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RNS Number : 1582F
CATCo Reinsurance Opps Fund Ltd
17 February 2015
17 February 2015
CATCo Reinsurance Opportunities Fund Ltd. ("the Company")
Annual Financial Report
For the 12 month period 1 January 2014 to 31 December 2014
To: Specialist Fund Market, London Stock Exchange and Bermuda
Stock Exchange
CATCo Reinsurance Opportunities Fund Ltd. provides its
shareholders the opportunity to participate in the returns from
investments linked to catastrophe reinsurance risks, principally by
investing in fully collateralised reinsurance contracts and also
via a variety of insurance-based investments.
2014 Highlights
-- NAV growth of 14.08%
-- Share price total return of 9.20%
-- 2014 annual dividend of USD0.05929 per share paid to Shareholders
-- USD35m Return of Value to Shareholders in January 2015
CHAIRMAN'S STATEMENT
Financial Performance
Welcome to the 2014 CATCo Reinsurance Opportunities Fund Ltd.
(the "Company") Annual Report. The Company has delivered another
strong performance in the year ending 31 December 2014, achieving a
net return for Shareholders of 14.08 percent. This result was
comfortably within the Company's stated target annual gross return
of LIBOR plus 12 to 15 percent per annum, outperforming other ILS
indices in what is an increasingly challenging retrocessional
market. Including the annual dividend (at a rate of LIBOR plus 5
percent of the Company's NAV) it resulted in a Share price total
return of 9.20 percent.
These positive gains were down, prior to the cost of hedging the
portfolio, from last year's record NAV return of 21.90 percent and
re ect the pressure on pricing experienced in 2014 in comparison to
2013. The continued in ux of capacity into the ILS arena and
absence of signi cant natural catastrophe losses are exerting
downward pressure on retrocessional reinsurance pricing. The
Company is navigating this environment with an approach that
combines disciplined underwriting, innovative product design and
prudent capital management.
The Company built an attractive and well-diversi ed investment
portfolio in 2014, with a broad geographic spread and balanced
exposure to differing risk perils. By taking advantage of more
competitively-priced catastrophe reinsurance coverage available
from other carriers, the Company was able to opportunistically
purchase broader balance sheet protection for 2014 at a reduced
price year-on-year.
Convergence Trends and 2015 Investment Portfolio Deployment
If 2013 was the year of convergence then 2014 was the year when
the non-traditional reinsurance and ILS market rmly established
itself as an alternative to traditional reinsurance. There was
record catastrophe bond issuance of in excess of US$8bn for the
year, according to Aon Ben eld Securities, with collateralised
reinsurance capacity approaching the US$40bn mark. These
alternatives are offering reinsurance buyers more choice and
greater diversi cation of counterparties.
However, as capacity continues to enter the market it is causing
heightened levels of competition and reduced pricing for
catastrophe cover, particularly in the reinsurance and ILS space,
but it is also now trickling over into the retrocessional arena in
which the Company primarily operates. What is now rmly a buyer's
market was evident at the midyear and 1 January 2015 renewals, with
cedants locking in rates and favourable terms with multiyear
structures, as well as buying more protection at the top end of
their programmes.
In the absence of major losses, these trends will continue into
2015. The most recent renewals at 1 January saw a further
depression of reinsurance pricing. US and European property rates
declined some 10 percent to 15 percent on loss free accounts,
according to Willis Re.
With differing risk and return pro les to their traditional
counterparts, ILS funds are well-placed to compete in this
environment. Should this year bring a sizable loss or series of
losses the ILS space could seize the opportunity to further grow
its in uence in the global catastrophe market.
Return of Value
As a result of the ongoing competitive pressures in the
retrocession reinsurance space, the Company will continue to focus
on prudent capital management, as demonstrated by the Return of
Value of approximately US$74m made in January 2014 and the Share
buyback programme, which took place in May 2014. The Directors will
continue to consider ways in which Shareholder value can be
optimised, whilst ensuring the Company does not constrain its
growth potential.
It is our belief there is an optimum level of capital required
to achieve the Company's target investment objective, beyond which
these aims may start to become impaired. As such, the Board once
again determined that a Return of Value of approximately US$0.11528
per Share or approximately US$35m in aggregate - equating to around
10 percent of the Company's market capitalisation - was in the best
interests of the Company and its Shareholders.
As announced on 5 January 2015, this special one-off payment was
put to a Shareholder vote on 29 January 2015 where Shareholders
were able to determine how they wanted to receive their Return of
Value. While largely in line with the mechanism used in last year's
Return of Value, one difference is that Shareholders were not
offered the opportunity to remain invested for their share of the
Return of Value.
The Return of Value is separate, and in addition, to the annual
dividend of US$0.05929 in respect of the Ordinary Shares for the
year to 31 December 2014, as announced on 5 January 2015. The 2014
annual dividend was in line with the Company's target annual
distribution of an amount equal to LIBOR plus 5 percent of the Net
Asset Value at the end of each Fiscal Year. This nal dividend was
paid to Shareholders on 30 January 2015.
Good Corporate Governance
The Board of Directors is committed to maintaining its high
standards of corporate governance with particular emphasis on
ensuring the Company is operating in the best possible interests of
Shareholders. This includes regularly evaluating the relationship
and effectiveness of the Investment Manager. During 2014, the
Bermuda Monetary Authority completed a review of the Investment
Manager, I am pleased to report, without any signi cant matters
being raised. The Board places a high emphasis on risk management
and assesses internal controls each year.
Shareholders
I would like to thank Shareholders for their continued support
throughout 2014, during which time the Company has continued to
consolidate its market leading position. If you would like any
further information about the Company then please do not hesitate
to contact me, or our Manager.
Nigel Barton
Chairman,
CATCo Reinsurance Opportunities Fund Ltd.
17 February 2015
Managers' Review
CATCo Reinsurance Opportunities Fund Ltd. (the "Company") had an
outstanding year in 2014 thanks to a well-balanced investment
portfolio and a year that was largely unimpeded by catastrophe
events. The only loss event in 2014 that amounted to at least a one
percent impact to the 2014 returns was due to a severe hailstorm
that impacted Nebraska.
The 2014 net return to Shareholders was 14.08 percent. This
compares to a 21.90 percent net return for 2013. However, the 2014
portfolio was a much lower risk portfolio than 2013, as CATCo
Investment Management Ltd. (the "Investment Manager") instructed
CATCo-Re Ltd. (the "Reinsurer") to purchase a signi cant amount of
global protection for the 2014 portfolio due to the abundance of
attractively-priced structures offered by other reinsurance funds.
Before deducting the cost of these protections, the net return for
the 2014 portfolio was approximately 18 percent.
In its four years of operation, the Company has become an
established retrocessional leader with a solid client base. As
such, the Underwriters within CATCo-Re Ltd. continue to be highly
selective in how they deploy capacity. As at 1 January 2015, the
Master Fund has deployed collateralised retrocession reinsurance
coverage at rates in excess of the Company's target returns, opting
to non-renew where pricing had reached levels deemed
inadequate.
This disciplined approach to risk will ensure a strong and
sustainable portfolio going forward. The Company's and Master
Fund's reinsurance portfolio contains a signi cantly diverse set of
global risk pillars which ensures that the impact to a single loss
event, no matter the magnitude of the event, results in net
portfolio returns for investors in the current nancial year of not
worse than negative 10 percent. This multiple pillar personalised
approach remains an attractive solution for our clients which,
combined with our efficient underwriting processes, means that we
are able to bene t from strong client loyalty.
2014 Significant Loss Events Update
Following a relatively quiet 2013 calendar year with respect to
insured losses across the globe, there were even lower insured
losses for 2014. Early estimates from Swiss Re Sigma puts total
catastrophe claims at around $34bn, 24 percent lower than in 2013
when insurers paid out $45bn in catastrophe losses.
However, there were still a number of signi cant losses during
2014. For example, snowstorms in January in the United States and
Canada and thunderstorms and hail in the United States in April,
May and June collectively produced total claims of close to
US$6bn.
