catlin’s underwriting performance. The net underwriting contribution in 2012 of US$788 million, the highest in five years, reflects the Group’s focus on disciplined underwriting along with superior portfolio management. Net underwriting contribution was impacted by the US$225 million in net losses sustained from Sandy.
Loss ratio/Attritional Loss Ratio (%)
The loss ratio measures claims and reserve movements as a percentage of net premiums earned and is another measure of underwriting performance. The attritional loss ratio – which excludes catastrophe and large single-risk losses and reserve movements – is a measure of underlying underwriting profitability. Despite incurring US$225 million in losses from Sandy, the loss ratio of 56.0 per cent was the lowest in the past five years, whilst the attritional loss ratio remained at a low level.
Gross premiums written by non-London/UK Hubs (%)
Over the past decade, Catlin has significantly diversified its operations geographically, establishing six underwriting hubs in the world’s major insurance markets. This diversification reduces the Group’s reliance on London wholesale business as well as helps Catlin build stronger relationships with brokers and clients in all parts of the world. More than 49 per cent of Catlin’s business was produced by offices outside the United Kingdom in 2012.
Capital Buffer (%)
Catlin defines available capital as its net tangible assets and the perpetual preferred shares issued by Catlin Bermuda. The Group strives to maintain a buffer of available capital that is between 10 per cent and 20 per cent of required economic capital. The capital buffer at 31 December 2012 stood at 14 per cent, virtually unchanged from the previous year.
Claims performance (%)
Catlin believes that an insurer provides greatest value to its clients following a claim. Catlin uses a survey by Gracechurch Consulting as a measure of its claims handling performance. The survey asks London market claims brokers which insurers they would highly recommend to clients based on the quality of claims service. Catlin has consistently ranked first in this survey. In 2012 34 per cent of brokers recommended Catlin. Catlin’s score was nearly double its closest competitor’s.
Employee turnover (%)
Catlin’s most important resource is its people, and the Group places great emphasis on attracting and retaining high-calibre employees. The employee turnover rate measures the Group’s success in retaining staff. The employee turnover rate decreased during 2012 to less than 10 per cent. Notably, the turnover rate among the Group’s underwriting employees was only 7 per cent, the lowest in five years.