Swiss Re Insurance-Linked Fund Management

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CATCo deploys 96.3% of fund at January renewals


In an update to the London Stock Exchange where it is listed, CATCo Investment Management Ltd. (recently launched collateralized reinsurance investment manager) announced that its CATCo Reinsurance Opportunities Fund (which trades on the LSE) has deployed 96.3% of the initial start up capital it raised at launch.

When CATCo launched at the end of 2010 they raised $80.4m of investment in their fund. At the 1st January reinsurance renewals they have managed to invest in and assume $77.4m of collateralized reinsurance risk. The firm invests in various insurance-linked instruments including catastrophe bonds and industry loss warranties. Their update states:

CATCo Investment Management Ltd., the appointed investment manager, in conjunction with CATCo-Re Ltd. (“CATCo”), a licensed Class 3 Reinsurance Company through which the Master Fund gains access to all of their reinsurance risk exposures, have agreed terms of several reinsurance transactions that have deployed $77.4 million, representing 96.3% of the Placing Proceeds raised on December 20, 2010. Each contract has a duration of 12 months and are due to expire on December 31, 2011. The risk period of each Reinsurance Agreement commenced on January 1, 2011. The remaining assets have been held in cash.

Each Reinsurance Agreement entered into by CATCo, on behalf of the Master Fund, contains several non-correlated pillars of risk. At the date of this announcement, all Reinsurance Agreements written by CATCo are fully collateralized with highly liquid securities, namely, AAA-rated money market funds or short term US Treasury Bills which reside in Reinsurance Trust Accounts with the Bank of New York and whom act as Trustee.

The fund is well diversified across both risk and geographic location which no doubt made it attractive to investors. The current mix of catastrophe risks the fund is invested into is below:

Diversified investments

1. Not all of the 14 Event Risks listed above are fully non-correlated. However, no single event exposure is greater than 17%.
2. The 2nd event risk pillar provides additional coverage for the risk pillars 2-14 above at the same attachment points and in the same % Exposure as the 1st event coverage

Based on the assumption of no major loss events during 2011 CATCo say they estimate a projected net return to investors of 18%, a very healthy figure which is sure to help them secure further inflows of cash to the fund in the future.

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