The single costliest event was a severe convective storm that
made its way from Colorado to Georgia in early June causing
economic damage in excess of US$2bn. This was followed by several
tornadoes later in the month, including ve EF-4 tornado touchdowns,
four of which were in northeast Nebraska. While signi cant, these
losses will mostly fall within the retentions of US property
insurers and are unlikely to trigger meaningful reinsurance
payouts.
There was once again below-normal activity in the North Atlantic
during hurricane season, a phenomenon attributed to the expected
formation of an El Nino weather event. Hurricane Arthur caused
minimal damage as it skirted North Carolina, while Bermuda was
ravaged by Fay quickly followed by Gonzalo in October, with claims
of approximately US$400m expected.
The most costly hurricane of the year was Odile in the East Paci
c in September, which resulted in insured losses of US$1.6bn as it
hit tourist resorts on Mexico's Baja California peninsula.
While natural catastrophe losses were on the low side in 2014,
it was a costly year for the aviation sector. The tragic events of
MH370 and MH17, and, more recently AirAsia ight QZ8501 mark the end
of one of the worst years on record for Asia's Aviation sector.
Combined with the damage caused by ghting at Tripoli Airport,
global aviation losses are expected to be in the order of US$1.8bn,
although these events will not have any impact on the 2014
portfolio.
In Europe, wind and hail storm Ela caused insured losses of
close to $3bn across France, Germany and Belgium in June. In Asia,
the year began with snowstorms in Japan, and ended with another
super-typhoon wreaking havoc in the Philippines.
Side Pocket Investments (SPIs)
As at 31 December 2014, the only side pocket remaining from
prior calendar year loss events relates to Superstorm Sandy, which
occurred late in October of 2012. This SPI amounted to 2.8 percent
of the Company's Net Asset Value ("NAV") at 31 December 2014.
In accordance with the reinsurance contracts written by the
Reinsurer, the liabilities for any loss events must be commuted no
later than three years following the expiry of the risk period. In
the case of Sandy, this means that the liabilities must be commuted
by the end of 2015.
The Manager has been noti ed by several counterparties of their
intent to release the Sandy liabilities potentially in the rst half
of 2015. This will bene t the Shareholders of the Company as the
Sandy loss reserves are released and the Company's NAV increases by
the corresponding amount.
As at 31 December 2014, total claim payments made in relation to
Sandy amounted to approximately 54 percent of the original
retrocessional reinsurance loss reserve established in 2012.
Therefore, there is potential to have some portion of the remaining
46 percent of the capital ow back into the Company's NAV. While the
exact amount is not known at this time, the Manager believes this
will bene t Shareholders in 2015.
With respect to 2014 US Severe Convective Storm events, namely
the severe Nebraska hailstorm, side pockets were created, amounting
to approximately three and a half percent of Net Asset Value.
However, the Manager has been advised by the reinsureds that these
side pockets are not expected to result in actual claims and 100
percent of the side pockets are expected to be released in the rst
quarter of 2015.
2015 Investment Portfolio
The in ux of capital markets capacity into the property
catastrophe reinsurance and retrocession market over the past few
years, compounded by minimal catastrophe losses over the same
period, has led to a continued depression in pricing for certain
types of products. This downturn is more pronounced in the
traditional reinsurance market and ILS space, where prices were
down for the 1 January 2015 renewals by 15 percent to 20 percent in
some areas.
However, the Manager views the reduced pricing in the ILS space
as a good opportunity to purchase signi cant protections for its
own portfolio. This has resulted in a further de-risked portfolio
for 2015, but with similar indicative maximum returns as compared
to the 2014 portfolio. In addition, buyer appetite for the
Reinsurer's fully-collateralised retrocession protection remains
very strong. This is evidenced by 100 percent of the Reinsurer's
available capital being deployed at 1 January 2015.
Return of Value
As a result of discussions with Shareholders and the positive
Shareholder feedback regarding this approach last year, the
Company's Board of Directors has approved a Return of Value
amounting to $35m. This is in response to the signi cant net
returns on the 2014 portfolio.
The Return of Value approach ensures that the portfolio does not
continue to grow in the current rate environment. Should market
conditions change, and new opportunities present themselves
throughout the year (as they did in 2011), it would very much be
the intention of the Manager to allow investors to participate in
them.
Anthony Belisle
Chief Executive Officer
CATCo Investment Management Ltd.
17 February 2015
REVIEW OF BUSINESS
A review of the Company's activities is given in the Chairman's
Statement and in the Managers' Review. This includes a review of
the business of the Company and its principal activities, and
likely future developments of the business.
Investment Objective
The investment objective of the Company and CATCo Reinsurance
Fund Ltd. (the "Master Fund") is to give its Shareholders the
opportunity to participate in the returns from investments linked
to catastrophe reinsurance risks, principally by investing in fully
collateralised Reinsurance Agreements accessed by investments in
Preference Shares of the Reinsurer, CATCo-Re Ltd. The Company's
investment policy appears opposite, and the Managers' Review
explains how the Company and the Master Fund have invested their
assets with a view to spreading investment risk in accordance with
the Company's investment policy.
Benchmark
Eurekahedge Insurance Linked Securities index. This index is not
a benchmark used for investment performance measurement.
Investment Policy and Investment Strategy
The Master Fund intends to spread investment risk by seeking
exposure to multiple non-correlated risk categories so as to
endeavour to limit the amount of capital at risk with respect to a
single catastrophic event.
The Master Fund intends that:
-- no more than 20 percent of its capital will be exposed to a
single catastrophic event;
-- its capital will only be exposed to catastrophic events at
loss levels that have not occurred more than twice in the past 40
years on a trended loss estimate basis, unless otherwise approved
by the Board of Directors of the Master Fund;
-- its capital will be exposed to aviation and marine (including
offshore energy) losses caused by catastrophes; and
-- at least 50 percent of its capital will be exposed to
residential and commercial property losses.
At 31 December 2014, the Portfolio of Investments re ects the
stated guidelines as each of the reinsurance arrangements entered
into by the Reinsurer contain several non-correlated pillars of
risk and provides a portfolio exposure to 42 diversi ed risk
pillars.
When investing, the Company's policy is to move freely between
different risk perils as opportunities arise. There are no limits
to geographical or sector exposures, except as stated above, but
these are reported to, and monitored by, the Board of Directors in
order to ensure that adequate diversi cation is achieved.
While there is a comparative index for the purpose of measuring
performance, no attention is paid to the composition of this index
when constructing the portfolio and the composition of the
portfolio is likely to vary substantially from that of the index. A
short term view is taken and there may be periods when the Net
Asset Value per Share declines both in absolute terms and relative
to the comparative index.
Capital Structure and Voting Rights
303,582,970 Ordinary Shares of $0.0001 par value each entitled
to one vote as at 31 December 2014.
As at the date of this Report, the Company's issued ordinary
share capital consists of 273,224,673 Ordinary Shares of $0.0001
par value each entitled to one vote.
Total Assets and Net Asset Value
At 31 December 2014, the Company had Total Assets of
$363,725,627 and a Net Asset Value per Ordinary Share of
$1.1981.
Borrowing
The Company will not borrow for investment purposes, although it
may borrow for temporary cash flow purposes such as for satisfying
working capital requirements. The Master Fund will not borrow for
investment or other purposes but may invest in Insurance-Linked
Instruments which are themselves leveraged.
Duration
The Company does not have a fixed life. A continuation vote will
be put to Shareholders every five years.
Risk
The investment funds managed by CATCo Investment Management
Limited are fully collateralised and are largely uncorrelated to
traditional asset classes. Risk is spread across multiple
non-correlated risk pillars which aims to limit the amount of
capital exposed with respect to a single catastrophic event.
Monitoring Performance
At each Board meeting, the Directors consider a number of
performance measures to assess the Company's success in achieving
its objectives.
