TIDMCAT
RNS Number : 3451O
CATCo Reinsurance Opps Fund Ltd
18 August 2017
18 August 2017
CATCo Reinsurance Opportunities Fund Ltd. (the "Company")
Interim Financial Report
For the Six Months Ended 30 June 2017
To: Specialist Fund Segment, 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.
CHAIRMAN'S STATEMENT
Welcome to the 2017 Interim Report of CATCo Reinsurance
Opportunities Fund Ltd. (the "Company"), my first report to
Shareholders since my appointment as Chairman in April 2017.
The Company has enjoyed another strong first half of the year
with no signi cant insured losses. The 2017 catastrophic risk
portfolio is very similar to the 2016 portfolio with the cost of
protections for the portfolio also similar to 2016. The persisting
low price environment and continued growth of the ILS market during
2017 has allowed Markel CATCo Investment Management Ltd. (the
"Investment Manager") to continue purchasing balance sheet
protections, mainly in the form of Industry Loss Warranties
("ILWs"), at price levels similar to that of recent years.
Increased demand for Markel CATCo Re Ltd. (the "Reinsurer")
products has led to 100 percent of available capital being deployed
at 1 January 2017. This demand continued through the mid-year
reinsurance contract renewals (see Share Issuance section below).
The Investment Manager continues to target a 2017 net return in the
range of LIBOR plus 9 percent to 12 percent per annum.
FINANCIAL PERFORMANCE
The NAV return for the Ordinary Shares for the first six months
of 2017 was 3.94 percent (six months to 30 June 2016: 4.86
percent). The NAV Total Returns since Inception to 30 June 2017 of
the Ordinary Shares issued on 20 December 2010 and the various
issuances of class C Shares are listed below:
Share Class NAV Total Returns
(Date of Issuance) since Inception
(to 30 June 2017)
-------------------- -------------------
Ordinary Shares 81.58 percent
(20 December
2010)
-------------------- -------------------
C Shares issued 108.39 percent
(20 May 2011)
-------------------- -------------------
C Shares issued 87.27 percent
(16 December
2011)
-------------------- -------------------
C Shares issued 11.63 percent
(2 November
2015)
-------------------- -------------------
An annual dividend for the year ended 31 December 2016 of
$0.07180 in respect of Ordinary Shares and $0.05795 in respect of
each of the C Shares was paid to Shareholders on 17 February
2017.
Loss Reserves and Side Pocket Investments
The Company continues to hold Side Pocket Investments ("SPI's")
in relation to underwriting years 2014 - 2016, and is pleased to
announce the further release of SPI's during the first half of 2017
across all of the aforementioned underwriting years. The current
SPI positions as at 30 June 2017 are highlighted below.
2014 SPI's, predominantly resulting from U.S. severe convective
storms, amount to approximately 0.80 percent of the Company's NAV
(31 December 2016: 1.6 percent of Ordinary Share NAV).
2015 SPI's, principally relating to U.S. and Canada winter
storms and U.S. severe convective storms, amount to 1.10 percent of
the Company's NAV (31 December 2016: 3.2 percent of Ordinary Share
NAV).
Finally, the 2016 SPI's created for exposures to the Fort
McMurray wildfire, the Jubilee oil field off the Ghana coast,
Hurricane Matthew and the South Island earthquake in New Zealand
amount to 5.60 percent of the Company's NAV (31 December 2016: 7.1
percent of Ordinary Share NAV).
During June 2017, the Investment Manager commuted part of the
2016 SPI exposure associated with the offshore energy loss event at
Ghana's Jubilee oil field. The cost of this commutation, which
amounted to approximately 1 percent, was mainly offset by
favourable developments on loss reserves related to other 2016
events. As a result, there was no material overall impact to the
Company's NAV. Losses related to business interruption, joint hull
and machinery loss for this event are estimated at up to $1.5
billion.
The Company has no ILW remaining exposure below $1.75 billion
for the Jubilee event. The value of the remaining Jubilee Side
Pocket Investment is equivalent to approximately 3 percent of
NAV.
C Share Conversion
In May 2017, the Company announced that the majority of the Side
Pocket Investments associated with Pemex had been closed and there
have been no portfolio losses with respect to this loss event.
