CATCo Investment Management, the specialist Bermuda based reinsurance-linked investment business which manages investment clients assets and deploys them as retrocessional reinsurance capacity, has published its annual financial report today. In it CATCo’s new Chairman Nigel Barton comments that CATCo has become one of the largest providers of retrocessional reinsurance capacity in the industry, having deployed over $2 billion of capacity at the start of this year.
CATCo’s flagship fund, the CATCo Reinsurance Opportunities Fund Ltd., had a net asset value of $353.8 million at the start of 2013, while CATCo’s Master Fund received around $330m of new investment capital inflows which were also deployed at the renewals. Barton’s statement says that as one of the largest providers of retro reinsurance capacity just two years after the firms launch, CATCo has demonstrated the demand that the industry has for the types of product the firm offers in a relatively short period of time.
Director of CATCo Anthony Belisle said that the CATCo Reinsurance Opportunities Fund had a good year, despite having exposure to a number of loss events over the course of 2011 and 2012. The 2012 investment portfolio generated Shareholder without exposure to the 2011 Japan and New Zealand earthquakes achieved an impressive total return of 7.06% for the year, which is right up with some of the best performing insurance-linked securities and reinsurance-linked investment funds.
Holders of CATCo’s Ordinary Shares, issued at launch in December 2010 and exposed to both Japan and New Zealand quakes, the Costa Concordia marine loss and also hurricane Sandy achieved a total return of 2.41% since the share classes inception. Holders of C Shares issued in May 2011 with exposure to Costa Concordia and hurricane Sandy achieved a total return of 19.51% since the share classes inception. Holders of C Shares issued in December 2011 with exposure to Costa Concordia and hurricane Sandy achieved a total return of 7.40%.
In the update, CATCo’s Chairman Barton acknowledges the continuing convergence of the reinsurance and capital markets, saying; “The influence of capital markets capacity is set to expand strongly over the next few years in the reinsurance sector. This development will provide carriers with additional flexibility to offload and diversify risk and establish capital market solutions as a sustainable complement to traditional reinsurance.”
He cites the large increase in new collateralised reinsurance entities, particularly in Bermuda, but explains that very few of them are retrocessionaires and so do not compete with CATCo’s investment and underwriting strategy.
For 2013, CATCo has agreed terms on retrocessional reinsurance transactions with multiple counterparties, which the update explains as predominantly Lloyd’s of London Syndicates and traditional reinsurers. These contracts have utilised around 98% of CATCo’s existing and new investment capital from its public fund, Master fund and private managed funds.
Tony Belisle said that CATCo is “Excited about the prospects of the 2013 investment portfolio”, having modestly de-risked the 2013 portfolio as compared to 2012. He said that greater risk pillar diversification has been achieved in its underwriting and deployment of capacity for 2013. CATCo now has 42 non-correlated risk pillars, or segments, that it underwrote business within. This allows it to ensure a certain level of return except for in the most extreme loss scenarios, such as a massive U.S. hurricane or earthquake event, and were no events to impact its investments over the course of 2013 the firm could return as much as 27% this year, up from 23% last year. The worst case is a -2% return. These figures include some of CATCo’s own reinsurance protection costs.
CATCo currently has a retrocessional loss reserve set aside in case of losses from hurricane Sandy which equates to 7.52% of shareholder funds.