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

The CATCo Reinsurance Opportunities Fund Ltd., the London stock exchange listed retrocessional reinsurance-linked investment fund, is again proposing to return capital to investors with a $35m return of value.

The Board of the CATCo Reinsurance Opportunities Fund Ltd. returned approximately $74m in aggregate to investors in the fund at the start of 2014, as it sought to ensure that investors benefitted from its strong and largely loss free year. 2015 sees the same situation, despite the lower retrocessional reinsurance rates and CATCo can again look to provide additional value to its investors through a return of capital.

The CATCo Reinsurance Opportunities Fund, operated by reinsurance and retrocessional reinsurance-linked asset manager CATCo Investment Management, again reports no significant losses for its 2014 investment portfolio which allows it to return some excess capital to investors.

“The Company has concluded a successful year with the net asset value benefitting from approximately 14 cents per Ordinary Share of net insurance premiums earned over the full year,” an announcement from the fund declares.

The proposed return of value of $35m equates to approximately 10% of the CATCo Reinsurance Opportunities Fund Ltd. market capitalisation as at a price of $1.157 per Existing Ordinary Share on 31 December 2014.

The Directors propose to the capital to investors through a Return of Value, or if the Return of Value is not approved at a Shareholder vote scheduled for the 29th January, then it will return capital by way of a special dividend of US$0.11528 per Existing Ordinary Share on or around 27 February 2015. The Return of Value would be effected through the issuance of a B Share scheme with associated Share Capital Consolidation, which is thought more efficient and fair for all investors.

The proposed Return of Value is separate and in addition to a targeted annual distribution dividend, also announced today, of an amount equal to LIBOR plus 5%, or $0.05929 in respect of the Ordinary Shares for the year to 31 December 2014.

CATCo has again had a good year with its retrocessional and traditional reinsurance product range. This fund in particular benefits from the performance of a portfolio of its retro products, which are again free of significant losses allowing the asset manager to return capital to its investors.

CATCo said that it has deployed its fully collateralised retrocessional reinsurance capacity at the January renewals at rates which are above its targets. That should again put the fund on a good footing for the start of 2015, with above target rates achieved despite the depressed pricing in the reinsurance and retro market.

CATCo commands a healthy share of the global retrocession market now and its multi-pronged approach to reinsurance asset management sees it continue to succeed. The London-listed CATCo Reinsurance Opportunities Fund has a successful track record to date and CATCo’s pillared approach and also its ability to protect itself by buying protection, as it has done in recent years, make the strategy as insulated as is possible from losses.

By managing its capital, with this return of value, the fund ensures it is not over-capitalised and that it can put all of its capacity to work at attractive rates. Investors will appreciate this strategy as it serves to protect their returns, shows that CATCo maintains a focus on returning value to them, as well as allowing them to benefit more when times are good and losses are low.

Numis Securities had the following to say on the CATCo announcement; “The proposals are similar to those put forward in early 2014, and we believe it is encouraging that the managers continue to be focused on delivering returns rather than growing assets. Pricing in 2015 is likely to be impacted by the lack of significant insured losses incurred in 2014, but the manager has been able to deploy its capacity at rates in excess of the company’s target returns helped by innovations in the structure of its reinsurance contracts. In our view, CATCo’s expected returns remain attractive, particularly given the low correlation to traditional asset classes such as equities and bonds.”