TIDMCAT
RNS Number : 1114T
CATCo Reinsurance Opps Fund Ltd
10 December 2012
CATCo Reinsurance Opportunities Fund Ltd. ("the Company")
Portfolio Update - Hurricane Sandy ("Sandy") Loss Reserve
To: SFM, London Stock Exchange Date: 10 December 2012
and Bermuda Stock Exchange
Hurricane Sandy was a hurricane that devastated portions of the
Caribbean and the Mid-Atlantic and Northeastern United States
during late October 2012, with lesser impacts in the Southeastern
and Midwestern states and Eastern Canada.
Sandy, classified as the eighteenth named storm and tenth
hurricane of the 2012 Atlantic hurricane season, was a Category 2
storm at its peak intensity. While it was a Category 1 storm off
the coast of the Northeastern United States, the storm became the
largest Atlantic hurricane on record (as measured by diameter).
Other unique characteristics of Sandy include the direct hit to
the coast, the historic barometric pressure and storm surge, and
the landfall at high tide during a full moon. Preliminary estimates
of losses due to damage and business interruption are likely to
make it the second-costliest Atlantic hurricane, as well as US
natural disaster, behind only Hurricane Katrina.
The unprecedented nature of Sandy's mass, and scale of storm
related flooding, has created ambiguity around the variation of
industry insured loss estimates. The insurance and reinsurance
industries continue to respond to the volume and magnitude of
claims as a result of the storm.
What was initially predicted as a minor event, quickly escalated
due to the large amount of coastal storm surge damage combined with
widespread (and ongoing) power outages in the US Northeast. The
situation has been complicated by ongoing interpretation of
coverage - wind damage versus flood damage, fire, contingent
business interruption policy wording and the extent of losses that
will flow to the US Government's National Flood Insurance
Program.
Property Claim Services ("PCS") who investigate reported
disasters and report on the extent and type of damage, dates of
occurrence, and geographic areas affected released a preliminary
estimate of insured property damage of $11 billion on the 22
November 2012. Their estimate was caveated with a number of
subjectivities that could result in the estimate increasing.
The PCS report at regular intervals and past experience has been
that the loss estimates evolve upwards over time. The reason for
this is that it takes time for insurers to fully understand the
scale of the claims and resulting losses that they face.
Natural catastrophes of the scale of Sandy provide insurers with
complex and technical issues surrounding collection of claims,
their assessment, negotiation of claims payments and resolution of
regulatory issues such as, in the case of Sandy, its definition as
a hurricane or post-tropical storm and the consequent impact on
deductibles.
There is no quick or easy way to come to an accurate industry
loss estimate, hence why any Industry Loss Warranties or Ultimate
Net Loss exposures have defined reporting intervals which specify
when the final loss estimate should be received and a decision be
made on whether they have been triggered or not.
Modelling firms Eqecat, AIR Worldwide and RMS have all issued
estimates of the expected insured loss from Sandy that range from
$7 to $25 billion, with the average being c.$15 billion.
The majority of the Company's US exposures are based on Ultimate
Net Loss contracts and the settlement, if any, may be sooner, or
later, depending on the result of discussions with our reinsurance
counterparties which the Manager have already begun.
Hypothetically, if all US hurricane exposure written in 2012 was
completely eroded, which is highly unlikely, given the range of
expected loss occurrence probabilities on the contracts written,
the maximum 'capped' impact on gross expected returns would be 27%,
resulting in an expected gross return of 1% for the year, absent
the impact of Costa Concordia.
The Investment Managers have modeled the projected loss
distribution for Sandy across CATCo-Re Ltd's 2012 portfolio based
upon PCS's estimated industry loss as well as varying average
expected industry insured losses suggested by Eqecat, AIR Worldwide
and RMS.
The Board of Directors of CATCo Reinsurance Fund Ltd (the
"Master Fund") have taken a cautious approach to estimating the
exposure to Sandy and a retrocessional reinsurance loss reserve
provision has been included in the Net Asset Value calculation at
30 November 2012 based on a best estimate of the insured industry
loss of $20 billion as at this time.
This is a retrocessional reinsurance loss reserve, and not a
crystalised loss, as the Reinsurer's protections are based on the
reinsurance counterparties actual paid claims. At this level, gross
expected returns for 2012 will be eroded by 13.2%.
In order to provide additional clarity with respect to
performance achieved on the three significant corporate
transactions of 20 December 2010, 23 May 2011 and 16 December 2011,
net asset value total returns (inclusive of dividends) as of 30
November 2012 for each of these investment dates are shown in the
table below:
NAV total return since inception of differing share classes
(includes 2011 dividend and after deduction of 2012 Sandy Loss
Reserve)
-- Ordinary Shares issued on 20 December 2010: +3.5% [Exposed to
Japan/NZ Quakes, Costa Concordia, Hurricane Sandy]
-- C Shares Issued on 20 May 2012: +20.77% [Exposed to Costa Concordia and Hurricane Sandy]
-- C Shares issued on 16 December 2012: +8.53% [Exposed to Costa Concordia and Hurricane Sandy]
PCS will conduct a re-survey in approximately 60 days following
their initial estimate and will update the loss estimate at that
time with new data gained from affected insurers. It is the
Directors intention to update the Company's Shareholders with any
additional information when this information is released and
whether side pocket investments are required prior to the year
end.
For further information, please contact:
Jason Bibb
CATCo Investment Management Ltd
Telephone: +1 (441) 531 2227
Email: jason.bibb@catcoim.com
David Benda / Hugh Jonathan
Numis Securities Limited
Telephone: +44 (0) 20 7260 1000
John Whiley
Prime Management Ltd
Tel: +1 (441) 295 0329
This information is provided by RNS
The company news service from the London Stock Exchange
END
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