Swiss Re Insurance-Linked Fund Management

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CATCo retro fund investors to benefit from side-pocket releases in 2015


Investors in the CATCo Reinsurance Opportunities Fund Ltd. are likely to benefit from side-pocket loss reserve releases related to superstorm Sandy and hail events in 2015, as prudent reserving practices look set to enhance returns for 2015.

The London-listed retrocessional reinsurance linked investment fund has benefited in the past from prudent reserving practices undertaken by reinsurance and retrocessional reinsurance-linked asset manager CATCo Investment Management and this practice of reserving for the worst possible loss scenarios is set to benefit investors again.

CATCo;s side pocket reserves for hurricane or superstorm Sandy is the only side pocket remaining from prior calendar years. The manager reserved an amount equivalent to 2.8% of the fund’s NAV at 31st December 2014, but with liabilities needing to be commuted by the end of 2015 believes that a portion will flow back into the fund.

CATCo says it has now been notified by a number of counterparties of their intent to release the reserved for Sandy liabilities, potentially as early as in the first half of 2015. CATCo expects that any release will benefit shareholders in the fund, as once any Sandy loss reserves are released the NAV will be expected to increase by a corresponding amount.

By the end of 2014 total claims payments for superstorm Sandy amounted to around 54% of the original retrocessional reinsurance loss reserve, according to CATCo, so some portion of the remaining 46% is expected to be available to flow back into the fund’s NAV in 2015.

At this time it is not certain how much that could be, but with the total reserve 2.8% of NAV, the figure could be around 1.3% of NAV which would be another welcome boost thanks to CATCo’s conservative approach to reserving and managing the investment portfolio.

Additionally, CATCo expects to release loss reserves from side pockets created for 2014 severe convective storm events. In particular this refers to a loss reserve for a Nebraska hailstorm event, which amounted to nearly 3.5% of NAV.

CATCo says that it has been advised by the reinsureds that no claims are expected to result from these hail and convective storm reserves and as a result 100% of the side pockets are expected to be released in the first quarter of 2015.

Numis Securities estimates that the return of reserves relating to Sandy alone could result in a boost to NAV of 2% to 3% in 2015. Add in the return of these hail loss reserves as well and the boost that investors enjoy could be very healthy.

Also read:

CATCo Investment Management hires new Chief Operating Officer.

Investors approve CATCo retro reinsurance fund return of value.

CATCo Reinsurance Opportunities Fund hits target return in 2014.

CATCo to return $35m to investors, deploys capacity at rates above target.

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