The key performance indicators used to measure the progress and
performance of the Company over time are established industry
measures and are as follows:
. the movement in Net Asset Value per Ordinary Share on a gross, net and total return basis;
. the movement in the Share price on a Share price and total return basis;
. the discount; and
. the total expense ratio.
In addition to the above, the Board of Directors also considers
peer group comparative performance.
Key risks relating to investment and strategy, for example,
inappropriate asset allocation or gearing, are managed through
investment policy guidelines and restrictions, and by the process
of oversight at each Board meeting outlined above. Operational
disruption, accounting and legal risks are also covered annually,
and regulatory compliance is reviewed at each Board meeting.
An explanation of other risks relating to the Company's
investment activities, specifically concentration of credit risk
and concentration of reinsurance risk, are contained in notes 3 and
4 to the Financial Statements.
Management of Risk
The Board of Directors regularly review the major strategic
risks that the Board and the Investment Manager have identified,
and against these, the Board sets out the delegated controls
designed to manage those risks. The principal risks facing the
Company in addition to the reinsurance risks as discussed above
relate to the Company's investment activities and include market
price, interest rate, liquidity and credit risk. Such key risks
relating to investment and strategy including for example,
inappropriate asset allocation or borrowing are managed through
investment policy guidelines and restrictions, and by the process
of oversight at each Board meeting as previously outlined.
Operational disruption, accounting and legal risks are also
covered annually, and regulatory compliance is reviewed at each
Board meeting.
Results and Dividends
The total return attributable to Shareholders for the year
amounted to 14.08% (2013 - 21.9%).
With the continued growth of the Company combined with no
significant insured losses incurred on the 2014 investment
portfolio in December, the Board, following consultation with
Shareholders, determined that a Return of Value of approximately
USD35m would be in the best interests of the Shareholders. As
announced on 5 January 2015, the Company made a special one-off
capital/income return of USD0.11528 per Share to its investors,
which was approved at a Special General Meeting of the Shareholders
held on 29 January 2015.
At the launch of the Company, the Board of Directors indicated
the intention to pay an annual dividend in respect of any Fiscal
Year of an amount equal to LIBOR plus 5 percent of the Net Asset
Value as at the end of the relevant Fiscal Year.
An annual dividend of USD0.05929 in respect of the Ordinary
Shares for the year to 31 December 2014 was declared on 5 January
2015.
The record date for this dividend was 16 January 2015 and the
Ordinary Shares went ex-dividend on 15 January 2015. The final
dividend was paid to Shareholders on 30 January 2015.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Board of Directors are responsible for preparing the Annual
Report and the Financial Statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Board of
Directors have elected to prepare the financial statements in
accordance with US Generally Accepted Accounting Principles ("US
GAAP"). The financial statements are required by the Bermuda
Companies Act 1981 to give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that year. In preparing these financial statements, the Board of
Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent; and
-- state whether applicable Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements.
The Directors are responsible for keeping proper accounting
records that are sufficient to disclose the Company's transactions
and that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Bermuda Companies Act.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors consider that Annual Report and Financial
Statements taken as a whole, are fair, balanced and understandable,
and provide the information necessary for Shareholders to assess
the Company's performance, business model and strategy.
The financial statements will be published on
www.catcoreoppsfund.com, which is maintained by the Investment
Manager, CATCo Investment Management Ltd. The maintenance and
integrity of the website maintained by CATCo Investment Management
Ltd. is, so far as it relates to the Company, the responsibility of
CATCo Investment Management Ltd.
The Board of Directors are responsible for the maintenance and
integrity of the corporate and financial information included on
the Company's website. Legislation in Bermuda governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
In accordance with Chapter 4 of the Disclosure and Transparency
Rules, and to the best of their knowledge, each Director of CATCo
Reinsurance Opportunities Fund Ltd. confirms that the financial
statements have been prepared in accordance with the applicable set
of accounting standards and present fairly the assets, liabilities,
financial position and profit or loss of the Company.
Furthermore, each Director confirms that, to the best of his or
her knowledge, the report of the Directors includes a fair review
of the development and performance of the business and the position
of the Company, together with a description of the principal risks
and uncertainties that the Company faces.
Alastair Barbour
Chairman of the Audit Committee
17 February 2015
AUDITED STATEMENTS OF ASSETS AND LIABILITIES
(Expressed in United 31 December 31 December
States Dollars) 2014 2013
--------------------------- --------------- ---------------
Assets $ $
--------------------------- --------------- ---------------
Investment in CATCo
Reinsurance Fund Ltd.-
CATCo Diversified
Fund, at fair value $363,800,160 $408,828,848
--------------------------- --------------- ---------------
Cash and cash equivalents 106,162 286,057
--------------------------- --------------- ---------------
Other assets 30,566 67,032
--------------------------- --------------- ---------------
Total assets 363,936,888 409,181,937
--------------------------- --------------- ---------------
Liabilities
--------------------------- --------------- ---------------
Accrued expenses and
other liabilities 211,261 149,988
--------------------------- --------------- ---------------
Management fee payable - 254
--------------------------- --------------- ---------------
Total liabilities 211,261 150,242
--------------------------- --------------- ---------------
Net assets 363,725,627 409,031,695
--------------------------- --------------- ---------------
NAV per Share (See Note 6)
See accompanying Notes to Financial Statements
AUDITED STATEMENTS OF OPERATIONS
Year Ended Year Ended
(Expressed in United 31 December 31 December
States Dollars) 2014 2013
----------------------------- --------------- ---------------
$ $
----------------------------- --------------- ---------------
Net investment loss
allocated from
CATCo Reinsurance
Fund Ltd. - CATCo
Diversified Fund
----------------------------- --------------- ---------------
Interest 15,251 12,903
----------------------------- --------------- ---------------
Other Income 140,791 -
----------------------------- --------------- ---------------
Management fee (5,136,652) (5,654,620)
----------------------------- --------------- ---------------
Performance fee (5,083,337) (8,643,163)
----------------------------- --------------- ---------------
Professional fees
and other (288,299) (271,795)
----------------------------- --------------- ---------------
Administrative fee (190,215) (227,560)
----------------------------- --------------- ---------------
Miscellaneous expenses - (23,992)
----------------------------- --------------- ---------------
Net investment loss
allocated from
CATCo Reinsurance
Fund Ltd. - CATCo
Diversified Fund (10,542,461) (14,808,227)
----------------------------- --------------- ---------------
Company expenses
----------------------------- --------------- ---------------
Professional fees
and other (1,646,002) (1,199,136)
----------------------------- --------------- ---------------
Administrative fee (54,000) (54,000)
----------------------------- --------------- ---------------
Management fee (22,314) (11,448)
----------------------------- --------------- ---------------
Total Company expenses (1,722,316) (1,264,584)
----------------------------- --------------- ---------------
Net investment loss (12,264,777) (16,072,811)
----------------------------- --------------- ---------------
Net realised gain
and net (decrease)
/ increase in unrealised
appreciation on securities
allocated from CATCo
Reinsurance Fund Ltd.