Consequently, as the Company's Ordinary Shares no longer had any
material exposure to such Side Pocket Investments, the Board
elected to convert the Company's issued C Shares into Ordinary
Shares. Other Side Pocket Investments related to 2014 and 2015
underwriting years are covered in the previous Loss Reserves and
Side Pocket Investments section.
Share Issuance
Following discussions held between the Investment Manager and
existing and potential new reinsurance counterparties regarding a
number of mid-year opportunities, the Company raised gross proceeds
of $45.9 million via an over subscribed tap issuance to satisfy a
proportion of this demand.
The mid-year opportunities enabled the Investment Manager to
continue to diversify the Company's portfolio, while maintaining
the indicative maximum net return profile of approximately 16
percent on invested capital.
Special General Meeting
Your Board believes that it is important for the Company to take
advantage of market opportunities and be able to raise additional
capital, should there be an appropriate level of demand from both
reinsurance buyers and potential new and existing investors.
Following a recent change to the UK Prospectus Rules that
enhances the ability of the Company to raise further capital
without publishing a prospectus, the Company is seeking Shareholder
approval at a Special General Meeting ("SGM") to permit it to issue
further Ordinary Shares, up to a maximum of 20 per cent of the
number of shares in issue at the date of the SGM, on a
non-pre-emptive basis.
The Company will continue to maintain its policy of only ever
issuing shares at a premium to the prevailing NAV. Further
information appears in the section "Capital Raising - Special
General Meeting" in the Directors' Report, below.
Extension of CEO's Contract
Tony Belisle, Chief Executive Officer, of the Investment Manager
extended his contract until 31 December 2020. After this time his
contract will continue indefinitely on a rolling annual basis. Mr
Belisle's original contract was due to end on 31 December 2018.
Tony Belisle founded CATCo Investment Management Ltd. in 2010
and launched CATCo's unique "pillared" approach to writing
collateralised reinsurance protections. The majority of the assets
of the business were subsequently sold to Markel Corporation in
December 2015, and the Investment Manager appointed as successor to
CATCo Investment Management Ltd. Under its new ownership, Markel
CATCo has maintained its reputation as one of the leading
innovators in the reinsurance sector, and assets under management
have grown significantly since the acquisition, to approximately
$4.5 billion.
2017 Catastrophic Activity to Date
Global industry insured losses during the first half of 2017
were below the ten-year average due to relatively low frequency of
worldwide catastrophic activity. Munich Re estimates the losses for
the first six months of 2017 to be approximately USD 19.5 billion,
down significantly compared to the ten year average of USD 29
billion.
The severe weather season in the U.S. accounted for the majority
of global insured losses to date, with the occurrence of a high
frequency of tornado, hail, and severe convective storm events.
Aggregate industry insured losses due to these severe weather
events are currently estimated at USD 14 billion (Source: PCS),
contributing to more than 70 percent of all insured losses incurred
globally during the first half of 2017.
While the U.S. experienced an active severe weather season,
catastrophic activity elsewhere remained relatively low. One of the
most notable catastrophic events outside the U.S. included Cyclone
Debbie, which made landfall in Australia on 28 March. The effects
of Cyclone Debbie were mostly experienced in parts of Queensland
and New South Wales in the form of heavy rainfall and flooding.
According to Munich Re, the current insured industry losses due to
Cyclone Debbie are estimated at USD 1.4 billion.
The Investment Manager has not set up any specific Loss Reserves
related to 2017 events as the Investment Manager expects the
attritional loss reserve to be sufficient to cover any loss
activity incurred to date during 2017.
I would like to thank my predecessor, Nigel Barton, for his
contribution to the Company during his tenure as Chairman and for
the strong financial condition in which he left the Company. Mr.
Barton is now Chairman of Markel CATCo Reinsurance Fund Ltd., where
the wider Markel CATCo group of companies will be able to benefit
more fully from his industry expertise.
James Keyes
Chairman
CATCo Reinsurance Opportunities Fund Ltd.
18 August 2017
Directors' Report
Risks and Uncertainties
The Board of Directors has identified a number of key risks that
affect the Company's business. The principal risks are:
Reinsurance Risk
The objective of the Company and of Markel CATCo Reinsurance
Fund Ltd. - Markel CATCo Diversified Fund (the "Markel CATCo Master
Fund"), the fund through which the Company conducts substantially
all of its investment activities, 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
preferred shares of the Reinsurer, Markel CATCo Re Ltd. The Markel
CATCo 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 Company's 2016 Annual Report, on page 16, explains in
detail how the Company and the Markel CATCo Master Fund ensure that
appropriate diversification is achieved.
