TIDMCAT
RNS Number : 7048W
CATCo Reinsurance Opps Fund Ltd
19 April 2019
18 April 2019
CATCo Reinsurance Opportunities Fund Ltd. (the "Company")
Annual Financial Report
For the 12 month period 1 January 2018 to 31 December 2018
To: London Stock Exchange's Specialist Fund Segment, 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.
CHAIRMAN'S STATEMENT
Welcome to the 2018 Annual Report for CATCo Reinsurance
Opportunities Fund Ltd. (the "Company").
In 2018, following a second consecutive year of significant
catastrophic events, including Hurricanes Florence and Michael,
Typhoon Jebi and California wildfires, together with the continuing
and unexpected deterioration of the 2017 loss reserves, the Company
recorded decreases of 58.43 per cent (2017: -27.60 per cent) in the
net asset value (after deducting dividend payments) of its Ordinary
Shares and 35.74 per cent in the net asset value of its C
Shares.
This, when combined with certain events at the Investment
Manager at the end of 2018 and the beginning of 2019, has led to
the Board taking the difficult decision to put the Company's
investment portfolios into run-off with effect from 30 June
2019.
Financial Performance since Inception
The cumulative NAV total returns since inception to 31 December
2018 of the Ordinary Shares issued on 20 December 2010 and the
various issuances of C Shares (all of which, except for the C
Shares issued on 12 December 2017, have since been converted into
Ordinary Shares) are listed as follows:
Share Class NAV Total Returns
(Date of Issuance) since Inception
(to 31 December
2018)
----------------------------------------------------- -----------------
Ordinary Shares (issued 20 Dec. 2010) -45.28 per cent
----------------------------------------------------- -----------------
C Shares issued (20 May 2011 - converted to Ordinary -39.65 per cent
Shares in Aug. 2012)
----------------------------------------------------- -----------------
C Shares issued (16 Dec. 2011 - converted to Ordinary -45.77 per cent
Shares in Aug. 2012)
----------------------------------------------------- -----------------
C Shares issued (2 Nov. 2015 - converted to Ordinary -67.67 per cent
Shares in May 2017)
----------------------------------------------------- -----------------
C Shares (issued 28 November 2018) -35.74 per cent
Side Pocket Investments ("SPIs")
More SPIs were established in 2018 following the number of
severe catastrophic events that occurred during the year. As at 31
December 2018, the SPIs in total represent c. 62.10 per cent of
Ordinary Share NAV (2017: 65.90 per cent) and c. 46.76 per cent of
C Share NAV. The SPIs in relation to 2015 to 2018 are as follows
(in each case, as at 31 December 2018):
-- 2015 SPIs, principally relating to U.S. and Canada winter
storms and U.S. severe convective storms, amount to c. 2.04 per
cent of the Company's Ordinary Share NAV (31 December 2017: c 1.60
per cent of Ordinary Share NAV).
-- 2016 SPIs, established for the Fort McMurray wildfire,
Jubilee oil field, Hurricane Matthew and the South Island
earthquake in New Zealand, amount to c. 7.53 per cent of the
Company's Ordinary Share NAV (31 December 2017: c. 8 per cent of
Ordinary Share NAV).
-- 2017 SPIs, principally relating to Hurricanes Harvey, Irma
and Maria and the 2017 California wildfires, amount to c. 31.49 per
cent of the Company's Ordinary Share NAV (31 December 2017: c. 55
per cent of Ordinary Share NAV).
-- 2018 SPIs, principally relating to, inter alia, Hurricanes
Michael and Florence, Typhoon Jebi and the 2018 California
wildfires, amount to c. 21.05 per cent of the Ordinary Share NAV
and c. 46.76 per cent of the C Share NAV.
On 11 March 2019, the Company announced its decision to consent
to a partial waiver of 33.3334 per cent (one-third) of the
management fee it indirectly pays to the Investment Manager in
respect of SPIs, being exposed to SPIs by way of its holding of
certain classes of share in the Master Fund. The reduction
resulting from the waiver will have effect from 1 January 2019
until 31 December 2019, but is subject to possible extension by the
Investment Manager and the Master Fund SAC.
Annual Dividend
Since inception, the Company has met its intentions of paying an
annual dividend equal to LIBOR plus five per cent of the year-end
NAV. With respect to 2018, dividends of $0.0265 per Ordinary Share
and $0.0445 per C Share were paid to Shareholders on 25 February
2019.
Since inception, the Company has returned capital of $269
million to Ordinary and C Share Shareholders via dividends and
return of value distributions with the original Ordinary Share
Shareholders from December 2010 having received approximately 78
per cent of their original investment through such
distributions.
Events at the Investment Manager
On 6 December 2018, Markel Corporation reported that the U.S.
Department of Justice, U.S. Securities and Exchange Commission and
Bermuda Monetary Authority (collectively, the "Governmental
Authorities") are conducting inquiries (the "Markel CATCo
Inquiries") into loss reserves recorded in late 2017 and early 2018
at the Investment Manager and its subsidiaries (collectively,
"Markel CATCo"). These inquiries are limited to Markel CATCo and do
not involve Markel Corporation or its other subsidiaries.
Markel Corporation previously disclosed it had retained outside
counsel to conduct an internal review of Markel CATCo's loss
reserving in late 2017 and early 2018. The internal review has
recently been completed. The internal review conducted by outside
counsel found no evidence that Markel CATCo personnel acted in bad
faith in exercising business judgment in the setting of reserves
and making related disclosures during late 2017 and early 2018.
Markel Corporation's outside counsel has met with the Governmental
Authorities and reported the findings from the internal review. The
Markel CATCo Inquiries are ongoing and Markel Corporation and the
Investment Manager continue to fully co-operate with them. Markel
Corporation cannot currently predict the duration, scope or result
of the Markel CATCo Inquiries.
On 18 January 2019, Anthony Belisle and Alissa Fredricks ceased
to be engaged by the Investment Manager and were replaced by Jed
Rhoads and Andrew "Barney" Barnard.
The Board has no further information in relation to the Markel
CATCo Inquiries and remains confident that the transition of the
Investment Manager's management team can be carried out
successfully.
Run-Off
Following a shareholder consultation in February 2019, the Board
sought the approval of Shareholders to put the Company's portfolios
into an orderly run-off (the "Run-Offs), which approval was given
on 26 March 2019.
The Run-Offs will be implemented principally by redeeming all of
the Company's Master Fund Shares attributable to the Ordinary
Shares or C Shares (as the case may be) as of 30 June 2019 and
distributing the net proceeds thereof to the relevant class of
Shareholders. There can be no assurances in relation to the length
of the Run-Offs as they are dependent on the underlying reinsurance
contracts going "off risk" and any related loss reserves being
settled and collateral balances released (which is out of the
Company's and the Investment Manager's control)
As such, the Company does not intend to continue to pay an
annual dividend, and no continuation votes will be held while the
Company remains in run-off.
Closing Remarks
I would like to acknowledge the hard work and co-operation of
both the Company's Board and Markel CATCo throughout 2018, which
have enabled the Company to respond proactively to the events
described above.
In particular, I would like to extend my thanks to Alastair
Barbour, who is due to retire from the Board towards the end of
2019. Alastair has served tirelessly as a non-executive Director
since 2011, and his coolheaded support will be greatly missed.
I look forward to continuing to serving you in my role as
Chairman as the Company enters into the next phase of its life.
James Keyes
Chairman,
CATCo Reinsurance Opportunities Fund Ltd.
18 April 2019
INVESTMENT MANAGER'S REVIEW
During 2018 the Company experienced a second successive year of
severe catastrophic activity, with 2017 and 2018 now being
recognized as the first and fourth highest insured loss years on
record respectively(1) . As a result, for the year ended 31
December 2018, the Company experienced a decline in NAV of -35.74
per cent in the year for the C Shares issued in November 2018.
Separately, the NAV of the Ordinary shares declined by -58.43 per
cent due to (i) adverse loss development experienced during 2018 on
the 2017 loss events and (ii) 2018 portfolio losses.