-
CATCo Diversified
Fund
----------------------------- --------------- ---------------
Net realised gain
on securities 78,813,489 19,854,893
----------------------------- --------------- ---------------
Net (decrease) / increase
in unrealised appreciation
on securities (18,697,603) 69,951,369
----------------------------- --------------- ---------------
Net gain on securities 60,115,886 89,806,262
----------------------------- --------------- ---------------
Net increase in net
assets resulting from
operations 47,851,109 73,733,451
----------------------------- --------------- ---------------
See accompanying Notes to Financial Statements
AUDITED STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
(Expressed in United States 31 December 31 December
Dollars) 2014 2013
--------------------------------- ------------- -------------
$ $
--------------------------------- ------------- -------------
Operations
--------------------------------- ------------- -------------
Net investment loss (12,264,777) (16,072,811)
--------------------------------- ------------- -------------
Net realised gain on securities 78,813,489 19,854,893
--------------------------------- ------------- -------------
Net (decrease) / increase
in unrealised appreciation
on securities (18,697,603) 69,951,369
--------------------------------- ------------- -------------
Net increase in net assets
resulting from operations 47,851,109 73,733,451
--------------------------------- ------------- -------------
Capital share transactions
--------------------------------- ------------- -------------
Dividend declared (23,748,656) (18,514,658)
--------------------------------- ------------- -------------
Return of value distribution (63,536,808) -
--------------------------------- ------------- -------------
Share buyback (5,871,713)
--------------------------------- ------------- -------------
Net decrease in net assets
resulting from capital
share transactions (93,157,177) (18,514,658)
--------------------------------- ------------- -------------
Net (decrease) / increase
in net assets (45,306,068) 55,218,793
--------------------------------- ------------- -------------
Net assets, at January
2014 409,031,695 353,812,902
--------------------------------- ------------- -------------
Net assets, at 31 December
2014 363,725,627 409,031,695
--------------------------------- ------------- -------------
See accompanying Notes to Financial Statements
AUDITED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
(Expressed in United 31 December 31 December
States Dollars) 2014 2013
------------------------------------------- ------------- -------------
$ $
------------------------------------------- ------------- -------------
Cash flows from operating
activities
------------------------------------------- ------------- -------------
Net increase in net
assets resulting from
operations 47,851,109 73,733,451
------------------------------------------- ------------- -------------
Adjustments to reconcile
net increase in net
assets resulting from
operations to net cash
provided by operating
activities:
------------------------------------------- ------------- -------------
Net investment loss,
net realised gain and
net (decrease)/increase
in unrealised appreciation
on securities allocated
from CATCo Reinsurance
Fund Ltd. - CATCo Diversified
Fund (49,573,425) (74,998,034)
------------------------------------------- ------------- -------------
Sale of investment in
CATCo Reinsurance Fund
Ltd. - CATCo Diversified
Fund 104,902,113 19,500,000
------------------------------------------- ------------- -------------
Purchase of investment (10,300,000) -
in CATCo Reinsurance
Fund Ltd. - CATCo Diversified
Fund
------------------------------------------- ------------- -------------
Changes in operating
assets and liabilities:
------------------------------------------- ------------- -------------
Other assets 36,466 (41,629)
------------------------------------------- ------------- -------------
Accrued expenses and
other liabilities 61,273 (103,451)
------------------------------------------- ------------- -------------
Management fee payable (254) (349)
------------------------------------------- ------------- -------------
Net cash provided by
operating activities 92,977,282 18,089,988
------------------------------------------- ------------- -------------
Cash flows from financing
activities
------------------------------------------- ------------- -------------
Dividends paid (23,748,656) (18,514,658)
------------------------------------------- ------------- -------------
Return of value distribution (63,536,808) -
paid
------------------------------------------- ------------- -------------
Share buyback (5,871,713) -
------------------------------------------- ------------- -------------
Net cash used in financing
activities (93,157,177) (18,514,658)
------------------------------------------- ------------- -------------
Net decrease in cash
and cash equivalents (179,895) (424,670)
------------------------------------------- ------------- -------------
Cash and cash equivalents,
at 1 January 2014 286,057 710,727
------------------------------------------- ------------- -------------
Cash and cash equivalents,
at 31 December 2014 106,162 286,057
------------------------------------------- ------------- -------------
See accompanying Notes to Financial Statements
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
CATCo Reinsurance Opportunities Fund Ltd. (the "Company") is a
closed-ended fund, registered and incorporated as an exempted
mutual fund company on Bermuda on 30 November 2010 and commenced
operations on 20 December 2010. The Company was organised as a
feeder fund to invest substantially all of its assets in CATCo
Diversi ed Fund (the "Master Fund"). The Master Fund is a
segregated account of CATCo Reinsurance Fund Ltd., a mutual fund
company incorporated in Bermuda and registered as a segregated
account company under the Segregated Accounts Company Act 2000, as
amended (the "SAC Act"). The Master Fund will establish a separate
account for each class of shares comprised in each segregated
account (each, an "Account"). Each Account is a separate
individually managed pool of assets constituting, in effect, a
separate fund with its own investment objective and policies and
overseen by CATCo Investment Management Ltd. (the "Investment
Manager"). The assets attributable to each segregated account of
the Master Fund shall only be available to creditors in respect of
that segregated account. Pursuant to an investment management
agreement, the Company is managed by the Investment Manager. Refer
to the Company's prospectus for more information.
The Company's Shares are listed and traded on the Specialist
Fund Market ("SFM"), a market operated by the London Stock
Exchange. The Company's Shares are also listed on the Bermuda Stock
Exchange following the Secondary Listing on 20 May 2011.
The objective of the Master Fund is to give the Shareholders the
opportunity to participate in the investment returns of various
insurance-based instruments, including Preference Shares through
which the Master Fund would be exposed to reinsurance risk,
insurance-linked securities (such as notes, swaps and other
derivatives), and other nancial instruments. All of the Master
Fund's exposure to reinsurance risk is obtained through its
investment (via Preference Shares) in CATCo-Re Ltd. (the
"Reinsurer"). At 31 December 2014, the Company's ownership is 19%
of the Master Fund (23% at 31 December 2013).
The Reinsurer is a Bermuda licensed Class 3 reinsurance company,
registered as a segregated accounts company under the SAC Act,
through which the Master Fund accesses all of its reinsurance risk
exposure. The Reinsurer will form a segregated account that
corresponds solely to the Master Fund's investment in the Reinsurer
with respect to each particular reinsurance agreement.
The Reinsurer focuses primarily on property catastrophe
insurance and may be exposed to losses arising from hurricanes,
earthquakes, typhoons, hailstorms, oods, tsunamis, tornados,
windstorms, extreme temperatures, aviation, res, explosions, marine
and other perils.
Basis of Presentation
The audited Financial Statements are expressed in United States
dollars and have been prepared in conformity with accounting
principles generally accepted in the United States of America
("GAAP"). The Company is an investment company and follows the
accounting and reporting guidance contained within Topic 946 of the
Financial Accounting Standards Board's Accounting Standards Codi
cation.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, highly liquid
investments, such as money market funds, that are readily
convertible to known amounts of cash and have original maturities
of three months or less.
Valuation of Investment in Master Fund
The Company records its investment in the Master Fund at the Net
Asset Value as reported by the Master Fund, which is the Company's
proportionate interest in the net assets of the Master Fund. The
performance of the Company is directly affected by the performance
of the Master Fund and is subject to the same risks to which the
Master Fund is subject. Valuation of investments held by the Master
Fund, including, but not limited to the valuation techniques used
and classi cation within the fair value hierarchy of investments
held are discussed as follows:
Fair Value - Definition and Hierarchy (Master Fund)
Fair value is de ned as the price that would be received to sell
an asset or paid to transfer a liability (i.e., the "exit price")
in an orderly transaction between market participants at the
measurement date.
In determining fair value, the Investment Manager uses various
valuation approaches. A fair value hierarchy for inputs is used in
measuring fair value that maximises the use of observable inputs
and minimises the use of unobservable inputs by requiring that the
most observable inputs are to be used when available. Observable
inputs are those that market participants would use in pricing the
asset or liability based on market data obtained from sources
independent of the Investment Manager. Unobservable inputs re ect
the assumptions of the Investment Manager in conjunction with the
Board of Directors of the Master Fund (the "Board of the Master
Fund") about the inputs market participants would use in pricing
the asset or liability developed based on the best information
available in the circumstances. The fair value hierarchy is
categorised into three levels based on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active
markets for identical assets or liabilities that the Master Fund
has the ability to access. Valuation adjustments are not applied to
Level 1 investments. Since valuations are based on quoted prices
that are readily and regularly available in an active market,
valuation of these investments does not entail a signi cant degree
of judgment.
Level 2 - Valuations based on quoted prices in markets that are
not active or for which all signi cant inputs are observable,
either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and
signi cant to the overall fair value measurement.
