This was my biggest high-yield dividend shareholding - and I rated it a HOLD back in February. So, what has changed - do I think, perhaps, that the end of the world is coming?
In a way, yes. Hurricane Sandy shocked everyone by its ferocity and size. And it hit a heavily populated and affluent urban agglomeration. People with insurance policies, rather than poor people on a Caribbean island.
Global warming might be to blame - if it is there are two important conclusions:
- global warming was always expected to produce much more unbalanced weather systems and it seems like that's happening
- it's not going to get better: it seems that carbon emissions are only going to go up - in the US (shale gas anyone?), China (coal-fired power stations), the UK (frack away, says the government) and pretty much everywhere else
Catlin Group is a Bermuda-based insurance underwriter that is the operator of the biggest syndicate on Lloyd's of London. To quote their website blurb: "Catlin Group Limited is a global speciality property / casualty insurer and reinsurer, writing more than 30 lines of business. Our six underwriting hubs in London/UK, Bermuda, the United States, Asia Pacific, Europe, and Canada place us at the heart of every major insurance market."
So it is big and diversified. But they deal in disasters and the announced expected loss on Sandy ($200m) comes at the top of the expected range with possibly more to come - and this loss will pretty much wipe out the profit this year.
Strangely enough, the share price yesterday hit a five-year high and the yield is still over 5%. But dividend cover is extremely thin - and that is without taking these losses into account. So, what will happen to the dividend is anyone's guess.
But that's not all. My portfolio continues to storm ahead and that has always in the past been a precursor to a sharp correction in the markets. So now seems to be a good time to cash in some of my chips.
[Sold 20/12/12 at £4.98]
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.