The CATCo Reinsurance Opportunities Fund Ltd., a London stock exchange listed retrocessional reinsurance linked investment fund, achieved net asset value (NAV) growth of 21.9% in 2013 while its share price grew by 19.04%.
2013 has been a stellar year for the CATCo Reinsurance Opportunities Fund, with returns exceeding expectations helped by the relatively low-level of major loss events affecting the reinsurance market during the year.
The CATCo Investment Management operated reinsurance and retrocessional reinsurance fund not only saw strong performance from its 2013 investment portfolio, it also managed to return capital from reserves and return additional value to shareholders through an additional payment.
Shareholders in the CATCo fund achieved a net return of 21.9%, while the share price grew by 19.04% which including the dividend (at a rate of LIBOR plus 5 per cent of the company’s NAV) resulted in a share price total return of 24.34%.
Nigel Barton, Chairman of the CATCo Reinsurance Opportunities Fund Ltd., commented; “2013 has been another year of growth for the CATCo Group of Companies (“CATCo” or the “Group”) as it maintains its position as one of the leading retrocessional reinsurance investment companies in the industry. In just three years, the Group has generated a market share of approximately 20 per cent of the retrocessional market and built a strong brand presence. The impressive results of the past three years have been achieved despite the first two years – 2011 and 2012 – being years of record catastrophe losses for the insurance industry.”
For 2013 CATCo increased the diversification of its portfolio, by establishing more geographic zones and risk pillars than in previous years, which helped it to avoid significant losses from many of the catastrophe events which affected the reinsurance market during the year.
While 2013 was a benign year in terms of major catastrophes, largely due to the quiet U.S. hurricane season, CATCo avoided major losses from events such as the European flooding and hail storms with the help of its diversified, pillared approach to risk portfolio management.
CATCo did notice the increased competition in the reinsurance market caused by convergence and the increasing influx of institutional money into catastrophe risk and other classes of reinsurance business. However it does not feel that this competition has negatively affected its ability to meet targets.
Barton explained; “So far, interest from investors has been largely focused on peak zone catastrophe covers, where ILS pricing has fallen by up to 25-40 per cent year-on-year in some cases, due to the oversupply of capital. The picture has been less acute in the retrocession arena in which the Group operates; however the oversupply of investment capital did result in a more challenging renewal season at 1 January 2014.”
The result of the renewal season was that CATCo underwrote an above target portfolio, with the potential to exceed stated targets by quite a way should it remain loss free, with better reinsurance protection and a lower level of risk than its 2013 portfolio.
CATCo also managed to take advantage of market conditions and competition to achieve better pricing on retrocessional protection for its portfolio.
CEO Tony Belisle explained; “As the end of the year approached, it became apparent that market conditions were changing, with pricing in the retrocessional sector coming under pressure. This is largely a result of the continued interest from capital market investors in the catastrophe reinsurance and retrocession space. The Company took advantage of the reduced pricing by purchasing significant global retrocessional protections for the period 1 November to 31 December to lock in the value of the portfolio until the end of the year at a cost of approximately one per cent. of net assets.”
At the end of 2013 the CATCo Reinsurance Opportunities Fund reports net assets of over $409m, with that figure having grown by approximately $55.5m over the course of the year.
Investors in the fund will have been delighted with 2013 performance, it was a particularly strong year for the CATCo strategy. It can’t be guaranteed that such stellar returns will continue, of course, but CATCo has worked hard to de-risk and better protect its portfolio for 2014.
The CATCo example clearly demonstrates why reinsurance and insurance linked investing is so attractive right now. There are not many investment opportunities where you can achieve a 20%+ return on your investment capital in the space of a year. Such performance can only help CATCo to grow as well as to further promote the reinsurance and insurance linked investments space.