The availability of valuation techniques and observable inputs
can vary from investment to investment and are affected by a wide
variety of factors, including the type of investment, whether the
investment is new and not yet established in the marketplace, and
other characteristics particular to the transaction. To the extent
that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair
value requires more judgment. Those estimated values do not
necessarily represent the amounts that may be ultimately realised
due to the occurrence of future circumstances that cannot be
reasonably determined. Because of the inherent uncertainty of
valuation, those estimated values may be materially higher or lower
than the values that would have been used had a ready market for
the investments existed. Accordingly, the degree of judgment
exercised by the Investment Manager in determining fair value is
greatest for investments categorised in Level 3 of the fair value
hierarchy. In certain cases, the inputs used to measure fair value
may fall into different levels of the fair value hierarchy. In such
cases, for disclosure purposes, the level in the fair value
hierarchy within which the fair value measurement falls in its
entirety, is determined based on the lowest level input that is
signi cant to the fair value measurement.
Fair value is a market-based measure considered from the
perspective of a market participant rather than an entity-speci c
measure. Therefore, even when market assumptions are not readily
available, the Master Fund's own assumptions are set to re ect
those that market participants would use in pricing the asset or
liability at the measurement date. The Master Fund uses prices and
inputs that are current as of the measurement date, including
periods of market dislocation. In periods of market dislocation,
the observability of prices and inputs may be reduced for many
investments. This condition could cause an investment to be
reclassi ed to a lower level within the fair value hierarchy.
Fair Value - Valuation Techniques and Inputs
Investments in Securities (Master Fund)
The value of Preference Shares issued by the Reinsurer and
subscribed for by the Master Fund and held with respect to a
reinsurance agreement will equal:
(i) the amount of capital invested in such Preference Shares; plus
(ii) the amount of earned premium (as described below) that has
been earned period-to-date for such contract; plus
(iii) the amount of the investment earnings earned to date on
both the capital invested in such Preference Shares and the
associated reinsurance premiums in respect of such contract;
minus
(iv) the fair value of any loss estimates associated with
potential claims triggering covered events (see "Covered Event
Estimates" below); minus
(v) The amount of any risk margin considered necessary to re ect
uncertainty and to compensate a market participant for bearing the
uncertainty of cash ows in an exit of the transaction.
The value of Preference Shares issued by the Reinsurer will also
recognise expenses which are directly attributable to the Master
Fund as a result of the Reinsurer conducting reinsurance activities
that inure to the benefit or detriment of the Master Fund. To the
extent that the inputs into the valuation of Preference Shares are
unobservable, the Preference Shares would be classified as Level 3
within the fair value hierarchy.
Investments in Securities held by the Reinsurer
Industry Loss Warranties ("ILWs")
ILWs will be marked similar to Preference Shares held with
respect to reinsurance agreements, except that following a Covered
Event, loss information from the index provider on the trade will
be used.
Earned Premiums
Premiums shall be considered earned with respect to computing
the Master Fund's Net Asset Value in direct proportion to the
percentage of the risk that is deemed to have expired year-to-date.
Generally, all premiums net of acquisition costs, shall be earned
uniformly over each month of the risk period. However, for certain
risks, there is a clearly demonstrable seasonality associated with
these risks. Accordingly, seasonality factors are utilised for the
establishment of certain investments, including Preference Shares
relating to reinsurance agreements, ILWs and risk transfer
derivative agreements, where applicable. Prior to the investment in
any seasonal contract, the Investment Manager is required to
produce a schedule of seasonality factors, which will govern the
income recognition and related fair value price for such seasonal
contract in the absence of a covered event. The Investment Manager
may rely on catastrophe modeling software, historical catastrophe
loss information or other information sources it deems reliable to
produce the seasonality factors for each seasonal contract. Once
established, the seasonality factors do not change unless for a
signi cant outlying catastrophic event.
Covered Event Estimates
The Investment Manager provides monthly loss estimates for all
incurred loss events ("Covered Events") potentially affecting
investments relating to a reinsurance agreement of the Reinsurer.
As the Reinsurer's reinsurance agreements are fully collateralised,
any loss estimates above the contractual thresholds as contained in
the reinsurance agreements will require capital to be held in a
continuing reinsurance trust account with respect to the maximum
contract exposure with respect to the applicable Covered Event.
"Fair Value" Pricing used by the Master Fund
Any investment that cannot be reliably valued using the
principles set forth above (a "Fair Value Instrument") is marked at
its fair value, based upon an estimate made by the Investment
Manager, in good faith and in consultation or coordination with
Prime Management Limited (the "Administrator") where practicable,
using what the Investment Manager believes in its discretion are
appropriate techniques consistent with market practices for the
relevant type of investment. Fair valuation in this context depends
on the facts and circumstances of the particular investment,
including but not limited to prevailing market and other relevant
conditions, and refers to the amount for which a nancial instrument
could be exchanged between knowledgeable, willing parties in an
arm's length transaction. Fair value is not the amount that an
entity would receive or pay in a forced transaction or involuntary
liquidation.
The process used to estimate a fair value for an investment may
include a single technique or, where appropriate, multiple
valuation techniques, and may include (without limitation and in
the discretion of the Investment Manager, or in the discretion of
the Administrator subject to review by the Investment Manager where
practicable) the consideration of one or more of the following
factors (to the extent relevant): the cost of the investment to the
Master Fund, a review of comparable sales (if any), a discounted
cash ow analysis, an analysis of cash ow multiples, a review of
third-party appraisals, other material developments in the
investment (even if subsequent to the valuation date), and other
factors.
For each Fair Value Instrument, the Investment Manager and/or
the Administrator, may as practicable, endeavor to obtain quotes
from broker-dealers that are market makers in the related asset
class, counterparties, the Master Fund's prime brokers or lending
agents and/or pricing services. The Investment Manager, may, but
will not be required to, input pricing information into models
(including models that are developed by the Investment Manager or
by third parties) to determine whether the quotations accurately re
ect fair value.
In addition, the Investment Manager, may in its discretion,
consult with the members of the investment team to determine the
appropriate valuation of an instrument or additional valuation
techniques that may be helpful to such valuation.
From time to time, the Investment Manager may change its fair
valuation technique as applied to any investment if the change
would result in an estimate that the Investment Manager in good
faith believes is more representative of fair value under the
circumstances. The determination of fair value is inherently
subjective in nature, and the Investment Manager has a con ict of
interest in determining fair value in light of the fact that the
valuation determination may affect the amount of the Investment
Manager's performance fee.
At any given time, a substantial portion of the Master Fund's
portfolio positions may be valued by the Investment Manager using
the fair value pricing policies. Prices assigned to portfolio
positions by the Administrator or the Investment Manager may not
necessarily conform to the prices assigned to the same nancial
instruments if held by other accounts or by affiliates of the
Investment Manager.
Side Pockets
The Board of the Master Fund, in consultation with the
Investment Manager, may classify certain Insurance-Linked
Instruments as investments in which only persons which are
Shareholders at the time of such classi cation can participate
("Side Pocket Investments"). This typically will happen if a
Covered Event has recently occurred or seems likely to occur under
an Insurance-Linked Instrument, because determining the fair value
once a Covered Event has occurred under an Insurance-Linked
Instrument is often both a highly uncertain and a protracted
process. Side Pocket Investments are valued in the Statement of
Assets and Liabilities at their fair value as determined in good
faith by the Board of the Master Fund following consultation with
the Investment Manager.
Financial Instruments
The fair values of the Company's assets and liabilities, which
qualify as nancial instruments under ASC 825, Financial
Instruments, approximate the carrying amounts presented in the
Statements of Assets and Liabilities.
Investment Transactions and Related Investment Income and
Expenses
The Company records its proportionate share of the Master Fund's
income, expenses, realised gains and losses and increases and
decreases in unrealised appreciation on a monthly basis. In
addition, the Company incurs and accrues its own income and
expenses.
Investment transactions of the Master Fund are accounted for on
a trade-date basis. Realised gains or losses on the sale of
investments are calculated using the speci c identi cation method
of accounting. Interest is recognised on the accrual basis.