Looking ahead, the Company's investment portfolio team has
constructed a fully diversified 2019 portfolio with an illustrative
maximum net return (assuming no losses)* of 30 per cent which is up
from the 2018 portfolio maximum net no loss return of 23 per cent.
The Investment Manager has continued to experience strong buyer
demand for its unique reinsurance strategy for the 1 January 2019
renewals and, notwithstanding the recent decision to put the
existing portfolios into run-off, it remains committed to
delivering the 2019 portfolio to the Company's Shareholders.
* This figure represents the Company's projected net portfolio
returns, is for illustrative purposes only and does not take into
account any unforeseen costs, expenses or other factors which may
affect the Company or its assets.
2018 Significant Loss Events Update
Global insured losses during 2018 are estimated to be $80bn(1) ,
the fourth costliest year on record, compared to 2017, the worst
year on record which resulted in over $140bn(1) of insured losses.
Both years endured a confluence of wind and wildfire events late in
the year causing unprecedented levels of trapped capital industry
wide and made for a dislocated January 1 renewal.
During the month of September, Typhoon Jebi made landfall in the
Japanese Prefecture of Tokushima on Shikoku Island as the
equivalent of a Category 3 hurricane. The typhoon made a second
landfall on the main island of Honshu where it affected Kobe and
Osaka. Typhoon Jebi is the most intense tropical cyclone to make
landfall over Japan since Typhoon Yancy in 1993. Typhoon Jebi has
also made its mark as Japan's largest typhoon-related insurance and
reinsurance market loss on record. Munich Re estimates that insured
losses total roughly $9 billion(1) , which is slightly higher than
the insured loss of Typhoon Mireille in 1991.
A few weeks later, Typhoon Trami made landfall near the city of
Tanabe City in the Wakayama Prefecture as the equivalent of a
Category 2 hurricane. Trami impacted the region with heavy
rainfall, high winds and storm surge causing extensive power
outages and disruption to transportation, causing an estimated
$2bn(1) in further insured losses to the region.
During the same time period, Hurricane Florence was making
landfall in Wrightsville, North Carolina as a Category 1 hurricane,
causing heavy rainfall and major flooding across the Carolinas
region. The latest insured loss estimate as at 6 February 2019 for
Hurricane Florence is $4.4bn(2) of insured losses.
Less than a month later, Hurricane Michael made landfall in the
Florida Panhandle, near Mexico Beach as a Category 4 hurricane
making it the strongest hurricane to affect the Continental U.S.
since Hurricane Andrew in 1992 and the most powerful hurricane to
impact the Florida Panhandle since the first records were recorded
in 1851. After making landfall in Florida, Hurricane Michael headed
northeast through Georgia as a Category 3 storm and then along the
Mid-Atlantic States. The latest insured loss estimate as at 3 March
2019 for Hurricane Michael $8.6bn(2) .
While not nearly as devastating as the Harvey, Irma, Maria
("HIM") trio in 2017, Typhoons Jebi and Trami followed by
Hurricanes Florence and Michael are estimated to be close to $30bn
once fully developed. In addition to these 2018 events, due to late
reporting by primary carriers, the PCS estimate for HIM increased a
further $13bn in 2018 to $69bn(2) , which does not include the
associated loss adjustment expenses which are upwards of 20 per
cent in the case of Irma as a result of the ongoing AOB (assignment
of benefits) litigation in Florida.
Similar to 2017, late in the fourth quarter, which is typically
quiet from an insured catastrophe perspective, massive wildfires
charred both North and South California in almost identical areas.
Most notably, the Camp Fire, the deadliest and most destructive
wildfire to ever impact the State started in Butte County in
Northern California, just adjacent to where the Tubbs / Atlas
outbreaks took place in 2017, and within days, completely destroyed
the entire town of Paradise with an estimated $9.17bn(2) of insured
damages as at 8 April 2019.
At the very same time, 500 miles to the South, the Woolsey Fire
ignited in Ventura County which is home to some of the highest
valued properties in the US and not too far from where the Thomas
Fire wreaked havoc one year prior. The Woolsey Fire is estimated to
have caused $3.83bn(2) in insured losses as 8 April 2019.
Nevertheless, over the past 30 years there has been
approximately $40bn(2) in insured losses as per PCS due to Wildfire
(trended and inflated), with nearly $30bn(2) of the losses
occurring in the last two years.
1 Munich Re NatCat SERVICE, January 2019
2 PCS
Loss Reserves
2017 Loss events
As previously reported in the interim financial report,
significant uncertainty has existed regarding the loss events of
2017, with the industry continuing to experience growth in losses
from HIM and the California wildfires. The Company itself announced
that the Investment Manager had increased its recorded loss reserve
in relation to the 2017 events in April and November/December 2018
resulting in an equivalent 2017 NAV return on the Ordinary shares
of -61.43 per cent.
2018 Loss events
During 2018, the Investment Manager recorded total loss reserves
of c. 61.20 per cent across the following main loss events:
Loss Event Loss Reserve (per cent of C Shares)
--------------------------------- -------------------------------------
Typhoon Jebi c. 9.10 per cent
----------------------------------- -----------------------------------
Hurricane Florence and Hurricane c. 15.69 per cent
Michael
----------------------------------- -----------------------------------
California Wildfires c. 35.05 per cent
----------------------------------- -----------------------------------
Attritional loss reserves c. 1.23 per cent
----------------------------------- -----------------------------------
Whilst significant uncertainty exists when estimating reserves,
the Investment Manager has established initial 2018 loss event
reserves based on the information available including catastrophe
modeled data, industry insured loss estimates, and advice from
brokers and cedants whilst also factoring in further conservatism
following the industry wide learning from the loss development
experienced on 2017 loss events. The Investment Manager will
continue to review these specific reserves throughout 2019 and
beyond, and reminds Shareholders that the expected portfolio
exposure to 2018 loss events could change materially, resulting in
either an increase or decrease to reserves, after further
information has been made available.
Furthermore, as a result of the 2018 loss activity, the 2018
side pocket investments established represented c. 47 per cent of
the C Shares as at 31 December 2018.
2019 Outlook
With 2017 and 2018 being two of the four worst insured loss
years on record, the retrocessional reinsurance market has entered
into a period of hardening market conditions with reduced capacity
compared with previous years, leading to stronger product demand.
As a result, the Investment Manager has been able to build a
globally-diversified 2019 portfolio with improved reinsurance terms
and an enhanced return profile that is attractive to investors
seeking an alternative, non-correlated investment opportunity.
Separately, on the back of these two heavy loss years, the
entire ILS industry is currently navigating its way through new
challenges such as unprecedented amounts of trapped capital, loss
creep leading to severe loss development and a higher frequency of
events in recent years compared with the relatively benign period
between 2011 and 2016. Specifically as it relates to trapped
capital, the Investment Manager will continue to work closely with
its reinsurance counterparties in 2019 in the proactive management
of the side pocket investments in place and will seek to release
capital back to shareholders in a proactive, timely and orderly
manner.
Finally, given the recent decision by the Company's Shareholders
to put the existing portfolios into run-off, the Company will seek
to return expiring mid-year deal capital to its Shareholders post
mid-year risk expiration, which, subject to side pockets, will help
investors to gain capital back via an orderly portfolio redemption
process.
Jed Rhoads
Markel CATCo Investment Management Ltd.
18 April 2019
REVIEW OF BUSINESS
A review of the Company's activities is given in the Chairman's
Statement and in the Investment Manager's 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 Markel CATCo
Reinsurance Fund Ltd. (the "Master Fund") is to give their
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 Markel CATCo Re Ltd. (the
"Reinsurer"). The Company's investment policy appears below, and
the Investment Manager's Review appears above. Both explain 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 spreads 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 operates within the following limits:
-- no more than 20 per cent of its capital will be exposed to a single catastrophic event;
-- 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;
-- capital will be exposed to aviation and marine (including offshore energy) losses caused by catastrophes; and
-- at least 50 per cent of capital will be exposed to
residential and commercial property losses.
