CATCo grows by $350m at 1/1, deploys over $2 billion of retrocessional reinsurance capacity

by Artemis on January 9, 2013

CATCo Investment Management, the specialist Bermuda based reinsurance-linked investment business who manage investment clients assets and deploy them as capacity for retrocessional reinsurance portfolios, has seen impressive inflows of capital in the fourth quarter of 2012 with around $350m of new investments. Much of CATCo’s capacity has now been deployed at the January renewals across a broadly diversified range of collateralised retro reinsurance contracts.

A stock exchange update from CATCo said that it has written a range of new reinsurance transactions with a number of reinsurance counterparties for 2013 and that as of today it has deployed approximately 98% of the capital from both new and existing investments within the firm and its various funds, including the CATCo Reinsurance Opportunities Fund.

The retrocessional reinsurance contracts written at the renewals contain a significantly diverse set of risks, which CATCo put into 42 different pillars of risk. The way the reinsurance portfolio is diversified ensures that for almost every worst case loss scenario investors would still see a positive return, albeit small in some cases. The two outliers are a worst case scenario U.S. hurricane or U.S. earthquake event, which could cause a small negative return were a major catastrophe in these pillars to occur.

Were no loss events to occur in the current year CATCo would hope to generate a maximum annualised net return of around 27% for its investors, a very impressive prospect. This is an increase on the maximum possible net return CATCo had discussed for 2012 which was 23%. CATCo’s returns are after the cost of various reinsurance protections that it purchases for itself, to protect against greater losses. CATCo’s target returns for 2013 are LIBOR + 12% to 15%.

New investments of around $350m have been made into CATCo’s master fund and segregated accounts in advance of the 1st January renewals and we understand it has deployed over $2 billion of collateralised retrocessional reinsurance capacity, a significant figure in terms of the market size. This represents around 98% of available capital excluding the side pockets set up for hurricane Sandy and Costa Concordia and some capacity deployed at the mid-year 2012 renewals.

Other updates from CATCo include the fact that it currently sees no need to change the retro reinsurance loss reserve it made for hurricane Sandy in December. CATCo will update again on Sandy once the next PCS loss estimate is released later this month.

Side pocket investments have been created as at the 31st December for the exposures CATCo has to both Sandy and Costa Concordia. This ensures that the new inflows of capital are not exposed to the events in any way.

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