Translation of Foreign Currency
Assets and liabilities denominated in foreign currencies are
translated into United States dollar amounts at the period-end
exchange rates. Transactions denominated in foreign currencies,
including purchases and sales of investments, and income and
expenses, are translated into United States dollar amounts on the
transaction date. Adjustments arising from foreign currency
transactions are re ected in the Statements of Operations.
The Company does not isolate the portion of the results of
operations arising from the effect of changes in foreign exchange
rates on investments from uctuations arising from changes in market
prices of investments held. Such uctuations are included in net
(decrease)/increase in unrealised appreciation on securities in the
Statements of Operations.
Income Taxes
Under the laws of Bermuda, the Company is generally not subject
to income taxes. The Company has received an undertaking from the
Minister of Finance in Bermuda that in the event that there is
enacted in Bermuda any legislation imposing income or capital gains
tax, such tax shall not until 31 March 2035 be applicable to the
Company. However, certain United States dividend income and
interest income may be subject to a 30% withholding tax. Further,
certain United States dividend income may be subject to a tax at
prevailing treaty or standard withholding rates with the applicable
country or local jurisdiction.
The Company is required to determine whether its tax positions
are more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. The tax bene t recognised is measured as the largest
amount of bene t that has a greater than fty percent likelihood of
being realised upon ultimate settlement with the relevant taxing
authority. De-recognition of a tax bene t previously recognised
results in the Company recording a tax liability that reduces
ending net assets. Based on its analysis, the Company has
determined that it has not incurred any liability for unrecognised
tax bene ts as of 31 December 2014. However, the Company's
conclusions may be subject to review and adjustment at a later date
based on factors including, but not limited to, on-going analyses
of and changes to tax laws, regulations and interpretations
thereof.
The Company recognises interest and penalties related to
unrecognised tax bene ts in interest expense and other expenses,
respectively. No interest expense or penalties have been recognised
as of and for the years ended 31 December 2014 and 2013.
Generally, the Company may be subjected to income tax
examinations by relevant major taxing authorities for all tax years
since its inception.
The Company may be subject to potential examination by U.S.
federal or foreign jurisdiction authorities in the areas of income
taxes. These potential examinations may include questioning the
timing and amount of deductions, the nexus of income among various
tax jurisdictions and compliance with U.S. federal or foreign tax
laws. The Company was not subjected to any tax examinations during
the years ended 31 December 2014 and 2013.
Use of Estimates
The preparation of Financial Statements in conformity with
accounting principles generally accepted in the United States of
America requires the Company's management to make estimates and
assumptions that affect the amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
Financial Statements. Actual results could differ from those
estimates.
Offering Costs
The costs associated with each capital raise are expensed as
incurred.
2. SCHEDULE OF THE COMPANY'S SHARE OF THE INVESTMENTS HELD IN
THE MASTER FUND AND FAIR VALUE MEASUREMENTS
The following table reflects the Company's proportionate share
of the fair value of investments in the Reinsurer held by the
Master Fund at 31 December 2014.
Preference Shares $ Fair Value
Investments in CATCo-Re
Ltd.
CLASS AA Preference Shares 16,495,985
CLASS CC Preference Shares 1,482,939
CLASS KK Preference Shares 1,317,978
CLASS S Preference Shares 1,631,152
CLASS T Preference Shares 4,393,771
CLASS W Preference Shares 1,745
CLASS X Preference Shares 113,161
CLASS Z Preference Shares 1,717
CLASS SP Preference Shares 6,922
Class AE Preference Shares 9,537,737
Class AF Preference Shares 4,026,172
Class AH Preference Shares 18,487,683
Class AI Preference Shares 11,545,265
Class AK Preference Shares 21,492,687
Class AO Preference Shares 7,539,690
Class AP Preference Shares 11,310,765
Class AQ Preference Shares 983,913
Class AR Preference Shares 9,613,666
Class AT Preference Shares 4,711,550
Class AU Preference Shares 2,825,849
Class BE Preference Shares 855,429
Class BF Preference Shares 848,257
Class BI Preference Shares 57,317,785
Class BJ Preference Shares 9,765,769
Class BK Preference Shares 2,636,985
Class BL Preference Shares 25,263,307
Class BM Preference Shares 2,167,473
Class BN Preference Shares 24,509,144
Class BO Preference Shares 34,879,376
Class BP Preference Shares 940,292
Class BQ Preference Shares 2,259,750
Class BR Preference Shares 663,950
Class BS Preference Shares 167,207
Class BT Preference Shares 3,344,267
Class BU Preference Shares 3,768,530
Class BV Preference Shares 6,690,382
Class BW Preference Shares 917,428
Class CE Preference Shares 9,425,138
Class CF Preference Shares 1,826,878
Class CG Preference Shares 1,823,736
Class CH Preference Shares 24,238
Class CI Preference Shares 4,574,054
Class CJ Preference Shares 3,626,957
Class CK Preference Shares 1,883,649
Class CL Preference Shares 2,756,983
Class CM Preference Shares 3,520,926
Class CN Preference Shares 2,746,540
Class CO Preference Shares 941,062
Class CP Preference Shares 1,884,111
Class CQ Preference Shares 4,240,764
Class CR Preference Shares 6,076,446
Class CS Preference Shares 3,769,077
Class CT Preference Shares 3,769,438
Class CU Preference Shares 98,186
Class CV Preference Shares 2,319,849
Class CY Preference Shares 900,403
Total Investments in CATCo-Re
Ltd. $360,724,113
The following table reflects the Company's proportionate share
of the fair value of investments in the Reinsurer held by the
Master Fund at 31 December 2013.
Preference Shares $ Fair Value
Investments in CATCo-Re
Ltd.
Class AA preferred Shares $18,681,478
Class AB preferred Shares 4,074,807
Class CC preferred Shares 1,275,717
Class KK preferred Shares 1,582,598
Class Q preferred Shares 2,377,034
Class S preferred Shares 3,596,617
Class T preferred Shares 3,019,922
Class W preferred Shares 2,051
Class Z preferred Shares 2,264,403
Class SP preferred Shares 8,311
Class MM1 preferred Shares 1,035,815
Class MM2 preferred Shares 1,035,804
Class AB preferred Shares 45,293,030
Class AC preferred Shares 22,644,591
Class AD preferred Shares 35,101,162
Class AE preferred Shares 15,963,598
Class AF preferred Shares 4,397,637
Class AG preferred Shares 3,960,440
Class AH preferred Shares 16,980,915
Class AI preferred Shares 19,952,719
Class AJ preferred Shares 9,424,666
Class AK preferred Shares 36,232,561
Class AL preferred Shares 21,510,733
Class AM preferred Shares 19,020,624
Class AN preferred Shares 9,055,982
Class AO preferred Shares 5,024,878
Class AP preferred Shares 7,538,724
Class AQ preferred Shares 1,181,920
Class AR preferred Shares 8,942,495
Class AS preferred Shares 3,960,418
Class AT preferred Shares 20,945,312
Class AU preferred Shares 3,394,191
Class AV preferred Shares 26,125,482
Class AW preferred Shares 30,145,301
Class AX preferred Shares 1,016,097
Class BA preferred Shares 4,254,847
Class BC preferred Shares 1,644,595
Class BD preferred Shares 1,095,633
Class BE preferred Shares 1,021,473
Class BF preferred Shares 997,473
Class BH preferred Shares 241,481
Total Investments in CATCo-Re
Ltd. 416,023,535
The Company's assets and liabilities recorded at fair value have
been categorised based upon a fair value hierarchy as described in
the Company's significant accounting policies in Note 1. The
following table presents information about the Company's assets
measured at fair value:
Year ended 31 December 2014
Level Level Level 3 Total
1 2
Assets (at fair
value)
Investments in
securities
Investment in Master
Fund $ - $ - $ 363,800,160 $ 363,800,160
Total Investments
in securities $ - $ - $ 363,800,160 $ 363,800,160
Year ended 31 December 2013
Level Level Level 3 Total
1 2
Assets (at fair
value)
Investments in
securities
Investment in Master
Fund $ - $ - $ 408,828,848 $ 408,828,848
Total Investments
in securities $ - $ - $ 408,828,848 $ 408,828,848
Transfers between Levels 1 and 2 generally relate to whether a
market becomes active or inactive. Transfers between Levels 2 and 3
generally relate to whether significant relevant observable inputs
are available for the fair value measurements in their entirety.