At 31 December 2018, 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 50 diversified 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 diversification is achieved.
A portfolio review by the Investment Manager is given in the
Investment Manager's Review.
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.
Share Capital
The Company's issued share capital at 1 January 2018 amounted to
391,666,430 Ordinary Shares and 545,367,863 C Shares.
On 21 September 2018, the Company completed a Share buyback of
1,000,000 C Shares for cancellation in the market.
The Company's issued share capital at 1 January 2019 amounted to
391,666,430 Ordinary Shares and 545,367,863 C Shares. That number
is unchanged as at the date of this announcement, 18 April
2019.
Total Assets and Net Asset Value
At 31 December 2018, the Company had Total Assets of $479.81mn
and a Net Asset Value per Ordinary and C Share of $0.3479 and
$0.6299 respectively.
Borrowing
The Company will not borrow for investment purposes, although it
may borrow for temporary cash ow purposes such as for satisfying
working capital requirements. The Master Fund and the CATCo 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 portfolio managed by Markel CATCo
Investment Management Limited consists of fully collateralised
reinsurance contracts 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.
Management of Risk
The Manager's risk objectives are closely linked to their
performance goals. They seek to optimise trade-offs to ensure that
they meet their return objectives, control the volatility of these
returns, track underlying liquidity and identify and manage
macro-factor risk.
The Board of Directors regularly reviews 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 Ordinary Shareholders for the
year amounted to -58.43 per cent (2017: -27.60 per cent) and -35.74
per cent for the C Shares.
An annual dividend of $0.05476 in respect of Ordinary Shares was
paid to Shareholders on 26 February 2018 as announced on 31 January
2018. The record date for this dividend was 9 February 2018 and
went ex-dividend on 8 February 2018.
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 per cent of the Net Asset
Value as at the end of the relevant Fiscal Year.
On 15 November 2017, the Company announced that the Board had
decided to enhance the dividend policy, and would consider paying
an additional special dividend (the "Special Dividend") from 2019
(in respect of the financial year ending 31 December 2018) onwards,
in relation to both the Ordinary and the C Shares.
The Special Dividend would be an amount equal to the level of
accumulated profits of each shares class in the relevant fiscal
year in excess of LIBOR plus 7.5 per cent (the "Performance
Threshold"). The Performance Threshold was not met during the
financial year ended 31 December 2018.
On 31 January 2019, the Company announced an annual dividend of
$0.0265 in respect of each of the Ordinary Shares, and an annual
dividend of $0.0445 in respect of each of the C Shares, for the
year to 31 December 2018, payable on 25 February 2019. The record
date for these dividends was 8 February 2019 and the ex-dividend
date 7 February 2019.
DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL
STATEMENTS
The Board is responsible for preparing the annual report and the
financial statements in accordance with applicable law and
regulations.
Company law requires the Board to prepare financial statements
for each financial year.
Under that law, the Board has 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 present fairly in all material
respects 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 is 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 Board is 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. The
Board is 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 Board considers that the 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, Markel CATCo Investment Management Ltd. The maintenance
and integrity of the website maintained by Markel CATCo Investment
Management Ltd. is, so far as it relates to the Company, the
responsibility of Markel CATCo Investment Management Ltd.
The Board is 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
Guidance, 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 management report (which consists of the
Chairman's Report, the Investment Manager's Review, the Strategic
Report and the Directors' Report) 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
18 April 2019
AUDITED STATEMENTS OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
(Expressed in United States Dollars) 31 Dec. 2018 31 Dec. 2017
$ $
Assets
Investments in Master Funds, at fair value
(Notes 2 and 5) 421,660,837 347,692,465
Cash and cash equivalents (Note 3) 3,602,153 22,393,414
Due from Master Funds (Note 9) 54,753,242 100,000
Advance subscription in Markel CATCo Reinsurance
Fund Ltd. - Markel CATCo Diversified Fund - 515,000,000
Other assets 9,000 40,618
Total assets 480,025,232 885,226,497
-------------------------------------------------- ------------- -------------
Liabilities
Accrued expenses and other liabilities 219,710 620,283
Total liabilities 219,710 620,283
-------------------------------------------------- ------------- -------------
Net assets 479,805,522 884,606,214
-------------------------------------------------- ------------- -------------
NAV per Share (Note 7)
See accompanying Notes to Audited Financial
Statements
AUDITED STATEMENTS OF operations
-----------------------------------------------------------------------------
Year ended Year ended
(Expressed in United States Dollars) 31 Dec. 2018 31 Dec. 2017
$ $
Net investment loss allocated from Master
Funds (Note 5)
Interest income 4,379,432 855,847
Miscellaneous income 48,815 -
Performance fee 44,409 (1,373)
Management fee (11,943,832) (6,678,874)
Administrative fee (610,031) (216,748)
Professional fees and other (582,276) (356,909)
--------------
Net investment loss allocated from Master
Funds (8,663,483) (6,398,057)
--------------------------------------------- -------------- --------------
Investment income
Interest 14,699 -
--------------------------------------------- --------------
Total investment income 14,699 -
--------------------------------------------- -------------- --------------
Company expenses
Professional fees and other (1,515,492) (1,629,446)
Administrative fee (Note 10) (137,417) (60,000)
Management fee (Note 9) (105,687) (66,234)
--------------
Total Company expenses (1,758,596) (1,755,680)
--------------------------------------------- -------------- --------------
Net investment loss (10,407,380) (8,153,737)
--------------------------------------------- -------------- --------------
Net realised (loss) / gain and net change
in unrealised (loss) / gain on securities
allocated from Master Funds (Note 5)
Net realised (loss) / gain on securities (95,399,760) 46,131,007
Net change in unrealised loss on securities (276,560,998) (172,074,933)
--------------
Net loss on securities allocated from
Master Funds (371,960,758) (125,943,926)
--------------------------------------------- -------------- --------------
Net decrease in net assets resulting
from operations (382,368,138) (134,097,663)
See accompanying Notes to Audited Financial
Statements
AUDITED STATEMENTS OF changes in net assets
-----------------------------------------------------------------------------
(Expressed in United States Dollars) Year ended Year ended
31 Dec. 2018 31 Dec. 2017
$ $
Operations
Net investment loss (10,407,380) (8,153,737)
Net realised (loss) / gain on securities
allocated from Master Funds (95,399,760) 46,131,007
Net change in unrealised loss on securities
allocated from Master Funds (276,560,998) (172,074,933)
-------------- --------------
Net decrease in net assets resulting
from operations (382,368,138) (134,097,663)
--------------------------------------------- -------------- --------------
Capital share transactions
Repurchase of Class C Shares (Note 7) (984,900) -
Dividend paid (Note 7) (21,447,654) (25,557,987)
Issuance of Ordinary Shares - 45,265,957
Issuance of C Shares - 546,367,863
Offering costs Ordinary Shares - (688,389)
Offering costs Class C Shares - (10,927,358)
Premium on issuance of shares - 626,666
-------------- --------------
Net (decrease) / increase in net assets
resulting from capital share transactions (22,432,554) 555,086,752
--------------------------------------------- -------------- --------------
Net (decrease) / increase in net assets (404,800,692) 420,989,089
-------------- --------------
Net assets, at 1 January 884,606,214 463,617,125
--------------------------------------------- -------------- --------------
Net assets, at 31 December 479,805,522 884,606,214
--------------------------------------------- -------------- --------------
See accompanying Notes to Audited Financial
Statements
AUDITED STATEMENTS OF cash flows
----------------------------------------------------------------------------------------
(Expressed in United States Dollars) Year ended Year ended
31 Dec. 2018 31 Dec. 2017
$ $
Cash flows from operating activities
Net decrease in net assets resulting from
operations (382,368,138) (134,097,663)
Adjustments to reconcile net decrease
in net assets resulting from operations
to net cash provided /(used in) operating
activities:
Net investment loss, net realised (loss)
/ gain and net change in unrealised
(loss) / gain on securities allocated
from Master Funds 380,624,241 132,341,983
Purchase of investment in Markel CATCo
Reinsurance Fund Ltd. - Markel CATCo
Diversified Fund * (557,003,000) (54,440,000)
Sale of investment in Markel CATCo Reinsurance
Fund Ltd. - Markel CATCo Diversified
Fund * 102,410,387 37,521,898
Changes in operating assets and liabilities:
Advance subscription in Markel CATCo Reinsurance
Fund Ltd. - Markel CATCo Diversified Fund 515,000,000 (515,000,000)
Due from related parties (54,653,242) (100,000)
Other assets 31,618 (20,361)
Accrued expenses and other liabilities (400,573) 143,145
---------------- ---------------
Net cash provided by / (used in) operating
activities 3,641,293 (533,650,998)
----------------------------------------------------- ---------------- ---------------
Cash flows from financing activities
Repurchase of Class C Shares (984,900) -
Dividend paid (21,447,654) (25,557,987)
Issuance of Ordinary Shares - 45,265,957
Issuance of Class C Shares - 546,367,863
Offering costs Ordinary Shares - (688,389)
Offering costs Class C Shares - (10,789,256)
Premium on issuance of Ordinary Shares - 626,666
----------------------------------------------------- ---------------- ---------------
Net cash (used in) /provided by financing
activities (22,432,554) 555,224,854
----------------------------------------------------- ---------------- ---------------
Net (decrease) / increase in cash and
cash equivalents (18,791,261) 21,573,856
----------------------------------------------------- ---------------- ---------------
Cash and cash equivalents, at 1 January 22,393,414 819,558
----------------------------------------------------- ---------------- ---------------
Cash and cash equivalents, at 31 December 3,602,153 22,393,414
----------------------------------------------------- ---------------- ---------------
*Non - cash transactions relating to purchases and sales of investment
in Markel CATCo Diversified Fund amounted to $202,514,410 and
$202,514,410, respectively.
