Swiss Re Insurance-Linked Fund Management

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CATCo foresees rising rates, considers fund raising options


CATCo Investment Management have announced that their board are considering fund-raising options to capitalise on a reinsurance and retrocessional environment which they predict will see rising premium rates and a possible squeeze on available capacity. By growing their fund and taking advantage of high reinsurance premium rates, CATCo say that they can deliver better risk adjusted returns and diversification of their investment portfolio.

CATCo have undergone a number of fund-raising activities this year and are fast becoming a major player in both the retro reinsurance and catastrophe linked investment world. Further capital raising, possibly through issuance of more shares, will help them to accelerate their growth at a time when many in the market suggest that other retro plays and sidecars are likely to emerge. If they can attract the investors first CATCo could secure a decent portion of the capital markets capacity that looks likely to flow into reinsurance.

In the announcement CATCo say that as a result of the catastrophic start to 2011, high severity retrocession capacity is likely to be scarce due to capital exposures which can’t be released in time for the next renewals. They also see capital market conditions and Solvency II as drivers for increased reinsurance demand next year.

They see the 1st January 2012 reinsurance renewals pointing towards higher property catastrophe rates due two main factors. The large losses experienced recently and a lower yield environment and increased loss expectations driven by risk model changes. As a result CATCo expect to see rate rises of 5-15% in traditional reinsurance property catastrophe and 0-5% in traditional reinsurance property non-catastrophe.

They expect retrocessional reinsurance rates to increase more than traditional reinsurance and say that demand for protections that they are experiencing at their reinsurer CATCo Re Ltd. exceed the available capital at this time. That explains the desire to increase capital now to capture as much of this retro demand as possible at the forthcoming renewals and this aggressive strategy should see CATCo well positioned for 2012.

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