UK Floods take edge off good year for CatCo

CATCo Reinsurance Opportunities Fund has published its Annual Report. For the year ended 31 December 2015, it achieved a net NAV return for shareholders of 11.58%, exceeding the target annual net return of LIBOR plus 9 to 12% per annum. CATCo also outperformed the industry benchmark, the Eurekahedge ILS Advisors Index, by 7.31%.

They say the 2015 net return was on track to equal last year’s NAV return of approximately 14%. However, in view of the UK flooding event that occurred in late December, and increased levels of uncertainty amongst the company’s reinsurance clients, the Board decided it prudent to apply a conservative reserving approach for the event at year-end. The Investment Manager expects that a proportion of this reserve will be released during 2016.

The share price total return of 18.1% includes the annual dividend (at a rate of LIBOR plus 5% of the Company’s NAV). An annual dividend of $0.06619 in respect of Ordinary Shares will be paid to Shareholders on 26 February 2016 as announced on 29 January 2016.

In 2014, Side Pocket Investments were created as a result of U.S. severe convective storm events, amounting to around 3.5% of NAV. These loss reserves reduced during 2015 and as at 31 December 2015 amounted to 1% of NAV.

Over the course of 2015 the Investment Manager also released loss reserves connected with the 2012 Superstorm Sandy Side Pocket Investment, resulting in an additional NAV appreciation of 1%. The majority of the capital released from these Side Pocket Investments has been redeployed into new contracts.

2015 saw the lowest level of catastrophe losses since 2009 with total economic losses amounting to approximately $90bn, of which approximately $27bn were insured, according to Munich Re.

The largest insured loss from a natural catastrophe came from a series of winter storms which struck North-Eastern U.S. and Canada in February 2015, causing cumulative claims of $2.1bn. This could yet be surpassed by flooding in Northern England and Scotland during December 2015, with early estimates suggesting claims could be between $2.3bn and $3.3bn. As these estimates are significantly lower than the loss levels used to set the reserves at the end of December 2015, the Investment Manager is confident that a proportion of these reserves will be released during 2016.

A series of large explosions at the Chinese port city of Tianjin on 12 August 2015 was the most costly manmade disaster of 2015. Industry claims of at least $2bn are expected.

As a result of the relatively uneventful catastrophe year, portfolio losses from the 2015 events were approximately 4.25% due principally to the winter storm in the U.S. and Canada, the Tianjin explosion and the UK floods. The small Tianjin exposure was fully settled at 31 December 2015 and the conservative loss reserve put in place for the UK floods is expected to be partly released during 2016 as the losses materialise.

CAT : UK Floods take edge off good year for CatCo