See accompanying Notes to Audited Financial Statements
NOTES TO THE AUDITED FINANCIAL STATEMENTS
31 DECEMBER 2018
(Expressed in United States Dollars)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
CATCo Reinsurance Opportunities Fund Ltd. (the "Company") is a
closed-ended mutual fund company, registered and incorporated as an
exempted mutual fund company under the laws of Bermuda on 30
November 2010, which commenced operations on 20 December 2010. The
Company is organised as a feeder fund to invest substantially all
of its assets in Markel CATCo Diversi ed Fund (the "Master Fund").
The Master Fund is a segregated account of Markel 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"). Markel CATCo
Reinsurance Fund Ltd. establishes a separate account for each class
of shares comprised in each segregated account (each, a "SAC
Fund"). Each SAC Fund is a separate individually managed pool of
assets constituting, in effect, a separate fund with its own
investment objective and policies. The assets attributable to each
SAC Fund of Markel CATCo Reinsurance Fund Ltd. shall only be
available to creditors in respect of that segregated account.
Pursuant to an investment management agreement, the Company is
managed by Markel CATCo Investment Management Ltd. (the "Investment
Manager"), a Bermuda based limited liability company that is
subject to the ultimate supervision of the Company's Board of
Directors (the "Board"). The Investment Manager is responsible for
all of the Company's investment decisions. The Investment Manager
commenced operations on 8 December 2015 and entered into a Run-Off
Services Agreement with CATCo Investment Management Limited
("CIML"), under which the Investment Manager will provide services
relating to the management of the run-off business of CIML.
The objective of the Master Fund is to provide shareholders the
opportunity to participate in the investment returns of various
fully-collateralised reinsurance-based instruments, securities
(such as notes, swaps and other derivatives), and other nancial
instruments. The majority of the Master Fund's exposure to
reinsurance risk is obtained through its investment (via preference
shares) in Markel CATCo Re Ltd. (the "Reinsurer"). The Company also
maintains an investment in CATCo Diversified Fund, the former
Master Fund, (together with the Master Fund collectively referred
to as "the Master Funds"), which is exposed to reinsurance risk
through its preference shares investment in CATCo-Re Ltd. At 31
December 2018, the Company's ownership is 17.44 per cent of the
Master Fund and 13.93 per cent of CATCo Diversified Fund.
The Reinsurer and CATCo-Re Ltd., (together the "Reinsurers") are
Bermuda licensed Class 3 reinsurance companies, registered as
segregated accounts companies under the SAC Act, through which the
Master Funds access the majority of their reinsurance risk
exposure. The Reinsurers will form a segregated account that
corresponds solely to the Master Funds' investment in the
Reinsurers with respect to each particular reinsurance agreement.
The Reinsurers focus primarily on property catastrophe insurance
and may be exposed to losses arising from hurricanes, earthquakes,
typhoons, hailstorms, winter storms, oods, tsunamis, tornados,
windstorms, extreme temperatures, aviation accidents, res,
wildfires, explosions, marine accidents, terrorism, satellite,
energy and other perils.
The Company's Ordinary Shares and C Shares are listed and traded
on the Specialist Fund Segment of the Main Market of the London
Stock Exchange. The Company's Ordinary and C Share are also listed
on the Bermuda Stock Exchange.
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
("U.S. GAAP"). The Company is an investment company and follows the
accounting and reporting guidance contained within Topic 946,
"Financial Services Investment Companies", of the Financial
Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC").
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 six months or less.
Valuation of Investments in Master Funds
The Company records its investments in the Master Funds at fair
value based upon an estimate made by the Investment Manager, in
good faith and in consultation or coordination with Centaur Fund
Services (Bermuda) Limited (the "Administrator"), as defined in
Note 10, 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
value 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 financial 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.
Fair Value - Definition and Hierarchy (Master Funds)
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 both
Board of Directors of each of the respective Master Funds (the
"Board of the Master Funds") 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 Funds
have 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 Funds' 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 Funds use 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 Funds)
i. The value of preference shares issued by the Reinsurers and
subscribed for by the Master Funds and held with respect to a
reinsurance agreement will equal:
ii. the amount of capital invested in such preference shares; plus
iii. the amount of net earned premium (as described below) that
has been earned period-to-date for such contract; plus
iv. 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
v. the amount of any loss estimates associated with potential
claims triggering covered events (see "Covered Event Estimates"
below); minus
vi. the amount of any risk margin considered necessary to
reflect uncertainty and to compensate a market participant for
bearing the uncertainty of cash flows in an exit of the reinsurance
transaction.
Reinsurance Protections
Included within the Master Fund's investment in the Reinsurer
are certain preference shares issued by the Reinsurer and
subscribed for by the Master Fund in relation to reinsurance
purchased specifically to meet the desired level of risk as set out
in the Company's investment strategy ("Reinsurance Protections").
The underlying premiums are amortised over the duration of the
contracts.
Derivative Financial Instruments
The Master Funds invest in derivative financial instruments such
as industry loss warranties ("ILWs"), which are recorded at fair
value as at the reporting date. Realised and unrealised gains or
losses in fair values are included in net gain on securities in the
Statements of Operations in the year in which the changes
occur.
The fair value of derivative financial instruments at the
reporting date generally reflects the amount that the Master Funds
would receive or pay to terminate the contract at the reporting
date. These derivative financial instruments used by the Master
Funds are fair valued similar to preference shares held with
respect to reinsurance agreements, unless otherwise unavailable,
except that following a Covered Event (as defined below), loss
information from the index provider on the trade will be used.
Investments in Securities held by the Reinsurers
Earned Premiums
Premiums are considered earned with respect to computing the
Master Funds' net asset value in direct proportion to the per
centage of the risk that is deemed to have expired year-to-date.
Generally, all premiums, net of acquisition costs, are 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
recognition of certain instruments, 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.
