CATCo Investment Management have issued an update on their CATCo Reinsurance Opportunities Fund regarding portfolio deployment and their activity in the recent January renewals. All available capital has been substantially deployed across multiple reinsurance counterparties according to the release and as of today’s date in conjunction with CATCo-Re Ltd. (their Class 3 Bermuda reinsurer) they have deployed over $1.25 billion of retrocessional reinsurance capacity in the market at the 1st January 2012.
The 2012 investments are all performing in line with expectation and better than their targeted return of LIBOR +12%-15% per annum. In fact, data they have published shows that if there are no losses which affect their portfolio of retro reinsurance then CATCo could return as much as 23% for 2012. That’s an impressive return!. CATCo’s target of up to LIBOR +15% is attractive enough but the potential to return 23% again shows that the insurance-linked investment space is one of the best performing asset classes available to institutional investors today.
CATCo also commented on the recent cruise ship disaster which saw Italian cruise liner the Costa Concordia run aground and capsize. The wider reinsurance market is said to be expecting as much as $1 billion in losses from this event, but while CATCo has exposure to offshore marine events they say that the maximum possible fund exposure to this particular event is 3%. If the losses are in the range of $500m to $1 billion then CATCo do not expect any impact to their fund.
CATCo have published a list of natural catastrophe and loss events and the expected return that they would provide should a worst case loss example of one of these events occur. It shows that only the most severe events with the greatest exposure, such as a worst case U.S. hurricane or European windstorm could wipe out the annual return, while other events knock the potential annualised return down a few percentage points. This gives you a good idea of the mix of the CATCo portfolio’s exposures and is another example of the risk pillars approach they use to achieving diversity and balance within their funds and reinsurer and shows that positive returns are possible in the majority of cases.
The chart below shows the indicative annualised net returns that CATCo would expect to make in 2012 after a single worst case loss scenario event. It ranges from 23% should no losses occur down to -1% should a worst case U.S. or European wind event hit the market. You can click on the chart to open a larger version.