Risks Related to the Company's Investment Activities
These risks include, but are not limited to, market price,
interest rate, liquidity and credit risk. Such key risks relating
to investment underwriting and strategy including, for example,
inappropriate asset allocation or borrowing are managed through
investment policy guidelines and restrictions, and by oversight at
each Board meeting. Operational disruption, accounting and legal
risks are also covered annually, and regulatory compliance is
reviewed at each Board meeting.
In the view of the Board, there have not been any changes to the
fundamental nature of these risks since the previous report, and
these principal risks and uncertainties are equally applicable to
the remaining six months of the financial year as they were to the
six months under review.
Board changes
As announced by the Company on 2 March 2017, Nigel Barton
resigned as a Director of the Company with effect from the
conclusion of the Company's AGM, which was held on 6 April
2017.
James Keyes was appointed Chairman of the Company with effect
from the conclusion of the said AGM. Upon his appointment as
Chairman of the Company, he resigned as Chairman of the Management
Engagement Committee, and was replaced in that capacity by Margaret
Gadow, a non-executive Director of the Company.
Share Capital
On 17 May 2017, the Company announced the Conversion Ratio for
the 102,510,018 C Shares then in issue, which resulted in all of
the C Shares being converted into 82,835,718 Ordinary Shares, which
were admitted to trading on 23 May 2017. Immediately following
admission of these Ordinary Shares, the Company had 356,060,391
Ordinary Shares in issue.
On 25 May 2017, the Company issued 35,606,039 Ordinary Shares
for cash, raising gross proceeds of $45.9 million. These Ordinary
Shares were admitted to trading on 31 May 2017, following which the
Company had in issue 391,666,430 Ordinary Shares. This number
remains unchanged as at 30 June 2017, and as at the date of this
interim report.
Capital Raising - Special General Meeting
As a result of the Prospectus Regulation (2017/1129/EU) coming
into force, the ability of the Company to raise further capital
without publishing a prospectus has been enhanced. The Company is
now able to issue Ordinary Shares representing less than 20% of the
number of Ordinary Share in issue over a rolling 12-month period
without publishing a prospectus. To allow the Company to take full
advantage of this, your Board are seeking shareholder approval to
waive pre-emption rights, such that the Company may issue further
Ordinary Shares up to 20% of the number of Ordinary Shares in issue
at the date of the resolution on a non-pre-emptive basis.
All Ordinary Shares issued under this authority will be issued
at a premium to the Net Asset Value per Ordinary Share. The Special
General Meeting at which the required resolution will be put to
Shareholders will be held on 4 October 2017. A Notice convening the
Special General Meeting will be sent shortly to Shareholders and
Depository Interest Holders.
Related party disclosure and transactions with the Investment
Manager
The Investment Manager is regarded as a related party and
details of the management fees payable are set out in the unaudited
Statement of Operations and Note 7.
Going Concern status
The Company's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Chairman's Statement.
In accordance with the UK Corporate Governance Code (the
"Governance Code") issued in April 2016 (provision C.1.3) and the
associated Financial Reporting Council Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting, the
Board of Directors have undertaken a rigorous review of the
Company's ability to continue as a going concern.
The Company's assets consist of cash and a diverse portfolio of
retrocessional reinsurance investments, including Industry Loss
Warranties, which, in most circumstances, are fully liquid at the
end of their contractual term.
The Board of Directors have reviewed forecasts and they believe
that the Company has adequate financial resources to continue its
operational existence for the foreseeable future and at least one
year from the date of this interim report. Accordingly, the
Directors continue to adopt the going concern basis in preparing
these accounts.
Directors' Responsibility Statement
The Directors are responsible for preparing the Half-Yearly
Financial Report in accordance with applicable law and regulations.
The Directors confirm that, to the best of their knowledge:
1. The condensed set of Financial Statements contained within
the Half-Yearly Financial Report has been prepared in accordance
with US Generally Accepted Accounting Principles ("US GAAP").
