The CATCo Reinsurance Opportunities Fund Ltd., the London stock exchange listed retrocessional reinsurance linked investment fund, has enjoyed strong performance in 2014 to date, with no significant losses and an NAV capital return of 4.27%.
Despite the more challenging retrocessional reinsurance market environment, CATCo continues to act with prudence to manage its expected returns and believes that it remains on track to reach a targeted LIBOR plus 12% to 15% per annum in 2014, as long as no significant losses affect its portfolio.
The CATCo Investment Management operated reinsurance and retrocessional reinsurance fund has benefited not just from a low-level of catastrophe losses, but also from the work its managers put into de-risking the fund for 2014. With reinsurance market conditions looking challenging, CATCo took the opportunity to de-risk the fund to protect its investors returns more robustly.
The managers of the fund continue to act with prudence, maintaining their view that there is an optimum level of capital required to meet their return targets, having returned some capital through a return of value in January and a share buyback in May.
As well as this, the portfolio managers have been selective with the retrocessional contracts underwritten, which has led them to reject unfavourable opportunities in order to maintain the integrity of the overall portfolio. Contracts written provide retrocessional protection to traditional reinsurance counterparties and Lloyd’s syndicates.
The net asset value capital return for the first six months was 4.27% and the return for the original Ordinary Shares issued on 20th December 2010 was 7.27% following the contingent distribution paid in relation to the 2011 Tohoku, Japan earthquake.
The share price capital return was 4.01%. The fund’s share price stood at a premium of 0.26% to NAV at 30 June 2014. The NAV Total Returns Since Inception of Shares to 30 June 2014 of the Ordinary Shares issued on 20 December 2010, C Shares issued on 20 May 2011 and C Shares issued on 16 December 2011 respectively were 33.17%, 51.90% and 36.51%.
CATCo says that its group of companies now accounts for one fifth of global market share of the retrocessional reinsurance market. This growth is largely testament to the usefulness and ability to customise the CATCo product to the individual cedents needs.
None of the major catastrophe events occurring during the first half of 2014 are expected to have a material impact on the 2014 portfolio, explained CATCo.
While CATCo expects the competitive and difficult conditions in the reinsurance market to continue, as well as expecting the ILS and third-party capital in the market to stick around, it feels confident that it has built a portfolio and strategy that will continue to generate superior returns for its investors over time.
If 2014 remains loss free CATCo’s returns could once again show the attraction that a retrocession linked investment strategy has for some capital market investors. Currently tracking well above the average ILS fund return and with seasonality due to lift returns over the course of the hurricane peak season, CATCo’s investors are so far looking at another good year.