Covered Event Estimates
The Investment Manager provides monthly loss estimates of all
incurred loss events ("Covered Events") potentially affecting
investments relating to a retrocessional reinsurance agreement of
the Reinsurers to the Administrator for review. As the Reinsurers'
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 Funds
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 the
Administrator, as defined in Note 10, 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 Funds, 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 Funds' 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
management and performance fee.
At any given time, a substantial portion of the Master Funds'
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 Pocket Investments
The Board of the Master Fund, in consultation with the
Investment Manager, may classify certain Insurance-Linked
Instruments as Side Pocket Investments in which only investors who
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
of losses once a Covered Event has occurred under an
Insurance-Linked Instrument is often both a highly uncertain and a
protracted process. When a Side Pocket Investment is established,
the Master Fund converts a corresponding portion of each investor's
Ordinary Shares into Side Pocket Shares (Note 7).
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 Funds'
income, expenses, realised and unrealised gains and losses on
investment in securities on a monthly basis. In addition, the
Company incurs and accrues its own income and expenses.
Investment transactions of the Master Funds 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 income and expense are 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
gain 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 of Bermuda, under the Exempted Undertakings Tax
Protection Act 1966 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 per cent 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 2018. 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 tax-related interest expense or penalties have
been recognised as of and for the years ended 31 December 2018 and
2017.
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 United
States 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 United States federal
or foreign tax laws. The Company was not subjected to any tax
examinations during the years ended 31 December 2018 and 2017.
Use of Estimates
The preparation of Financial Statements in conformity with U.S.
GAAP requires the Company's management to make estimates and
assumptions that affect the reported 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
against paid-in capital and the Company's existing cash reserves as
incurred.
Premium and Discount on Share Issuance
Issuance of shares at a price in excess of the NAV per share at
the transaction date results in a premium and is recorded as
paid-in capital. Discounts on share issuance are treated as a
deduction from paid-in capital.
Other Matters
Markel CATCo Governmental Inquiries
On 6 December 2018, Markel Corporation reported that the U.S.
Department of Justice, U.S. Securities and Exchange Commission and
Bermuda Monetary Authority (collectively, the "Governmental
Authorities") are conducting inquiries (the "Markel CATCo
Inquiries") into loss reserves recorded in late 2017 and early 2018
at the Investment Manager and its subsidiaries (collectively,
"Markel CATCo"). These inquiries are limited to Markel CATCo and do
not involve Markel Corporation or its other subsidiaries.
Markel Corporation previously disclosed it had retained outside
counsel to conduct an internal review of Markel CATCo's loss
reserving in late 2017 and early 2018. The internal review has
recently been completed. The internal review conducted by outside
counsel found no evidence that Markel CATCo personnel acted in bad
faith in exercising business judgment in the setting of reserves
and making related disclosures during late 2017 and early 2018.
Markel Corporation's outside counsel has met with the Governmental
Authorities and reported the findings from the internal review. The
Markel CATCo Inquiries are ongoing and Markel Corporation and the
Investment Manager continue to fully co-operate with them. Markel
Corporation cannot currently predict the duration, scope or result
of the Markel CATCo Inquiries.
Revised class action litigation:
David Bergen v. Markel Corporation et al. (U.S. District Court
for the Southern District of New York)
Between 11 January 2019 and 7 March 2019, several related
putative class actions were filed against Markel Corporation and
certain present or former officers and directors alleging
violations of the federal securities laws relating to the matters
that are the subject of the Markel CATCo Inquiries. Plaintiffs seek
to represent a class of persons or entities that purchased Markel
securities between 26 July 2017 and 6 December 2018. The actions
have been consolidated. Markel Corporation believes that the claims
are without merit.
Revised employment litigation:
Anthony Belisle v. Markel CATCo Investment Management Ltd and
Markel Corp. (U.S. District Court for the District of New
Hampshire)
On 21 February 2019, Anthony Belisle filed a lawsuit against
Markel CATCo and Markel, which suit was amended on 29 March 2019.
As amended, the complaint alleges claims for, among other things,
breach of contract, defamation, invasion of privacy,
indemnification, intentional interference with contractual
relations and deceptive and unfair acts. It seeks relief of, among
other things, $66.0 million in incentive compensation,
consequential damages, damages for emotional distress and injury to
reputation, exemplary damages and attorneys' fees. Markel
Corporation believes that the claims are without merit.
Alissa Fredricks v. Markel CATCo Investment Management Ltd. and
Markel Corp. (U.S. District Court for the District of
Massachusetts)
On 21 February 2019, Alissa Fredricks filed a lawsuit against
Markel CATCo and Markel, which suit was amended on 28 March 2019.
As amended, the complaint alleges claims for, among other things,
breach of contract, defamation, invasion of privacy,
indemnification, intentional interference with contractual
relations and deceptive and unfair acts. It seeks relief of, among
other things, $7.5 million in incentive compensation, consequential
damages, damages for emotional distress and injury to reputation,
exemplary damages and attorneys' fees. Markel Corporation believes
that the claims are without merit.
2. SCHEDULE OF THE COMPANY'S SHARE OF THE INVESTMENTS HELD IN
THE MASTER FUNDS AND FAIR VALUE MEASUREMENTS
The following table re ects the Company's proportionate share of
the fair value of investments in the Reinsurers held by the Master
Funds at 31 December 2018.
Preference Shares - Investments in Markel CATCo $ Fair Value
Re Ltd.
Class A 103,768
Class D 2,417,341
Class I 586,783
Class J 614,610
Class L 925,507
Class P 843,528
Class Q 762,055
Class R 864,852
Class S 2,397,414
Class U 733,302
Class V 43,120
Class Y 633,997
Class Z 1,440,478
Class BB 1,048,149
Class BE 2,401,646
Class BQ 2,855,235
Class BR 1,425,595
Class BS 163,836
Class BX 266,348
Class BY 7,200,356
Class BZ 850,535
Class CA 1,748,880
Class CB 2,320,691
Class CC 9,803,693
Class CD 1,500,498
Class CE 4,244,438
Class CF 384,024
Class CI 1,630,315
Class CJ 1,481,397
Class CK 893,299
Class CL 2,447,415
Class CM 1,250,837
Class CO 2,561,206 *
Class CQ 6,291,832
Class CS 1,647,043
Class CT 608,332
Class CV 4,806,287
Class CW 258,495
Class CX 2,727,788
Class DB 5,513,162
Class DC 4,771,705
Class DD 1,733,317
Class DE 17,049,896
Class DF 1,095,183
Class DG 334,205
Class DH 3,652,951
Class DI 2,435,301
Class DJ 7,705,404
Class DK 3,691,777
Class DL 1,856,695
Class DM 5,436,780
Class DN 4,831,869
Class DO 24,677,403
Class DP 5,940,954
Class DQ 2,036,839
Class DR 23,593,635
Class DS 4,190,163
Class DT 8,886,588
Class DU 4,494,015
Class DV 2,675,629
Class DW 1,284,023
Class DX 2,675,901
Class DY 138,796
Class DZ 7,611,953
Class EA 21,442,081
Class EB 5,344,165
Class EC 14,226,214
Class ED 2,500,323
Class EE 7,109,271
Class EF 3,567,759
Class EG 3,526,088
Class EH 2,236,837
Class EI 2,318,862
Class EJ 1,719,057
Class EK 28,168
Class EL 55,872
Class EM 2,353,816
Class EN 336,469
Class EO 4,133,355
Class EP 1,372,110
Class EQ 1,927,042
Class ER 2,509,874
Class ES 3,346,013
Class ET 1,418,330
Class EU 14,028,813
Class EV 5,008,632
Class EW 4,420,241
Class EX 5,256,395
Class EY 945,602
Class EZ 1,469
Class BBM 4,811
Class BBN 1,503
Expense Cell 19,584
------------------------------------------------- ------------
Total Investments in Markel CATCo Re Ltd. $334,657,825
------------------------------------------------- ------------
Preference Shares - Investments in CATCo-Re Ltd. $ Fair Value
Class DV 256,688
------------------------------------------------- ------------
Total Investments in CATCo-Re Ltd. $256,688
------------------------------------------------- ------------
Total Investments in Preference Shares $334,914,513
------------------------------------------------- ------------
*Fair value of Class CO includes rated paper of $1,198,600 which
was released on January 1, 2019.