2...The Chairman's Statement, the Financial Highlights and the
notes to the unaudited
Financial Statements provides a fair review of the information
required by rule 4.2.7R of the Disclosure Guidance and Transparency
Rules (being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of Financial Statements and a description of
the principal risks and uncertainties for the remaining six months
of the financial year) and rule 4.2.8R (being related party
transactions that have taken place during the first six months of
the financial year and that have materially affected the financial
position of the Company during that period; and any changes in the
related party transactions described in the last Annual Report that
could do so).
The Half-Yearly Financial Report was approved by the Board on 18
August 2017 and the above responsibility statement was signed on
its behalf by the Chairman.
James Keyes
Chairman,
For and on behalf of the Board
18 August 2017
UNAUDITED STATEMENTS OF ASSETS AND LIABILITIES
(Expressed in United 30 June 30 June 2016 31 Dec.
States Dollars) 2017 2016
(Audited)
--------------------------- ------------- ------------- -------------
$ $ $
--------------------------- ------------- ------------- -------------
Assets
--------------------------- ------------- ------------- -------------
Investments in Master
Funds, at fair value
(see Note 3) 498,795,693 440,388,784 463,116,346
--------------------------- ------------- ------------- -------------
Cash and cash equivalents 46,324,795 9,353,923 819,558
--------------------------- ------------- ------------- -------------
Other assets 54,231 30,702 20,257
--------------------------- ------------- ------------- -------------
Total assets 545,174,719 449,773,409 463,956,161
--------------------------- ------------- ------------- -------------
Liabilities
--------------------------- ------------- ------------- -------------
Due to Markel CATCo
Reinsurance Fund Ltd.
-
--------------------------- ------------- ------------- -------------
Markel CATCo Diversi 43,600,000 - -
ed Fund
--------------------------- ------------- ------------- -------------
Accrued expenses and
other liabilities 372,848 360,945 338,409
--------------------------- ------------- ------------- -------------
Management fee payable 3,008 11,280 627
--------------------------- ------------- ------------- -------------
Total liabilities 43,975,856 372,225 339,036
--------------------------- ------------- ------------- -------------
Net assets 501,198,863 449,401,184 463,617,125
--------------------------- ------------- ------------- -------------
NAV per Share (see note 5)
See accompanying notes to unaudited Financial Statements
UNAUDITED STATEMENTS OF OPERATIONS
(Expressed in United Six months Six months Year ended
States Dollars) to to
30 June 30 June 2016 31 Dec.
2017 2016
(Audited)
----------------------------- -------------- -------------- ---------------
$ $ $
----------------------------- -------------- -------------- ---------------
Net investment loss
allocated from Master
Funds (see Note 3)
----------------------------- -------------- -------------- ---------------
Interest 252,957 39,852 142,741
----------------------------- -------------- -------------- ---------------
Miscellaneous income - - 11,874
----------------------------- -------------- -------------- ---------------
Management fee (3,413,965) (3,249,246) (6,739,718)
----------------------------- -------------- -------------- ---------------
Performance fee (2,108,991) (2,243,654) (3,906,968)
----------------------------- -------------- -------------- ---------------
Professional fees and
other (167,281) (179,927) (312,932)
----------------------------- -------------- -------------- ---------------
Administrative fee (107,123) (114,463) (229,233)
----------------------------- -------------- -------------- ---------------
Net investment loss
allocated from Master
Funds (5,544,403) (5,747,438) (11,034,236)
----------------------------- -------------- -------------- ---------------
Company expenses
----------------------------- -------------- -------------- ---------------
Professional fees and
other (743,661) (751,691) (1,412,957)
----------------------------- -------------- -------------- ---------------
Management fee (30,000) (73,633) (80,620)
----------------------------- -------------- -------------- ---------------
Administrative fee (52,093) (58,000) (99,000)
----------------------------- -------------- -------------- ---------------
Total Company expenses (825,754) (883,324) (1,592,577)
----------------------------- -------------- -------------- ---------------
Net investment loss (6,370,157) (6,630,762) (12,626,813)
----------------------------- -------------- -------------- ---------------
Net realised gain and
net decrease in unrealised
appreciation on securities
allocated from Master
Funds (see Note 3)
----------------------------- -------------- -------------- ---------------
Net realised gain on
securities 43,662,479 57,967,193 57,663,896
----------------------------- -------------- -------------- ---------------
Net decrease in unrealised
appreciation on securities (19,356,831) (31,665,229) (11,149,939)
----------------------------- -------------- -------------- ---------------
Net gain on securities
allocated from Master
Funds 24,305,648 26,301,964 46,513,957
----------------------------- -------------- -------------- ---------------
Net increase in net
assets resulting from
operations 17,935,491 19,671,202 33,887,144
----------------------------- -------------- -------------- ---------------
See accompanying notes to unaudited Financial Statements
UNAUDITED STATEMENTS OF CHANGES IN NET ASSETS
(Expressed in United Six months Six months Year ended
States Dollars) to to 31 Dec.