See Note 1 for additional information related to the fair value
hierarchy and valuation techniques and inputs. All transfers are
recognised by the Company at the end of each reporting period.
There were no transfers between levels for the years ended 31
December 2014 and 2013.
The following table presents additional information about Level
3 assets and liabilities measured at fair value. Both observable
and unobservable inputs may be used to determine the fair value of
positions that the Company has classified within the Level 3 fair
value category. As a result, the unrealised gains and losses for
assets and liabilities within the Level 3 fair value category may
include changes in fair value that were attributable to both
observable and unobservable inputs.
Changes in Level 3 assets measured at fair value for the year
ended 31 December 2014 were as follows:
Unrealised
Appreciation
Realised On
and Securities
Unrealised Trasfers held
Beginning Appreciation Transfers (out) Ending at
Balance On Into of Balance 31 Dec.
1 Jan. Securities Level Level 31 Dec. 2014
2014 (a) Purchases Sales 3 3 2014 (b)
------------- -------------- ------------- ------------ ---------------- ---------- --------- --------------- -------------
Assets (at
fair value)
Investments
in
Master $ $
Fund $ 408,828,848 $49,573,425 $10,300,000 $ (104,902,113) - - $363,800,160 $47,043,025
------------- -------------- ------------- ------------ ---------------- ---------- --------- --------------- -------------
(a) Realised and unrealised appreciation on securities are both
included in net investment loss allocated from the Master Fund and
net gain on securities in the Statements of Operations.
(b) The unrealised appreciation for the year ended 31 December
2014 for securities held at 31 December 2014 are reflected in net
investment loss allocated from the Master Fund and net gain on
securities in the Statements of Operations.
Changes in Level 3 assets measured at fair value for the period
ended 31 December 2013 were as follows:
Realised Unrealised
and Appreciation
Unrealised Transfers On
Beginning Appreciation Transfers (out) Ending Securities
Balance On Into of Balance held at
1 Jan. Securities Level Level 31 Dec. 31 Dec.
2013 (a) Purchases Sales 3 3 2013 2013 (b)
------------- -------------- ------------- ---------- --------------- ---------- ---------- ------------- --------------
Assets (at
fair value)
Investments
in
Master $
Fund $ 353,330,814 $74,998,034 $- $ (19,500,000) - $ - $408,828,848 $74,998,034
------------- -------------- ------------- ---------- --------------- ---------- ---------- ------------- --------------
(a) Realised and unrealised appreciation on securities are both
included in net investment loss allocated from the Master Fund and
net gain on securities in the Statements of Operations.
(b) The unrealised appreciation for the year ended 31 December
2013 for securities held at 31 December 2013 are reflected in net
investment loss allocated from the Master Fund and net gain on
securities in the Statements of Operations.
The table below summarises information about the significant
unobservable inputs used in determining the fair value of the
Master Fund's Level 3 assets:
Valuation Unobservable
Technique Input Range
--------------- ------------------------------- ------------------
Preference Premium Premiums earned - straight 12 months
Shares earned line for uniform perils 5 to 6 months
Premiums earned - seasonality 0 to contractual
Loss reserves adjusted for non-uniform limit
Risk margin perils 0% to 15%
Loss reserves*
Risk margin
----------- --------------- ------------------------------- ------------------
*Based on from ground up losses as reported by cedants
As described in Note 5, significant increases or decreases in
loss reserves would result in a significantly lower or higher fair
value measurement.
3. CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company maintains its cash
balances (not assets supporting retrocessional transactions) in
nancial institutions, which at times may exceed federally insured
limits. The Company is subject to credit risk to the extent any
nancial institution with which it conducts business is unable to
ful ll contractual obligations on its behalf. Management monitors
the nancial condition of such nancial institutions and does not
anticipate any losses from these counterparties. At 31 December
2014 and 2013, cash and cash equivalents are held with HSBC Bank
Bermuda Ltd. which has a credit rating of A- as issued by Standard
& Poor's.
4. CONCENTRATION OF REINSURANCE RISK
The following table illustrates the diversified risk profile of
the Reinsurer's portfolio by geography and peril as at 31 December
2014.
2014 Retrocessional Reinsurance Portfolio
Geographic Distribution Exposure by Risk Peril
1. North America/Caribbean 32% 1. Wind 44%
2. All Other 25% 2. Earthquake 27%
3. Global Marine/Energy/Terrorism/Aviation 9% 3. Marine/Energy/Aviation 9%
4. Global Backup Protections 8% 4. Backup Protections 8%
Severe Convective
5. Europe 7% 5. Storms 5%
6. Australia/New Zealand 7% 6. Winterstorm/Wildfire 3%
7. Japan 6% 7. Flooding 2%
Mexico/Central America/South
8. America 6% 8. Terrorism 2%
The following table illustrates the diversified risk profile of
the Reinsurer's portfolio by geography and peril as at 31 December
2013.
2013 Retrocessional Reinsurance Portfolio
Geographic Distribution Exposure by Risk Peril
1. North America/Caribbean 36% 1. Wind 45%
2. All Other 15% 2. Earthquake 31%
3. Europe 9% 3. Backup Protections 9%
4. Australia/New Zealand 9% 4. Marine/Energy/Aviation 7%
Severe Convective
5. Global Backup Protections 9% 5. Storms 3%
Global Marine/Energy/Terrorism/
6. Aviation 8% 6. Flooding 2%
7. Japan 8% 7. Winterstorm/Wildfire 2%
Mexico/Central America/South
8. America 6% 8. Terrorism 1%
5. LOSS RESERVES
The following disclosures on loss reserves are included for
information and relate speci cally to the Reinsurer and are re
ected through the valuations of investments held by the
Company.
The reserve for unpaid losses and loss expenses recorded by the
Reinsurer includes estimates for losses incurred but not reported
as well as losses pending settlement.
The Reinsurer makes a provision for losses on contracts only
when an event that is covered by the contract has occurred. When a
potential loss event has occurred, the Reinsurer uses its own
models and historical loss analysis data as well as assessments
from counter-parties to estimate the level of reserves required. In
addition, the Reinsurer records risk margin to re ect uncertainty
surrounding cash ows relating to loss reserves.
Future adjustments to the amounts recorded as of period-end,
resulting from the continual review process, as well as differences
between estimates and ultimate settlements, will be re ected in the
Reinsurer's Statement of Operations in future periods when such
adjustments become known. Future developments may result in losses
and loss expenses materially greater or less than the reserve
provided.
During 2014, the Reinsurer paid claims of $57,114,885 pertaining
to the Tohoku Japan earthquake in March 2011 and Superstorm Sandy
in October 2012. In addition, $10,128,514 was paid in relation to
2014 US Severe Convective Storm exposure.
6. CAPITAL SHARE TRANSACTIONS
As of 31 December 2014 and 2013, the Company has authorised
capital stock of 500,000,000 unclassi ed shares of par value
$0.0001 per Share.
As of 31 December 2014 and 2013, the Company has issued
303,582,970 and 369,849,337 Class 1 Ordinary Shares (the "Shares"),
respectively.
Transactions in Shares during the year, and the Shares
outstanding and the Net Asset Value ("NAV") per Share are as
follows:
31 December 2014
Beginning Adjustment Share Ending Ending Ending
Shares Following Buyback Shares Net Assets NAV
Share Per Share
Capital
Consolidation
----------- -------------- --------------- -------------- -------------- --------------- -----------
Class
1 -
Ordinary
Shares 369,849,337 (60,566,367) (5,700,000) 303,582,970 $363,725,627 $1.1981
31 December 2013
Beginning Shares Shares Ending Ending Ending NAV
Shares Issued Redeemed Shares Net Assets Per Shares
----------- ------------ -------- ---------- ------------ ------------- ------------
Class
1 -
Ordinary
Shares 369,849,337 - - 369,849,337 $409,031,695 $1.1059
The Company has been established as a closed-ended fund and, as
such, Shareholders do not have the right to redeem their Shares.