The following table re ects the Company's proportionate share of
the fair value of investments in the Reinsurers held by the Master
Funds at 31 December 2017.
Preference Shares - Investments in Markel CATCo $ Fair Value
Re Ltd.
Class A 1,155,227
Class B 4,079,104
Class D 4,538,516
Class E 1,848,506
Class F 4,602,089
Class H 103,750
Class I 952,936
Class J 611,923
Class K 919,730
Class L 921,522
Class M 1,379,548
Class N 901,043
Class O 1,533,743
Class P 5,406,226
Class Q 766,078
Class R 327,599
Class S 8,474,513
Class U 979,442
Class V 192,343
Class Y 637,123
Class Z 2,407,285
Class BA 814,211
Class BB 1,007,976
Class BC 831,679
Class BE 600,399
Class BM 1,171,335
Class BN 2,348,975
Class BO 2,355,958
Class BQ 2,597,739
Class BR 1,265,990
Class BS 85,616
Class BW 2,345,213
Class BX 536,335
Class BY 13,163,527
Class BZ 19,117,771
Class CA 4,815,954
Class CB 26,741,990
Class CC 22,580,368
Class CD 3,945,663
Class CE 7,423,112
Class CF 4,045,010
Class CG 854,363
Class CH 18,918,754
Class CI 3,538,019
Class CJ 5,997,536
Class CK 3,879,779
Class CL 4,086,112
Class CM 3,818,574
Class CN 2,933,690
Class CO 10,483,680
Class CP 6,472,549
Class CQ 6,843,757
Class CR 3,208,291
Class CS 5,456,695
Class CT 5,681,549
Class CU 1,603,055
Class CV 7,063,007
Class CW 2,709,492
Class CX 24,662,043
Class CY 2,669
Class CZ 2,669
Class AW 6,000,000
Class AX 8,400,000
Class AY 8,400,000
Class AZ 8,400,000
Expense Cell 92,291
--------------------------------------------------- ------------
Total Investments in Markel CATCo Re Ltd. $310,041,637
--------------------------------------------------- ------------
Preference Shares - Investments in CATCo-Re Ltd. $ Fair Value
Class AE 1,462,096
Class AF 893,636
Class BJ 1,406,969
Class BW 17,700
Class DC 584,590
Class DE 149,646
Class DF 879,421
Class DG 227,006
Class DL 968,287
Class DM 146,587
Class DN 1,158,063
Class DV 417,182
--------------------------------------------------- ------------
Total Investments in CATCo-Re Ltd. $8,311,183
--------------------------------------------------- ------------
Investments in Markel CATCo-Re Ltd. - Aquilo Re $ Fair Value
Class AQ002 27,660
Class AQ003 11,205
--------------------------------------------------- ------------
Total Investments in Markel CATCo-Re Ltd. - Aquilo
Re $38,865
--------------------------------------------------- ------------
Total Investments in Preference Shares $318,391,685
--------------------------------------------------- ------------
Included within the Company's investment in the Master Funds is
cash and cash equivalents held in trust by the Master Funds
representing the Company's proportionate share of derivative
transactions entered into by the Master Funds amounting to
approximately $177,105,183 as of 31 December 2018 (31 December
2017: $113,652,588).
The preference shares relating to Reinsurance Protections are
valued at nil (31 December 2017: $31,200,000) representing the
unamortised portion of premium paid and claims recoverable as at 31
December 2018.
As at 31 December 2018, 57.50 per cent of total investments held
by the Master Funds are classified as Side Pocket Investments (31
December 2017: 66.16 per cent).
In accordance with FASB ASC Sub-topic 820-10, certain
investments that are measured at fair value using the net asset
value per share (or its equivalent) practical expedient are not
required to be classified within the fair value hierarchy. As the
Company's investments as at 31 December 2018 comprised solely of
investments in other investment companies, the Master Funds, which
are valued using the net asset value per share (or its equivalent)
practical expedient, no fair value hierarchy has been
disclosed.
The Company considers all short-term investments with daily
liquidity as cash equivalents and are classified as Level 1 within
the fair value hierarchy. No cash equivalents were held as at 31
December 2018 (31 December 2017: nil).
The table below summarises information about the signi cant
unobservable inputs used in determining the fair value of the
Master Funds' Level 3 assets:
Type of Investment Valuation Unobservable Input Range
Technique
-------------------- ---------------- ---------------------------------- -----------------
Preference Premium earned Premiums earned - straight 12 months
Shares line for uniform perils
---------------- ---------------------------------- -----------------
Premiums earned - seasonality 5 to 6 months
adjusted for non-uniform perils
---------------- ---------------------------------- -----------------
Loss reserves Loss reserves* 0 to contractual
limit
---------------- ---------------------------------- -----------------
Risk margin Risk margin 0% to 15%
* Based on proprietary models and historical loss analysis data
as well as assessments from counter-parties.
As described in Note 6, signi cant increases or decreases in
loss reserves of the Reinsurers would result in a signi cantly
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 reinsurance
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 2018 and 2017, cash and cash
equivalents are held with HSBC Bank Bermuda Ltd. which has a credit
rating of A-/A-2 as issued by Standard & Poor's.
4. CONCENTRATION OF REINSURANCE RISK
The following table illustrates the diversi ed risk pro le of
the Reinsurer's portfolio by geography and peril as at 31 December
2018 and 2017. Reinsurance Protections purchased specifically to
meet the desired level of risk as set out in the Company's
investment strategy have not been considered.
Geographic Distribution 2018 2017
================================================================================ ====== ====
1 North America/Caribbean 43% 44%
======================= ======================================================= ====== ====
2 All Other 22% 17%
======================= ======================================================= ====== ====
3 Europe 9% 10%
======================= ======================================================= ====== ====
4 Global Backup Protection 5% 6%
======================= ======================================================= ====== ====
5 Japan 6% 6%
======================= ======================================================= ====== ====
6 Worldwide Marine/Energy/ Terrorism/Aviation/Satellite 6% 6%
======================= ======================================================= ====== ====
7 Mexico/Central America/ South America 4% 5%
======================= ======================================================= ====== ====
8 Australia/New Zealand 3% 4%
======================= ======================================================= ====== ====
9 Asia Excluding Japan 2% 2%
======================= ======================================================= ====== ====
Exposure by Risk Peril 2018 2017
========================= ======================================================= ==========
1 Wind 31% 38%
======================= ======================================================= ====== ====
2 Earthquake 15% 18%
======================= ======================================================= ====== ====
3 Backup Protection 10% 14%
======================= ======================================================= ====== ====
4 All Natural Perils 24% 10%
======================= ======================================================= ====== ====
5 Marine/Energy/Aviation/ Satellite 5% 4%
======================= ======================================================= ====== ====
6 Winterstorm/ Wildfire 5% 4%
======================= ======================================================= ====== ====
7 Severe Convective Storm 5% 4%
======================= ======================================================= ====== ====
8 Other 2% 4%
======================= ======================================================= ====== ====
9 Terrorism 1% 2%
----------------------- ------------------------------------------------------- ------ ----
10 Flood 2% 2%
======================= ======================================================= ====== ====
5. INVESTMENTS IN MASTER FUNDS, AT FAIR VALUE
The following tables summarises the Company's Investments in the
Master Funds:
31 Dec. 2018 31 Dec. 2017
Investment in Markel CATCo Reinsurance
Fund Ltd. -
Markel CATCo Diversified Fund, at
fair value $ 421,184,607 $ 338,085,861
Investment in CATCo Reinsurance Fund
Ltd. -
CATCo Diversified Fund, at fair
value 476,230 9,606,604
Investments in Master Funds, at fair
value $ 421,660,837 $ 347,692,465
--- ------------ ------------
The net investment loss allocated from the Master Funds, and the
net realised loss and net change in unrealised loss on securities
allocated from the Master Funds in the Statements of Operations
consisted of the combined results from the Company's Investments in
the Master Funds as detailed below:
(Expressed in 2018 2017
United 2018 Investment 2017 Investment
States Dollars) Investment in CATCo Investment in CATCo
in Master Diversified in Master Diversified
Fund Fund 2018 Total Fund Fund 2017 Total
Net investment
loss
allocated from
Master
Funds
Interest income $ 4,379,432 $ - $ 4,379,432 $ 855,847 $ - $ 855,847
Miscellaneous
income 48,815 - 48,815 - - -
Management fee (11,875,542) (68,290) (11,943,832) (6,516,021) (162,853) (6,678,874)
Performance fee
(a) - 44,409 44,409 (1,373) - (1,373)
Professional
fees
and other (561,615) (20,661) (582,276) (346,146) (10,763) (356,909)
Administrative
fee (598,197) (11,834) (610,031) (200,983) (15,765) (216,748)
Net investment
loss
allocated from
Master
Funds $ (8,607,107) $ (56,376) $ (8,663,483) $ (6,208,676) $ (189,381) $ (6,398,057)
------------- ----------- ------------- ------------- ------------ -------------
Net realised
(loss)
/ gain on
securities
(b) $ (97,171,593) $ 1,771,833 $ (95,399,760) $ 44,749,677 $ 1,381,330 $ 46,131,007
Net change in
unrealised
loss on
securities
(c) (274,862,795) (1,698,203) (276,560,998) (170,924,879) (1,150,054) (172,074,933)
-------------
Net (loss) /
gain
on securities
allocated
from Master
Funds $(372,034,388) $ 73,630 $ (371,960,758) $(126,175,202) $ 231,276 $ (125,943,926)
------------- ----------- ------------- ------------- ------------ -------------
a) Performance fee relates to SPI releases during 2018 following
commutation of a legacy CATCo Re Ltd. deal resulting in a reversal
of previously accrued performance fees.
