CatCo makes provision against Alberta wildfire

CatCo Reinsurance Opportunities has announced interim results. The NAV return for the Ordinary Shares for the first six months of 2016 was 4.86 per cent benefiting from the release in the first quarter of 2016 of the loss reserve relating to the 2015 UK flood Side Pocket Investment (see below). The NAV return for the C shares for the first six months of 2016 was 3.81 per cent.

As they go through each year they tend to pick up a number of small (‘attritional’) losses – this is a reflection of the increasing diversification of their portfolio. Notifications of a proportion of these losses are occasionally received towards the end of the financial year, an extended time after the event.  To offset this concentration of losses, which impacts the NAV towards the end of the year, they have introduced a monthly attritional loss reserve of approximately 0.15 per cent. This was first included in the January 2016 NAV, and will result in an approximate 2 per cent reduction to be recorded in the NAV for the full year 2016. Any un-utilised attritional loss reserve will be reversed in December 2016. the Investment Manager continues to target a 2016 net return in excess of LIBOR plus 9 to 12 per cent per annum.

In January 2016, the Investment Manager announced that a proportion of the Side Pocket Investments (“SPI’s”) established in December 2015 would cover potential losses from the UK floods. During the first quarter of 2016, the Investment Manager was able to close the side pocket exposure to the UK floods and the related loss reserves were simultaneously released resulting in a 1 per cent appreciation in the Ordinary Share NAV.

Two events have / might have an impact on NAV:

• On 1 May 2016, a wildfire started near Fort McMurray, Alberta and subsequently led to over 88,000 people being evacuated. The wildfire caused an estimated $3.2 billion in insured damage (source: PCS Canada(R)). Following recent discussions with the Reinsurer’s reinsurance clients, the Investment Manager recorded a specific loss reserve for the wildfire of approximately 1 per cent of NAV. The Investment Manager will continue to monitor the impact of the Canadian wildfire as clients release any additional loss information, and expects that any further loss development will be absorbed by the attritional loss reserve.
• On 20 March 2016, oil production at the Jubilee Oil Field off the coast of Ghana halted, resulting in a potentially significant insured loss for the industry, which will be more accurately quantified when official estimates are forthcoming. The Investment Manager is monitoring the possible impact of this loss on the Company’s portfolio.

Industry insured catastrophe losses increased significantly during the first half of 2016 compared to the same period the previous year. Losses for the first six months of 2016 are estimated by Munich Re to be approximately $27 billion (2015: $19 billion). In April, Japan was struck by two earthquakes on the island of Kyushu causing a combined loss of approximately $5 billion (source: Aon Benfield). The Fort McMurray wildfire in Alberta, Canada, began on 1 May causing approximately $3.2 billion of insured losses and was declared the largest catastrophe in Canadian history. Prior to this wildfire, the costliest insured disaster in Canadian history was the Alberta floods of 2013 which caused a loss of $1.8 billion. Other notable events were the hailstorms that struck the San Antonio area of Texas which are expected to be the costliest hailstorm in the state’s history, with insured losses from this single event expected to surpass $2 billion (source: Insurance Council of Texas). During May and June, parts of Europe experienced widespread flooding from Storm Elvira. Some of the worst hit areas were in Germany and France where floods along the River Seine, including Paris, caused approximately $3.4 billion of combined insured losses (source: Aon Benfield).

CAT / CATC : CatCo makes provision against Alberta wildfire