30 June 2017 30 June 2016 2016 (Audited)
---------------------------- -------------- -------------- ----------------
$ $ $
---------------------------- -------------- -------------- ----------------
Operations
---------------------------- -------------- -------------- ----------------
Net investment loss (6,370,157) (6,630,762) (12,626,813)
---------------------------- -------------- -------------- ----------------
Net realised gain
on securities allocated
from Master Funds 43,662,479 57,967,193 57,663,896
---------------------------- -------------- -------------- ----------------
Net decrease in
unrealised appreciation
on securities allocated
from Master Funds (19,356,831) (31,665,229) (11,149,939)
---------------------------- -------------- -------------- ----------------
Net increase in
net assets resulting
from operations 17,935,491 19,671,202 33,887,144
---------------------------- -------------- -------------- ----------------
Capital share transactions
---------------------------- -------------- -------------- ----------------
Issuance of Shares 45,265,957 10,920,014 10,920,013
---------------------------- -------------- -------------- ----------------
Dividend declared (25,557,987) (18,084,741) (18,084,741)
---------------------------- -------------- -------------- ----------------
Premium on issuance
of Shares 626,666 - -
---------------------------- -------------- -------------- ----------------
Offering costs (688,389) (208,719) (208,719)
---------------------------- -------------- -------------- ----------------
Net (decrease) /
increase in net
assets resulting
from capital share
transactions 19,646,247 (7,373,446) (7,373,447)
---------------------------- -------------- -------------- ----------------
Net increase in
net assets 37,581,738 12,297,756 26,513,697
---------------------------- -------------- -------------- ----------------
Net assets, beginning
of period 463,617,125 437,103,428 437,103,428
---------------------------- -------------- -------------- ----------------
Net assets, end
of period 501,198,863 449,401,184 463,617,125
---------------------------- -------------- -------------- ----------------
See accompanying notes to unaudited Financial Statements
UNAUDITED STATEMENTS OF CASH FLOWS
(Expressed in United Six months Six months Year ended
States Dollars) to to 30
30 June June 2016 31 Dec.
2017 2016
(Audited)
----------------------------------------- ------------- -------------- --------------
$ $ $
----------------------------------------- ------------- -------------- --------------
Cash flows from operating
activities
----------------------------------------- ------------- -------------- --------------
Net increase in net
assets resulting from
operations 17,935,491 19,671,202 33,887,144
----------------------------------------- ------------- -------------- --------------
Adjustments to reconcile
net increase in net
assets resulting from
operations to net cash
provided by / (used
in) operating activities:
----------------------------------------- ------------- -------------- --------------
Net investment loss,
net realised gain and
net decrease in unrealised
appreciation on securities
allocated from Master
Funds (18,761,245) (20,554,526) (35,479,721)
----------------------------------------- ------------- -------------- --------------
Sale of investment in
CATCo Reinsurance Fund
Ltd. -
CATCo Diversified Fund 37,521,898 332,882,729 334,580,362
----------------------------------------- ------------- -------------- --------------
Purchase of investment
in Markel CATCo Reinsurance
Fund Ltd. - Markel CATCo
Diversified Fund (54,440,000) (405,200,000) (414,700,000)
----------------------------------------- ------------- -------------- --------------
Changes in operating
assets and liabilities:
----------------------------------------- ------------- -------------- --------------
Advance subscription
in Markel CATCo Reinsurance
Fund Ltd. - Markel CATCo
Diversified Fund - 88,000,000 88,000,000
----------------------------------------- ------------- -------------- --------------
Due to related parties 43,600,000 - -
----------------------------------------- ------------- -------------- --------------
Other assets (33,974) (577) 9,868
----------------------------------------- ------------- -------------- --------------
Accrued expenses and
other liabilities 33,812 77,956 55,420
----------------------------------------- ------------- -------------- --------------
Management fee payable 3,008 11,280 627
----------------------------------------- ------------- -------------- --------------
Net cash provided by
/ (used in) operating
activities 25,858,990 14,888,064 6,353,700
----------------------------------------- ------------- -------------- --------------
Cash flows from financing
activities
----------------------------------------- ------------- -------------- --------------
Issuance of Shares 45,265,957 10,920,014 10,920,013
----------------------------------------- ------------- -------------- --------------
Dividend paid (25,557,987) (18,084,741) (18,084,741)
