Hamilton, Bermuda – 22 April 2019-: In a filing with the Bermuda Stock Exchange CATCo Reinsurance Opportunities Fund Ltd. (the "Company”; Ticker: CAT.BH), released their Annual Financial Report.The full filing stated the following:

 

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
	since Inception
(Date of Issuance)
	(to 31 December 2018)
Ordinary Shares (issued 20 Dec. 2010)	-45.28 per cent
C Shares issued (20 May 2011 – converted to Ordinary Shares in Aug. 2012)	-39.65 per cent
C Shares issued (16 Dec. 2011 - converted to Ordinary Shares in Aug. 2012)	-45.77 per cent
C Shares issued (2 Nov. 2015 – converted to Ordinary Shares in May 2017)	-67.67 per cent
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

 

The full release can be found by using the following link:

 

http://www.bsx.com/CompanyDocuments/1099937744/CATCo%20Reinsurance%20Opportunities%20Fund_Final%20Results%202018.pdf