The investment fund operated by reinsurance and retrocessional reinsurance-linked asset manager CATCo Investment Management is on course so far in 2013 having produced ‘very satisfactory’ performance, according to its Chairman in the funds half-yearly report. CATCo has built a considerable share of the retrocessional reinsurance market and will seek to consolidate that.
The CATCo Reinsurance Opportunities Fund Ltd., the firms flagship stock exchange listed reinsurance-linked investment fund, saw a net asset value capital return of 7.90% for the first-half of 2013. On a share price capital basis the return was 3.74%, which beat an insurance-linked securities (ILS) and catastrophe bond market total return benchmark of 3.47%.
Since the funds inception, the NAV total returns of the different share classes, the Ordinary Shares issued on 20 December 2010, C Shares issued on 20 May 2011 and C Shares issued on 16 December 2011, were respectively 10.50%, 28.94% and 15.87%. On top of this investors in the funds sterling shares have benefitted from a positive foreign exchange attribution of 6.81% capital return for the period.
CATCo remains on course to maximise its potential returns in 2013, if the year remains loss free. So far there have been no catastrophic events which have caused any impact to the funds investments. It’s early days to speculate, especially with the bulk of the hurricane season ahead of us, but CATCo remains on course with a portfolio that subject to no losses could offer an expected net return to investors of 28%.
CATCo has built up a considerable share of the retrocessional reinsurance market in its three years of operations. According to reinsurance broker Guy Carpenter, CATCo reinsurance products now account for approximately a 20% market share of the retrocessional market.
A considerable amount of the market share CATCo now commands has actually come from growing the market for retrocessional reinsurance, rather than by taking market share from others. The CATCo product is now extremely well known in the retro market and many major reinsurers rely on CATCo capacity for a portion of their risk transfer. CATCo’s report comments; “This is very satisfying amidst a changeable retrocessional environment, and in only three years of existence.”
Interestingly, CATCo has not seen a major impact on its business due to the influx of capital market and external capital into the reinsurance sector. With retrocessional reinsurance being a specialised product, with a smaller market and fewer providers, this space has not seen the price declines that the broader catastrophe reinsurance market felt at recent renewals.
CATCo said; “The market reputation for CATCo’s products has meant that this recent oversupply of capital in the sector has had little or no effect on CATCo-Re Ltd, the Company’s reinsurance company, or its ability to retain or win new business.”
It is possible that CATCo may feel more impact at the next January renewals, as it can take time for pricing trends to move through the markets layers from reinsurance to retro. However, its products are very specialised and provide niche coverage across many peak perils meaning the firm likely has room to optimise its portfolio to maintain returns despite pricing fluctuations in certain lines and perils.
Chairman Nigel Barton said; “The Company’s financial performance during the first half of the year has been very satisfactory as we are approaching US hurricane season.”
Barton continued, saying that CATCo capacity is becoming a source of retro capacity that provides the foundations of many firms risk transfer and CATCo is a valued retrocessional reinsurance partner to many of the industry’s largest reinsurers.
Barton closed by saying; “The Board strongly believes that offering tailor-made reinsurance solutions to meet clients’ needs enables the Company both to continue to perform strongly and to consolidate further its position in the retrocessional reinsurance market.”
CATCo deployed around $2 billion of retrocessional reinsurance capacity in 2013 and we expect that this number will increase at the start of 2014. With retro increasingly in demand, as reinsurers seek to hedge their own portfolio risks, CATCo will seek to continue to grow its capacity and further consolidate its share of the retro reinsurance market.