----------------------------------------- ------------- -------------- --------------
Premium on issuance
of Shares 626,666 - -
----------------------------------------- ------------- -------------- --------------
Offering costs (688,389) (208,719) (208,719)
----------------------------------------- ------------- -------------- --------------
Net cash provided by
/ (used in) financing
activities 19,646,247 (7,373,446) (7,373,447)
----------------------------------------- ------------- -------------- --------------
Net increase / (decrease)
in cash and cash equivalents 45,505,237 7,514,618 (1,019,747)
----------------------------------------- ------------- -------------- --------------
Cash and cash equivalents,
beginning of period 819,558 1,839,305 1,839,305
----------------------------------------- ------------- -------------- --------------
Cash and cash equivalents,
end of period 46,324,795 9,353,923 819,558
----------------------------------------- ------------- -------------- --------------
See accompanying notes to unaudited Financial Statements
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
(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 fund, registered and incorporated as an exempted
mutual fund company in Bermuda on 30 November 2010 and which
commenced operations on 20 December 2010. The Company was
originally organised as a feeder fund to invest substantially all
of its assets in CATCo Diversi ed Fund (the "CATCo Master Fund").
The CATCo 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 CATCo
Master Fund has established 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 segregated
account of the CATCo Master Fund shall only be available to
creditors in respect of that segregated account.
On 10 September 2015, Markel Corporation ("Markel") and CATCo
Investment Management Ltd. ("CIML") jointly announced that they had
entered into an agreement (the "Acquisition") whereby Markel would
acquire substantially all of the assets of CIML.
On 8 December 2015, the Acquisition was completed and
substantially all of the assets of CIML were acquired by Markel. As
a result of the Acquisition, Markel CATCo Investment Management
Ltd. ("MCIM") commenced operation and CIML's management team, led
by Chief Executive Officer Anthony Belisle, transitioned into
commensurate roles at MCIM and continues to operate the business
from its Hamilton, Bermuda headquarters, now under Markel's
ultimate ownership.
Pursuant to an investment management agreement, the Company is
now being managed by MCIM (the "Investment Manager"), a Bermuda
based limited liability company. 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 (see Note 6).
On 8 December 2015, the Investment Manager entered into a
Run-Off Services Agreement with CIML, under which the former will
provide services relating to the management of the run-off business
of CIML.
As a result of the completion of the Acquisition, effective 1
January 2016, the Company conducts substantially all of its
investment activities through the Markel CATCo Diversified Fund
(the "Master Fund"), a segregated account of Markel CATCo
Reinsurance Fund Ltd., instead of the CATCo Master Fund. Meanwhile,
the Company will retain an interest in any run-off business of the
CATCo Master Fund, overseen by CIML, until such business is
liquidated. The Master Fund and the CATCo Master Fund are hereafter
referred to as the "Master Funds".
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.
The objective of the Master Funds 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 Funds would be exposed to reinsurance risk,
insurance-linked 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"). At 30 June 2017, the Company's ownership is 15% of
the Master Fund and 16% of the CATCo Master Fund.
The Reinsurer and CATCo-Re Ltd. (the "CATCo Reinsurer"),
(together the "Reinsurers") are Bermuda licensed Class 3
reinsurance companies, registered as a 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, winterstorms, oods, tsunamis, tornados,
windstorms, extreme temperatures, aviation accidents, res,
wildfires, explosions, marine accidents, terrorism, satellite,
energy and other perils.
Basis of Presentation
The unaudited 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 three 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 SS&C Fund
Services (Bermuda) Ltd, a division of SS&C GlobeOp (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 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
transaction.
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 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 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 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 30 June 2017. 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 tax-related expense or penalties have
been recognised as of and for the period ended 30 June 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 period ended 30 June 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 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.
