LONDON (Bloomberg) — Bermuda-based Catlin Group Plc, owner of the largest insurance unit at Lloyd's of London, will raise £200 million ($288 million) in a rights offering to boost underwriting capacity.

Shareholders will be offered two shares for every five they now own for 205 pence apiece, the company said yesterday in a statement. That's 47 percent less than Catlin's closing price on Wednesday. JPMorgan Chase & Co. and UBS AG are underwriting the sale in full.

"The rights issue is a positive development for the share price as the new funds will restore confidence in the balance sheet and allow for some additional income growth," Nick Johnson, a London-based analyst at Numis Securities with an "outperform" rating on the stock wrote in a note to clients.

Fellow Lloyd's insurers including Amlin Plc, Hiscox Plc, Beazley Group Plc and Chaucer Holdings Plc have sought to boost their underwriting capacity this year by raising money to take advantage of rising premiums. The erosion of capital in the industry, coupled with last year's losses from the worst hurricane season since 2005, have caused premiums to rise as much as 10 percent this year, according to Fitch Ratings analysts.

Catlin rose 6.9 percent to 415.5 pence in London trading, giving the company a market value of about £1.1 billion.

"We are in a position of sustainable increase" in premiums, chief executive officer Stephen Catlin said in a telephone interview. "There's some clear structural change coming through, arising from some insurers' balance sheets being absolutely decimated from their investment criteria."

Catlin is only raising capital because it is forecasting rising prices, he added. Catlin recorded a net loss of $46.4 million last year, compared with a profit of $462 million a year earlier, the insurer said in a separate statement yesterday. The company had been expected to post a loss of $66.9 million, according to the median estimate of six analysts surveyed by Bloomberg.

Catlin plans to increase its 2008 dividend six percent to 18 pence a share, to be paid on May 15. The company is raising its dividend to fulfill a policy of increasing payouts each year, CEO Catlin said.

The value of the insurer's investments declined 1.5 percent last year, compared with a 4.5 percent gain a year earlier, as stock markets tumbled and the world entered the deepest recession since World War II. Catlin lost $111.5 million on fixed-income investments, prompting it to increase the value of liquid assets, defined as cash and cash equivalents such as government bonds, to 60 percent at year-end from 54 percent in 2007.

"While global unemployment is rising, banks aren't lending to businesses and consumer confidence is decreasing, we are walking into an unprecedented period of decline and we'll see corporate defaults like we've never seen before," Stephen Catlin said.

Catlin said he would be "very happy" with an investment return of between two percent and five percent this year. He currently forecasts returns at the "bottom end of that range".