Investors in the CATCo Reinsurance Opportunities Fund, the London listed reinsurance-linked investment fund, will be pleased this morning after it announced a contingent distribution to shareholders from commuted Japanese earthquake exposures.
The CATCo Reinsurance Opportunities Fund is operated by Bermuda based specialist catastrophe and retrocessional reinsurance-linked investment business CATCo Investment Management. The firm has been prudent with any potential exposures, segregating any potentially affected investments in side-pockets until the full loss, or otherwise, was understood.
The understanding has always been that side-pocketing the investments meant that new investors had no exposure to these potential losses and that if the loss did not manifest, or a commutation agreement could be reached, any remaining value in the investments would be returned to CATCo’s investors in the form of a distribution.
The 2011 Tohoku earthquake in Japan has become one of the largest insurance and reinsurance industry losses in history. Unsurprisingly CATCo had exposure to this huge catastrophe event and reserved conservatively for its investments which were exposed to the Japan quake.
Artemis understands that one of the Japanese exposures had been paid out in full previously, but the other for which CATCo had reserved 100% of the collateral had slowly reduced as the counterparty gradually decreased its own loss reserves.
Meanwhile CATCo said previously that it would maintain its 100% loss reserve for the Japanese exposed contract until it became clear exactly how much the loss situation had improved and what exposure remained.
In a stock exchange announcement this morning CATCo has announced that it has reached a full and final commutation agreement with the counterparty holding the Japanese exposure reinsurance contract. This means an agreement has been made on any exposure to be paid for and the amount of any return of value to CATCo’s investors.
The Board of Directors of the CATCo Reinsurance Opportunities Fund has, as a result of the commutation agreement, announced a contingent distribution to be paid to the funds Ordinary Shareholders of $0.02887 cent per share. The distribution is only relevant to investors in the fund as of the record date of 10th August 2012. The distribution is expected to be paid on the 24th January. CATCo has waived its right to any performance fee from the contingent payment.
This distribution will be a welcome addition to the already healthy returns made by investors in the CATCo Reinsurance Opportunities Fund. In the announcement made this morning CATCo said that the contingent distribution returning value from the Japan exposures represents a 3% restated capital return for the year to 31st December 2011.
That will boost 2011 returns for shareholders in CATco’s fund by 3%, which is quite remarkable given the severity of the 2011 catastrophe reinsurance loss year. This further demonstrates CATCo’s conservative approach to its strategy and how that can significantly benefit its investors over the longer-term.
CATCo also announced today that it will be paying a 2013 dividend to investors, of $0.05737 per Ordinary Share, on the 31st January.