2. 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 30 June 2017, cash and cash equivalents are held
with HSBC Bank Bermuda Ltd. which has a credit rating of A- as
issued by Standard & Poor's.
3. INVESTMENTS IN MASTER FUNDS, AT FAIR VALUE
The following table summarises the Company's Investments in
Master Funds:
(Expressed in United States
Dollars) 30 June 2017
--------------------------------- -------------
$
--------------------------------- -------------
Investment in Markel CATCo
Reinsurance Fund Ltd.-
Markel CATCo Diversified
Fund, at fair value 489,280,310
--------------------------------- -------------
Investment in CATCo Reinsurance
Fund Ltd. -
CATCo Diversified Fund, at
fair value 9,515,383
--------------------------------- -------------
Investments in Master Funds,
at fair value 498,795,693
--------------------------------- -------------
From 1 January to 30 June 2017, the net investment loss
allocated from Master Funds, and the net realised gain and net
decrease in unrealised appreciation on securities allocated from
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 United Investment Investment Total
States Dollars) in in
Master CATCo Master
Fund Fund
----------------------------- ------------- -------------- -------------
Net investment loss $ $ $
allocated from Master
Funds
----------------------------- ------------- -------------- -------------
Interest 252,957 - 252,957
----------------------------- ------------- -------------- -------------
Management fee (3,321,986) (91,979) (3,413,965)
----------------------------- ------------- -------------- -------------
Performance fee (2,108,991) - (2,108,991)
----------------------------- ------------- -------------- -------------
Professional fees
and other (157,051) (10,230) (167,281)
----------------------------- ------------- -------------- -------------
Administrative fee (98,983) (8,140) (107,123)
----------------------------- ------------- -------------- -------------
Net investment loss
allocated from Master
Funds (5,434,054) (110,349) (5,544,403)
----------------------------- ------------- -------------- -------------
Net realised gain
and net decrease in
unrealised appreciation
on securities allocated
from Master Funds
----------------------------- ------------- -------------- -------------
Net realised gain
on securities (a) 42,281,147 1,381,332 43,662,479
----------------------------- ------------- -------------- -------------
Net decrease in unrealised
appreciation on securities
(b) (18,036,523) (1,320,308) (19,356,831)
----------------------------- ------------- -------------- -------------
Net gain on securities
allocated from Master
Funds 24,244,624 61,024 24,305,648
----------------------------- ------------- -------------- -------------
a) Includes gross realized gain on securities of $53,515,954 and
gross realized loss on securities of $9,853,475.
b) Includes gross increase in unrealized appreciation on
securities of $31,663,626 and gross decrease in unrealized
appreciation on securities of $51,020,457.
4. 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 their own models and historical
loss analysis data as well as assessments from counter-parties to
estimate the level of reserves required. In addition, the
Reinsurers record risk margin to reflect uncertainty surrounding
cash flows relating to loss reserves.
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.
In the six months to 30 June 2017, the Reinsurer paid claims of
$65,942,215 predominantly in relation to the Jubilee Oil Field and
Canada Wildfire events. The CATCo Reinsurer paid claims of $386,190
predominantly in relation to United States Severe Convective Storm
events.
5. CAPITAL SHARE TRANSACTIONS
As of 30 June 2017, the Company has authorised share capital of
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 30 June 2017, the Company has issued 391,666,430 Class 1
ordinary shares (the "Ordinary Shares").
Transactions in shares during the year, and the shares
outstanding and the net asset value ("NAV") per share are as
follow:
30 June
2017
----------- ------------ -------------- ----------- ------------ ------------- ---------
Ending Ending
Beginning C Share Share Ending Net NAV Per
Shares Conversion Issuance Shares Assets Share
----------- ------------ -------------- ----------- ------------ ------------- ---------
Class 1
Ordinary
Shares 273,224,673 82,835,718 35,606,039 391,666,430 $501,198,863 $1.2797
----------- ------------ -------------- ----------- ------------ ------------- ---------
Class C
Shares 102,510,018 (102,510,018) - - - -
----------- ------------ -------------- ----------- ------------ ------------- ---------
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 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 Pocket Investments 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 26 January 2017, the Board declared a final dividend of
$0.07180 per share in respect of the Ordinary Shares and $0.05795
per share in respect of the C Shares. The record date for these
dividends was 3 February 2017 and the ex-dividend date was on 2
February 2017. These final dividends were paid to shareholders on
17 February 2017.
On 11 May 2017, the Board announced that the CATCo Master Fund
had closed the majority of its Side Pocket Investments associated
with Pemex. Consequently, as the Company's Ordinary Shares no
longer had any material exposure to such Side Pocket Investments,
the Board elected to convert the Company's issued C Shares into
Ordinary Shares. The conversion of 102,510,018 C Shares into
82,835,718 Ordinary Shares was effective 23 May 2017.