b) Includes gross realised gain on securities of: 2018:
$39,425,416 (2017: $59,362,678 ) and gross realised loss on
securities of: 2018: $134,825,175 (2017: $13,231,671 )
c) Includes gross change in unrealised gain on securities of:
2018: $205,021,413 (2017: $49,629,713) and gross change in
unrealised loss on securities of 2018: $481,582,411 (2017:
$221,704,646 )
6. LOSS RESERVES
The following disclosures on loss reserves are included for
information purposes and relate speci cally to the Reinsurers and
are re ected through the valuations of investments held by the
Company.
The reserve for unpaid losses and loss expenses recorded by the
Reinsurers includes estimates for losses incurred but not reported
as well as losses pending settlement. The Reinsurers make 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 Reinsurers use proprietary models and historical
loss analysis data as well as assessments from counter-parties to
estimate the level of reserves required. The process of estimating
loss reserves is a complex exercise, involving many variables and a
reliance on actuarial modeled catastrophe loss analysis. However,
there is no precise method for evaluating the adequacy of loss
reserves when industry loss estimates are not final, and actual
results could differ from original estimates.
In addition, the Reinsurers' reserves include an implicit risk
margin to reflect uncertainty surrounding cash flows relating to
loss reserves. The risk margin is set by the actuarial team of
Markel CATCo Investment Management Ltd.
Future adjustments to the amounts recorded as of year-end,
resulting from the continual review process, as well as differences
between estimates and ultimate settlements, will be re ected in the
Reinsurers' Statements 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.
The Reinsurer's loss reserves for losses pertaining to Hurricane
Michael, Typhoon Jebi and the 2018 California Wildfires represent
the Insurance Manager's current best estimate of ultimate
settlement values. The reserves are subject to inherent uncertainty
due to industry loss estimates varying from final insured losses.
The timing and the amount of losses reported to the Reinsurer is in
the control of third parties, and has a direct effect on loss
reserves, which may require re-estimation as new information
becomes available over time.
The Insurance Manager believes that the total loss reserve
established for the 2017 loss events is sufficient to provide for
all unpaid losses and loss expenses with respect to Hurricanes
Harvey, Irma and Maria ("HIM") and the California Wildfires, based
on the information currently available. Inherent uncertainty with
regard to the final insured loss impact of the 2017 loss events
continues. Therefore, actual results may materially differ if
actual reinsured client losses differ from the established loss
reserves. The significant uncertainty underlying the industry loss
estimates could result in the need to further adjust loss reserves,
either in the event that reserves are found to be insufficient or,
conversely, if loss reserves are found to be too conservative.
As part of the ongoing reserving process, the Insurance Manager
reviews loss reserves on a monthly basis and will make adjustments,
if necessary and such future adjustments in loss reserves could
have further material impact either favourably or adversely on
investor earnings.
As at 31 December 2018, 2018 Side Pocket Investments amounting
to 21 per cent of the Ordinary Share NAV and 47 per cent of the C
Share NAV were established. Furthermore, as at 31 December 2018,
the 2016 Side Pocket Investments and 2017 Side Pocket Investments
represent 11% and 42% of Ordinary Share NAV respectively. The Side
Pocket Investments reflect 100 per cent of any potential liability
that may exist with the Reinsurer's counterparties in excess of the
loss reserves held by the Reinsurer. These Side Pocket Investments
will be released should they no longer be required by the
reinsurance counterparties.
During 2018, the Reinsurer paid claims of $1,457,255,573 (31
December 2017: $400,161,779) predominantly in relation to HIM and
the 2017 California wildfire events. CATCo-Re Ltd. paid claims of
$13,550,705 (31 December 2017: $1,889,027) predominantly in
relation to U.S. Severe Convective Storm events.
7. CAPITAL SHARE TRANSACTIONS
As of 31 December 2018, the Company has authorised share capital
of 1,500,000,000 (31 December 2017: 1,500,000,000) unclassified
shares of US$0.0001 each and Class B Shares ("B Shares") of such
nominal value as the Board may determine upon issue.
As of 31 December 2018, the Company has issued 391,666,430 (31
December 2017: 391,666,430) Class 1 Ordinary shares (the "Ordinary
Shares") and 545,367,863 (31 December 2017: 546,367,863) Class C
Shares (the "C Shares").
Transactions in shares during the year, shares outstanding, the
net asset value ("NAV") and NAV per share are as follows:
31 December
2018
Adjustment
following Ending
Beginning Share Capital Share Ending Ending NAV Per
Shares Consolidation Share Issuance Repurchase Shares Net Assets Share
-------------- ----------- ------------- -------------- ------------- ----------- ----------- --------
Class 1
Ordinary
Shares 391,666,430 - - - 391,666,430 $136,259,360 $ 0.3479
Class C Shares 546,367,863 - - (1,000,000) 545,367,863 $343,546,162 $ 0.6299
----------- ------------- -------------- ------------- ----------- ----------- --------
$479,805,522
-----------
31 December
2017
Beginning Adjustment Share Issuance Share Ending Ending Ending
Shares following Repurchase Shares Net Assets NAV Per
Share Capital Share
Consolidation
-------------- ----------- ------------- -------------- ------------- ----------- ----------- --------
Class 1
Ordinary
Shares 273,224,673 82,835,718 35,606,039 - 391,666,430 $349,165,708 $ 0.8915
Class C Shares 102,510,018 (102,510,018) 546,367,863 - 546,367,863 $535,440,506 *$ 0.9800
----------- ------------- -------------- ------------- ----------- ----------- --------
$884,606,214
-----------
* Net issuance cost costs of $10,927,358
The Company has been established as a closed-ended mutual fund
and, as such, shareholders do not have the right to redeem their
shares. The shares are held in trust by Link Market Services (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.
The Board has the ability to issue one or more classes of C
Share 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 Pocket Investments exist will be as one or more classes of C
Share 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 31 January 2018, the Board declared a nal dividend of
$0.05476 per share in respect of the Ordinary Shares. The record
date for this dividend was 9 February 2018 and the ex-dividend date
was 8 February 2018. The final dividend was paid to shareholders on
26 February 2018.
On 1 April 2018, the Board approved the termination of the CATCo
Diversified Fund 2014 Side Pocket Investment. The related net asset
value was released to investors.
