Catlin Group Ltd produced a 13 per cent increase in profit in what is likely to be its final year as a separate company.

The Bermuda-based insurer has agreed to be acquired by XL Group in a $4.2 billion deal expected to close this year.

Pre-tax profit totalled $488 million in 2014, up from $432 million in 2013. The company wrote more business, with gross premiums climbing 12 per cent to nearly $6 billion, more than half of which came out of the company’s non-London hubs, which include Bermuda.

Catlin founder and chief executive officer Stephen Catlin said: “Catlin continued to grow profitably during 2014, which demonstrates that our operating strategy — based on disciplined underwriting and diversification — has successfully differentiated Catlin from many of its peers.”

The combined ratio of 86.8 per cent indicated strong underwriting profitability, while return on equity was 13.1 per cent.

Total investment returns increased to $241 million from $135 million in 2013.

London Stock Exchange-listed Catlin also raised its dividend payment by 5 per cent to 32.5p per share and added a special dividend of 12p per share.

Mr Catlin also commented on the ongoing merger with XL, saying it would result in “a broader, better balanced and more efficient underwriting organisation that would be able to compete more effectively in the evolving marketplace”.

In his comments in the earnings reports, he said: “I have been asked many times over the past months why would Catlin agree to be acquired by a competitor. It’s a good question.

“Catlin and XL had been discussing the future of both businesses for more than a year, and both companies’ managements concurred that fundamental changes were taking place in the insurance industry. These include the increasing concentration among brokers; the need to invest in more expensive and more advanced data and analytics systems; the challenges raised by alternative capital; and increasing costs, particularly regulatory costs.

“XL and Catlin determined separately that a business combination would be advantageous as merger and acquisition activity would likely increase in the insurance industry. At Catlin, we concluded that our best course would be to recommend XL’s offer.

“In other words, if the industry is consolidating, wouldn’t you rather choose the partner with which you want to work rather than have your partner chosen for you at a later date?”

In London trading yesterday, Catlin shares closed unchanged at 703p.