6. 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 (see Note 7).
As discussed in Note 1, prior to completion of the Acquisition,
the Company was managed by CIML as investment manager pursuant to
the Investment Management Agreement dated 16 December 2010.
7. RELATED PARTY TRANSACTIONS
The Investment Manager of the Company is also the Investment
Manager of the Master Fund and the Insurance Manager of the
Reinsurer. CIML is the Investment Manager of the CATCo Master Fund
and the Insurance Manager of the CATCo Reinsurer.
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 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, which holds the entire share capital of the Investment
Manager, holds 5.16% of the voting rights of the Ordinary Shares
issued in the Company as of 30 June 2017.
In addition, two of the Directors of the Company are also
shareholders of the Company.
8. ADMINISTRATIVE FEE
SS&C Fund Services (Bermuda) Ltd, a division of SS&C
GlobeOp serves as the Company's Administrator and performs certain
administrative services on behalf of the Company. The Administrator
is a licensed fund administrator pursuant to the provisions of the
Bermuda Investment Funds Act. The Administrator receives a xed
monthly fee.
9. FINANCIAL HIGHLIGHTS
Financial highlights for the period 1 January 2017 to 30 June
2017 are as follows:
Class 1 - Ordinary
Shares
---------------------------------- ----------------------
Per share operating performance
---------------------------------- ----- ---------------
Net asset value, beginning
of period $ 1.3024
---------------------------------- ----- ---------------
Income (loss) from investment
operations:
---------------------------------- ----- ---------------
Net investment loss (0.0028)
----------------------------------------- ---------------
Performance fee* (0.0055)
----------------------------------------- ---------------
Management fee (0.0094)
----------------------------------------- ---------------
Net gain on investments 0.0668
----------------------------------------- ---------------
Total from investment operations 0.0491
----------------------------------------- ---------------
Dividend (0.0718)
----------------------------------------- ---------------
Net asset value, end of
period $ 1.2797
---------------------------------- ----- ---------------
Total net asset value return
---------------------------------- ----- ---------------
Total net asset value return
before performance fee 4.18%
----------------------------------------- ---------------
Performance fee* -0.42%
----------------------------------------- ---------------
Total net asset value return
after performance fee 3.76%
----------------------------------------- ---------------
Ratios to average net assets
---------------------------------- ----- ---------------
Expenses other than performance
fee -1.15%
----------------------------------------- ---------------
Performance fee*^ -0.48%
----------------------------------------- ---------------
Total expenses after performance
fee -1.63%
----------------------------------------- ---------------
Net investment loss -1.36%
----------------------------------------- ---------------
^ Adjusting the opening capital to reflect the dividend declared
on 26 January 2017, the normalised total return for 2017 is
equivalent to 3.94%
* The performance fee is charged in the Master Funds
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 period ended 30 June 2017 and
have not been annualised. The per share amounts and ratios re ect
income and expenses allocated from the Master Funds.
10. 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.
11. SUBSEQUENT EVENTS
The unaudited Financial Statements were approved by the Board
and available for issuance on 18 August 2017. Subsequent events
have been evaluated through this date.
For further information:
Markel CATCo Investment
Management Ltd.
Judith Wynne, General Counsel
Telephone: +1 441 493 9005
Email: judith.wynne@markelcatco.com
Mark Way, Chief Operating
Officer
Telephone: +1 441 493 9001
Email: mark.way@markelcatco.com
Numis Securities Limited
David Benda / Hugh Jonathan
Telephone: +44 (0) 20 7260
1000
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BRGDIGGBBGRR
(END) Dow Jones Newswires
August 18, 2017 02:00 ET (06:00 GMT)
Catco Reinsurance Opport... (LSE:CAT)
Historical Stock Chart
From Mar 2024 to Apr 2024
Catco Reinsurance Opport... (LSE:CAT)
Historical Stock Chart
From Apr 2023 to Apr 2024