On 21 September 2018, the Company completed a Share buyback of
1,000,000 C Shares for cancellation in the market at an average
price of USD 0.9800 per share, resulting in a total amount paid
including commission of $984,900.
8. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to the Investment Management Agreement dated 8 December
2015, 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. The Investment Manager
earns a fee for such services (Note 9).
The Investment Manager also acts as the Master Fund's investment
manager and the Reinsurer's insurance manager. CIML is the
investment manager of CATCo Diversified Fund and also acts as
CATCo-Re Ltd.'s insurance manager.
9. RELATED PARTY TRANSACTIONS
The Investment Manager is entitled to a management fee,
calculated and payable monthly in arrears equal to 1/12 of 1.5 per
cent of the net asset value, which is not attributable to the
Company's investment in the Master Funds' shares as at the last
calendar day of each calendar month. Management fees related to the
investment in the Master Funds shares are charged in the Master
Funds and allocated to the Company. Performance fees are charged in
the Master Funds and allocated to the Company.
Markel Corporation ("Markel"), which holds the entire share
capital of the Investment Manager, holds 5.16 per cent (31 December
2017: 5.16 per cent) of the voting rights of the Ordinary Shares
and 0 per cent (31 December 2017: 0 per cent) of the voting rights
of the C Shares issued in the Company as of 31 December 2018.
In addition, the Directors of are also shareholders of the
Company. The Directors' holdings are immaterial, representing below
1 per cent of the Company NAV.
As at 31 December 2018, the Company was due a receivable of
$2,297,959 from CATCo Diversified Fund 2015 Side Pocket Investment
release and $52,455,283 from Markel CATCo Diversified Fund
inclusive of 2016 and 2017 Side Pocket Investment releases and year
end redemptions.
10. ADMINISTRATIVE FEE
Effective 19 January 2018, the Board of Directors approved the
appointment of Centaur Fund Services (Bermuda) Limited as the
Company's administrator. As a licensed fund administrator pursuant
to the provisions of the Bermuda Investment Funds Act, the
Administrator performs certain administrative services on behalf of
the Company. The Administrator receives a xed monthly fee.
The Company's agreement with former administrator, SS&C Fund
Services (Bermuda) Ltd. officially expired on 30 April 2018. For
the nine-month period ending 30 April 2018, the Company incurred
administrative fees from SS&C Fund Services (Bermuda) Ltd. and
the Administrator for parallel administrative services to ensure
the smooth onboarding of the Company onto the Administrator's
platform.
11. FINANCIAL HIGHLIGHTS
Financial highlights for the years ended 31 December 2018 and
2017 are as follows:
2018 2017
--------------------------- --- -----------------------------
Class Class Class Class
1 Ordinary C Shares 1 Ordinary C Shares
Shares Shares
----------- --- --------- ----------- ----- ---------
Per share operating performance
Net asset value, beginning
of year $ 0.8915$ 0.9800 $ 1.3024$ 1.0000
Income (loss) from investment
operations:
Net investment loss - 0.0027 (0.0040) -
Performance fee* 0.0001 - (0.0004) -
Management fee (0.0100) (0.0147) (0.0177) -
Net (loss) gain on investments (0.4789) (0.3381) (0.3168) -
----------------------------------- ----------- --- --------- ----------- ----- ---------
Total from investment
operations $ (0.4888) (0.3501) $ (0.3389) 0.0000
----------------------------------- ----------- --- --------- ----------- ----- ---------
Dividend (0.0548) - (0.0718) -
Premium on issuance - - 0.0016 -
Offering cost - - (0.0018) (0.0200)
----------------------------------- ----------- --- --------- ----------- ----- ---------
Net asset value, end of
year $ 0.3479$ 0.6299 $ 0.8915$ 0.9800
----------------------------------- ----------- --------- ----------- ---- ---------
Total net asset value
return
Total net asset value
return before performance
fee (54.84)% (35.75) % (26.00)% -%
Performance fee* 0.01% - % (0.03)% -%
----------------------------------- ----------- --------- ----------- ---- ---------
Total net asset value
return after performance
fee (54.83) % ^ (35.75) % (26.03) % (+) -%
----------------------------------- ----------- --- --------- ----------- ----- ---------
Ratios to average net
assets
Expenses other than performance
fee (1.75)% (1.34) % (2.09)% -%
Performance fee* 0.02% - % 0.08% -%
Total expenses after performance
fee (1.73)% (1.34) % (2.01)% -%
----------------------------------- ----------- --------- ----------- ---- ---------
Net investment loss (1.11)% (1.22) % (1.70)% -%
----------------------------------- ----------- --------- ----------- ---- ---------
+ Adjusting the opening capital to reflect the dividend declared
on 26 January 2017, the normalised total return for 2017 is
equivalent to
-27.59 per cent
^ Adjusting the opening capital to reflect the dividend declared
on 31 January 2018, the normalised total return for 2018 is
equivalent to
-58.43 per cent
* The performance fee is charged in the Master Funds and relates
to crystalized performance fee on Side Pocket investments
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 2018 and
2017. The per share amounts and ratios re ect income and expenses
allocated from the Master Funds.
12. INDEMNITIES 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.
13. SUBSEQUENT EVENTS
On 18 January 2019, the Company announced that, with immediate
effect, Tony Belisle, Chief Executive Officer, and Alissa
Fredricks, Chief Executive Officer - Bermuda, were no longer
employed by the Investment Manager. With effect from 18 January
2019, management and oversight of the Investment Manager is being
provided by Jed Rhoads, President and Chief Underwriting Officer,
Markel Global Reinsurance, and Andrew Barnard, Senior Managing
Director, Head of International Property Catastrophe and Retro
Reinsurance at Markel Global Reinsurance.
On 31 January 2019, the Board declared an annual dividend of
$0.0265 per share in respect of the Ordinary Shares and $0.0445 per
share in respect of C Shares. The record date for this dividend was
8 February 2019 and the ex-dividend date was 7 February 2019. The
annual dividend was paid to shareholders on 25 February 2019.
On 11 March 2019, the Board announced its decision to consent to
a waiver of 33.3334 per cent (one-third) of the management fee paid
to the Investment Manager in respect of side pocket investments.
The reduction resulting from the waiver will have effect from 1
January 2019 until 31 December 2019, but is subject to extension by
the Investment Manager and the Master Fund.
On 26 March 2019, the shareholders of the Company voted to amend
the Company's investment policy in respect of the Ordinary Shares
and C Shares with immediate effect, whereby the Company's
investment policy in respect of Ordinary Shares and C Shares will
be limited to realising the existing investments attributable to
the Ordinary Shares and C shares in an orderly manner, and
distributing the net proceeds to the Ordinary and C Shareholders.
In addition to the aforementioned, the shareholders of the Company
also voted to effect the implementation of the run-off in respect
of the Ordinary Shares and C Shares but the Company will continue
to operate as a going concern.
These Financial Statements were approved by the Board and
available for issuance on 18 April 2019. Subsequent events have
been evaluated through this date.
For further information:
Judith Wynne
General Counsel
Markel CATCo Investment Management Ltd.
Telephone: +1 441 493 9005
Email: judith.wynne@markelcatco.com
Mark Way
Chief of Investor Marketing
Markel CATCo Investment Management Ltd.
Telephone: +1 441 493 9001
Email: mark.way@markelcatco.com
David Benda / Hugh Jonathan
Numis Securities Limited
Telephone: +44 (0) 20 7260 1000
, the news service of the London Stock Exchange. RNS is approved by
the Financial Conduct Authority to act as a Primary Information
Provider in the United Kingdom. Terms and conditions relating to
the use and distribution of this information may apply. For further
information, please contact rns@lseg.com or visit www.rns.com.
FR SFSSFUFUSEIL
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