Update on side pocket investments (1903Q)
October 14 2011 - 3:35AM
UK Regulatory
TIDMCAT
RNS Number : 1903Q
CATCo Reinsurance Opps Fund Ltd
14 October 2011
CATCo Reinsurance Opportunities Fund Ltd. ("the Company")
Update on Side Pocket Investments
To: SFM, London Stock Exchange Date: 14 October 2011
and Bermuda Stock Exchange
Further update on Christchurch (New Zealand) earthquake:
The Current Portfolio continues to have potential exposure to
the New Zealand earthquake in its Rest of World risk pillar for
holders of Ordinary Shares.
Following the Christchurch earthquake in New Zealand which
occurred on 22 February 2011, on the basis of expected loss
analyses released to the market by EQECAT and AIR which all
indicated that the attachment triggers in our reinsurance contracts
would not be breached, we issued the recurring statement that "the
Managers have no reason to believe that there are any potential
losses to their reinsurance portfolio resulting from this event
given where our Reinsurance Agreement loss event deductibles are
set." Over a nine month period, however, Christchurch has been
impacted by three significant earthquakes which have presented the
insurance industry with a unique challenge in determining where the
allocation of loss really occurred and quantifying the incremental
damage and losses, from the September 2010, February and June 2011
events.
A significant driver of the damage in the February 2011
earthquake was the amplification of soft soils in the Christchurch
area. Reports from the February earthquake note more ground
failures (landslides, liquefaction) from that event, and several
collapses. Especially notable was the renewed damage to utilities
(water, electricity), which were promptly repaired after the
September 2010 event.
A sequence of events of this type of severity falls outside of
the planning scenarios for the insurance adjusters, regulators, and
contractors that are working to restore properties. Areas of
uncertainty include the treatment of deductibles (one, two or
three), limits, and the interaction of policies that have renewed
in the interval between the February and June 2011 events.
Initial loss estimates suggested the February 2011 earthquake
would result in US$3-5bn of insured losses. Although the New
Zealand Prime Minister and Insurance Council of New Zealand
initially stated this was too high; other industry figures
suggested the damage was likely to be in the millions rather than
billions because so much damage had already incurred in the earlier
September 2010 earthquake. However, liquefaction in Christchurch
was much greater than catered for in the modelling, and modelling
error seems to have arisen in the areas of construction quality,
business interruption and the interaction between private insurance
and the New Zealand Earthquake Commission. Today, loss estimate
revisions for the February 2011 New Zealand earthquake suggest
insured losses of US$15bn, representing a 300% increase on the
highest initial loss estimate.
Given the level of increase in expected insured loss, the
Managers of the Company are working with senior management at the
reinsured party to determine the level, if any, of exposure the
Company may have to this specific event. To date, the Company has
not received any loss advice relating to the New Zealand
earthquakes. The Board of Directors, and the Managers, would prefer
to resolve such ambiguity ahead of the 1 January retrocessional
renewal cycle and to release the capital allocated to a side pocket
investment from the February 2011 event which represents a maximum
'capped' exposure of 4.5% of gross expected return for 2011. The
Managers have further meetings with the reinsured party in October
2011 and hope to provide further clarity of any potential or
realised exposure thereafter once the situation has more
clarity.
Further update on Tohoku (Japan) earthquake and tsunami:
The Current Portfolio continues to have potential exposure to
the Japan earthquake in its Japanese Earthquake and Japanese All
Natural Perils risk pillars. The Managers have further meetings
with the reinsured parties in October 2011 and thereafter hope to
provide further information on any potential or realised exposure
once the situation has more clarity.
Whilst the Board, and Managers, do not believe these events to
have any significant impact to the Company, for illustrative
purposes only, should either the New Zealand or the Japanese
earthquakes lead to a 'complete loss' to either the Rest of World
or the Japanese risk pillars (and based on the presumption of no
further events and reliance on existing portfolio protections),
then the hypothetical maximum annualised gross returns for Ordinary
Shareholders would be either 17% or 16%, respectively. If both the
New Zealand and the Japanese earthquakes led to complete losses
(and presuming that no other event occurred), then the hypothetical
annualised gross return from the Current Portfolio for Ordinary
Shareholders would be 11%. C Shareholders have no exposure to the
New Zealand or the Japanese earthquakes and expected returns remain
unchanged.
For further information, please contact:
Jason Bibb
CATCo Investment Management Ltd
Telephone: +1 (441) 531 2227
Email: jason.bibb@catcoim.com
David Benda / Hugh Jonathan
Numis Securities Limited
Telephone: +44 (0) 20 7260 1000
Michael Toyer / John Whiley
Prime Management Ltd
Tel: +1 (441) 295 0329
- ends -
This information is provided by RNS
The company news service from the London Stock Exchange
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