The Shares are held in trust by Capita IRG Trustees Limited (the
"Depository") in accordance with the Depository Agreement between
the Company and the Depository. The Depository holds the Shares and
in turn issues depository interests in respect of the underlying
Shares which have the same rights and characteristics of the
Shares.
The Board of Directors of the Company (the "Board") has the
ability to issue C Shares during any period when the Master Fund
has designated one or more investments as "Side Pocket
Investments". This typically will happen if a covered or other
pre-determined event has recently occurred or seems likely to occur
under an Insurance-Linked Instrument. In such circumstances, only
those Shareholders on the date that the investment has been
designated as a Side Pocket Investment will participate in the
potential losses and premiums attributable to such Side Pocket
Investment. Any shares issued when side pockets exist will be as C
Shares that will participate in all of the Master Fund's portfolio
other than in respect of potential losses and premiums attributable
to any Side Pocket Investments in existence at the time of issue.
If no Side Pocket Investments are in existence at the time of
proposed issue, it is expected that the Company will issue further
Ordinary Shares.
On 14 January 2014, the Board declared a nal dividend of
$0.05737 per Share in respect of the Ordinary Shares with a record
date of 24 January 2014. The nal dividend of $21,218,256 was paid
to Shareholders on 31 January 2014.
In addition, the Board announced on 14 January 2014 that it had
declared a contingent distribution in relation to the cessation of
the Japanese Tohoku earthquake loss reserve for 2011 of $0.02887
per Share to Ordinary Shares. The contingent dividend of $2,530,400
was paid to Shareholders on 24 January 2014.
On 27 January 2014, the Board announced that the proposed return
of value to Shareholders of $0.20 per existing Ordinary Share,
equivalent to approximately $74,000,000, and the subsequent share
capital consolidation were approved. Following the share capital
consolidation, a total of 299,577,962 Ordinary Shares were issued
effective 28 January 2014. In addition, a total of 9,705,008
Ordinary Shares were issued effective 29 January 2014.
On 19 May 2014, the Company completed a Share buyback of
5,700,000 Ordinary Shares for cancellation in the market at an
average price of USD 1.025 per Share, resulting in a total amount
paid including commission of $5,871,713.
7. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to the Investment Management Agreement dated 16
December 2010, the Investment Manager is empowered to formulate the
overall investment strategy to be carried out by the Company and to
exercise full discretion in the management of the trading,
investment transactions and related borrowing activities of the
Company in order to implement such strategy.
8. RELATED PARTY TRANSACTIONS
The Investment Manager of the Company is also the Investment
Manager of the Master Fund. The Investment Manager is entitled to a
management fee, calculated and payable monthly in arrears equal to
1/12 of 1.5% of the Net Asset Value of the Company, which is not
attributable to the Company's investment in the Master Fund's
Shares as at the last calendar day of each calendar month.
Management fees related to the investment in the Master Fund's
Shares are charged in the Master Fund and allocated to the Company.
Performance fees are charged in the Master Fund and allocated to
the Company.
The Investment Manager is also the Insurance Manager of the
Reinsurer.
Qatar Insurance Company, which holds the entire share capital of
the Investment Manager, held 5.39% and 7.10% of the voting rights
of the Ordinary Shares issued in the Company as of 31 December 2014
and 31 December 2013 respectively.
In addition, the directors of the Company are also Shareholders
of the Company.
9. ADMINISTRATION FEE
Prime Management Limited, a division of SS&C GlobeOp, serves
as the Company's Administrator and performs certain administrative
services on behalf of the Company. For the provision of the service
under the administration agreement, the Administrator receives a
xed fee.
10. FINANCIAL HIGHLIGHTS
Financial highlights for the years ending 31 December 2014 and
2013 are as follows:
2014 2013
Class 1 Class 1
United States Dollar Ordinary Ordinary
Shares Shares
-------------------------------------------- ---------- ----------
Per Share operating performance
-------------------------------------------- ---------- ----------
Net Asset Value, beginning
of year $1.1059 $0.9566
-------------------------------------------- ---------- ----------
Income (loss) from investment
operations:
-------------------------------------------- ---------- ----------
Net investment loss (0.0058) (0.0048)
-------------------------------------------- ---------- ----------
Performance Fee* (0.0167) (0.0234)
-------------------------------------------- ---------- ----------
Management Fee (0.0168) (0.0153)
-------------------------------------------- ---------- ----------
Net gain on investments 0.1889 0.2429
-------------------------------------------- ---------- ----------
Total from investment
operations 0.1496 0.1994
-------------------------------------------- ---------- ----------
Dividend (0.0574) (0.0501)
-------------------------------------------- ---------- ----------
Net Asset Value, end of
year $1.1981 $1.1059
-------------------------------------------- ---------- ----------
Total return
-------------------------------------------- ---------- ----------
Total return before performance
fee 15.04% 23.28%
-------------------------------------------- ---------- ----------
Performance fee* (1.51)% (2.44)%
-------------------------------------------- ---------- ----------
Total return after performance
fee 13.53% 20.84%
-------------------------------------------- ---------- ----------
Ratios to average net
assets
-------------------------------------------- ---------- ----------
Expenses other than performance
fee (2.05)% (2.01)%
-------------------------------------------- ---------- ----------
Performance fee* # (1.47)% (2.34)%
-------------------------------------------- ---------- ----------
Total expenses after performance
fee (3.52)% (4.35)%
-------------------------------------------- ---------- ----------
Net investment loss (3.54)% (4.35)%
-------------------------------------------- ---------- ----------
Adjusting the opening capital to re ect the dividend declared on
9 January 2013, the normalised total return for 2013 is equivalent
to 21.90%
# Adjusting the opening capital to re ect the dividend declared
on 14 January 2014, the normalised total return for 2014 is
equivalent to 14.08%
* The performance fee is charged in the Master Fund.
The ratios to weighted average net assets are calculated for
each Class of Shares taken as a whole. An individual Shareholder's
return and ratios to weighted average net assets may vary from
these amounts based on the timing of capital transactions. Returns
and ratios shown above are for the years ended 31 December 2014 and
2013. The per Share amounts and ratios re ect income and expenses
allocated from the Master Fund.
11. INDEMNIFICATIONS OR WARRANTIES
In the ordinary course of its business, the Company may enter
into contracts or agreements that contain indemni cations or
warranties. Future events could occur that lead to the execution of
these provisions against the Company. Based on its history and
experience, management believes that the likelihood of such an
event is remote.
12. SUBSEQUENT EVENTS
On 5 January 2015, the Board declared a nal dividend of $0.05929
per Share in respect of the Ordinary Shares with a record date of
16 January 2015 and was paid on 30 January 2015.
In addition, the Board announced on 5 January 2015 that the
proposed Return of Value to Shareholders of $0.11528 per existing
Ordinary Share, equivalent to approximately $35,000,000, and the
subsequent share capital consolidation were approved. Following the
share capital consolidation, a total of 273,224,673 Ordinary Shares
were issued effective 30 January 2015 and the return of value paid
to Shareholders on 9 February 2015 amounted to $34,997,045.
These Financial Statements were approved by the Board and
available for issuance on 17 February 2015. Subsequent events have
been evaluated through this date.
For further information, please
contact:
CATCo Investment Management Ltd
Mark Way, Corporate Communications
Director
Telephone: +44 7786 116991
Email: mark.way@catcoim.com
Judith Wynne, Company Secretary
and General Counsel
Telephone: + 44 7986 205364
Email: judith.wynne@catcoim.com
Numis Securities Limited
David Benda / Hugh Jonathan
Telephone: +44 (0) 20 7260 1000
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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