Swiss Re Insurance-Linked Fund Management

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CATCo to return $74m to investors, deploys renewal capacity at rates above target


The Board of the CATCo Reinsurance Opportunities Fund Ltd., a London stock exchange listed retrocessional reinsurance-linked investment fund, has confirmed that it intends to return approximately $74m in aggregate to investors in the fund.

The CATCo Reinsurance Opportunities Fund, operated by reinsurance and retrocessional reinsurance-linked asset manager CATCo Investment Management, had a very good year in 2013, with no significant losses incurred against its 2013 retrocessional reinsurance investment portfolio.

As a result the Board of the fund proposed in early December an additional distribution of capital or income, if the rest of the year remained loss free. Now, CATCo reports that it did not suffer any significant loss during the remainder of the year and the fund saw its net asset value benefit from approximately 20 cents per Ordinary Share of net insurance premiums earned over 2013.

The proposed Return of Value to Shareholders equates to approximately 18% of the CATCo Reinsurance Opportunities Fund Ltd. market capitalisation as at a price of $1.112 per Existing Ordinary Share on 31 December 2013. With the distribution expected to be around $74m is size that would give the fund an approximate capitalisation of $410m.

The Directors propose to return up to approximately $74m through a Return of Value, or if the Return of Value is not approved at a Shareholder vote scheduled for the 27th January, then it will return capital by way of a dividend. The proposed Return of Value, as CATCo are terming it, is separate and in addition to a target annual distribution of an amount equal to LIBOR plus 5%.

The Return of Value would allow investors to realise a significant proportion of the net insurance premiums earned since launch and gives them the option to have the capital reinvested in the Fund (up to an aggregate maximum of $25m) or to take the capital from the distribution.

CATCo is also proposing to consolidate shares after the distribution, to reduce the number of issued Ordinary Shares to reflect the overall change in the Company’s Net Asset Value resulting from the Return of Value. This would leave shareholders still with the same holdings in the fund, subject to entitlements.

This is a healthy return of capital to investors in CATCo’s flagship listed reinsurance-linked fund and shows the attractive returns that CATCo’s strategy is capable of offering during loss free years such as 2013. The fund has grown consistently since its launch in December 2010 and with this significant return of capital to existing investors is set to raise its profile further as an attractive reinsurance-linked investment opportunity.

CATCo Investment Management said that, as at the 1st January 2014, the Master Fund has deployed collateralised retrocessional reinsurance capacity at rates in excess of its target returns, which sets it up for another good year as long as losses remain within, or below, expectations.

Of course investors cannot hope to achieve such attractive returns every year, as investments in reinsurance and catastrophe risk are prone to attritional or major catastrophe losses. However CATCo’s pillar based investment approach seeks to protect its investors from major losses as much as is possible to try to guarantee them a target return of LIBOR plus 12% to 15%. In the current investment climate that is a very attractive proposition and should help CATCo grow its fund further.

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