Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

CATCo deploys $700m of retrocession reinsurance capacity since December


CATCo Investment Management Ltd. has issued an update on the progress they are making in deploying the additional capital secured from share offerings and capital raising activities in recent months and an update on their portfolio composition and performance.

In conjunction with their CATCo-Re Ltd. Class 3 reinsurance company, they have agreed terms on new reinsurance transactions with multiple reinsurance counterparties to utilise the capital raised through share issues and direct investments in the CATCo Reinsurance Opportunities Fund. They have now deployed $700m of retrocession reinsurance capacity since 20th December and say that their Master Fund’s portfolio is 97% fully invested in well diversified retro reinsurance transactions.

They breakdown their investment portfolio into the following geographical perils:

2nd Event Protections – 12%
US/Canada Quake – 13%
US/Caribbean Wind – 13%
Japan/Caribbean Quake – 9%
Marine Non-Elemental – 8%
Europe All Natural Perils – 6%
Florida 2nd Event Wind – 5%
Gulf of Mexico Wind – 5%
Northeast Wind – 5%
Rest of World – 3%
GA to VA Wind – 3%
Florida Wind – 3%
US 2nd Event Wind – 3%
US 3rd Event Wind – 3%
Japan Wind – 2%
CA Quake – 2%
US excluding CA Quake – 2%
Europe Wind – 2%
Japan All Natural Perils – 1%

CATCo’s strategy of investing across the reinsurance product range, including fully collateralised reinsurance contracts, insurance-linked swaps, industry loss warranties and insurance-linked securities, has allowed them to achieve a well diversified, balanced portfolio very rapidly, something insurance-linked securities investors should take heed of. Diversification of the portfolio is key to create the viable investment opportunity that CATCo offers with the minimum risk. Their main aim with this level of diversification is to ensure that no single loss can wipe out the returns for a financial year, something which makes this very attractive to investors.

The CATCo Reinsurance Opportunities Fund has achieved positive returns each month since its inception despite the heavy catastrophe losses experienced around the world. In fact the only event that CATCo suggest may cause a dent in the returns of their fund is the New Zealand earthquakes saying that “the Company’s maximum exposure to the 2011 New Zealand quake is such that the gross reinsurance portfolio returns could be reduced by c. 5% if this event resulted in a total loss to the Company’s Rest of World risk pillar.”

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