CATCo Reinsurance Opportunities Fund Ltd. – Announces 2013 Results (Excerpt)

Hamilton, Bermuda – 18 February, 2014 – CATCo Reinsurance Opportunities Fund Ltd. (the "Company”; Ticker: CAT.BH), today announced the results of the financials year ended 31 December, 2013. An excerpt of the announcement read:

“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.

2013 Highlights

•          NAV growth of 21.90%

•          Share price total return of 24.34%

•          Share price growth of 19.04%

•          Premium to NAV of 0.64% at 31 December 2013

•          New Zealand and Japanese 2011 earthquake side pocket investments finalized and cease to exist

•          Contingent distribution of USD0.02887 per share resulting from the Japanese earthquake side pocket investment commutation paid to affected Shareholders

•          2013 annual dividend of USD0.05737 per share paid to Shareholders

•          USD63.6m paid to Shareholders who elected for Return of Value payment

CHAIRMAN’S STATEMENT

Financial performance

Welcome to the 2013 CATCo Reinsurance Opportunities Fund Ltd (the “Company”) Annual Report. In the twelve month period to 31 December 2013, the Company's investment portfolio generated a very strong financial performance for the year, achieving a net return for shareholders of 21.90 per cent. The share price growth of 19.04 per cent for the full year reflected an expansion of the premium to net asset value. Including the annual dividend (at a rate of LIBOR plus 5 per cent of the company's NAV) it resulted in a share price total return of 24.34 per cent. These positive gains resulted from a well-diversified and balanced investment portfolio of global risks.

2013 has been another year of growth for the CATCo Group of Companies (“CATCo” or the “Group”) as it maintains its position as one of the leading retrocessional reinsurance investment companies in the industry. In just three years, the Group has generated a market share of approximately 20 per cent of the retrocessional market and built a strong brand presence. The impressive results of the past three years have been achieved despite the first two years - 2011 and 2012 - being years of record catastrophe losses for the insurance industry.

In 2013, through a disciplined Board-approved underwriting plan and process, CATCo Investment Management Ltd. (the “Investment Manager”) created a more diversified investment portfolio with an increased number of geographic exposures and risk pillars compared to previous years. This was a prudent approach, with minimal catastrophe losses impacting the portfolio during the twelve month period under review.

Catastrophic activity in 2013

2013 was a relatively benign catastrophe year. The largest insured catastrophe losses in 2013 stemmed from events outside of the US. At approximately USD45bn, property catastrophe reinsurance industry losses for the year were well below average in comparison with the past ten years.

While the catastrophe picture for 2013 was a diverse spread of both perils and regions, the year’s catastrophic events had a relatively insignificant impact on the 2013 portfolio, demonstrating the diversity of the Company's portfolio of business and the strength of its underwriting business.

Return of value and 2013 annual dividend

With the continued growth of the Company combined with no significant insured losses incurred on the 2013 investment portfolio in December, the Board, following consultation with larger Shareholders, determined that a Return of Value of approximately USD74m would be in the best interests of the Shareholders. As announced on 3 January 2014, the Company made a special one-off capital/income return of USD0.20 per share to its investors, representing 18.1 percent of NAV at 31 December 2013, which was approved at a Special General Meeting of the Shareholders held on 27 January 2014.

The Return of Value was separate and in addition to the annual dividend paid to shareholders.

The Return of Value demonstrates the Investment Manager's disciplined investment approach and capital management at a time when property and specialty catastrophe rates are somewhat displaced. The Investment Manager will continue to target an internal rate of return in excess of LIBOR plus 12 percent to 15 percent per annum. To that end, the Directors believe there is an optimum level of capital required to achieve this without diminishing returns.

At the launch of the Company, the Board of Directors indicated the intention to pay an annual dividend in respect of any Fiscal Year of an amount equal to LIBOR plus 5 percent of the Net Asset Value as at the end of the relevant Fiscal Year.

An annual dividend of USD0.05737 in respect of the Ordinary Shares for the year to 31 December 2013 was declared on 14 January 2014. This dividend was in addition to the Return of Value, as detailed above.

The record date for this dividend was 24 January 2014 and the Ordinary Shares went ex-dividend on 22 January 2014. The final dividend was paid to shareholders on 31 January 2014.

Distribution in relation to Tohoku Japan earthquake

Since the Company's launch, side pocket investments (SPIs) have been formed to reserve for catastrophic loss events. These include both the Japan and New Zealand earthquakes of 2011 and the Costa Concordia marine disaster and Superstorm Sandy of 2012.

Following resolution of CATCo's remaining exposures to the Japan Earthquake of 11 March 2011, the Board of Directors announced on 14 January 2014 a contingent distribution to ordinary shareholders of USD0.02887 per share, which was paid on 24 January 2014. This represents a 3.0 percent restated capital return for the 2011 calendar year, and further demonstrates the value to shareholders of CATCo's prudent loss reserve methodology.

The Investment Manager waived its right to claim any performance fee due on the Distribution amount. There remains no change to expectations of Costa Concordia and Superstorm Sandy at this time.

Good corporate governance

The Board of Directors is committed to maintaining its high standards of corporate governance with particular emphasis on ensuring the Company is operating in the best possible interests of Shareholders. This includes regularly evaluating the relationship and effectiveness of the Investment Manager. The Board places a high emphasis on risk management and assesses internal controls each year.

Regulatory changes

As I mentioned in the Interim Report 2013, two important regulatory changes are the application of FATCA rules in Bermuda and the implementation of the European AIFM Directive in Europe.

In relation to the former, the Company is taking steps to ensure that it is registered with the IRS by the deadline of 1 July 2014.

In relation to the AIFM Directive, the Bermuda Monetary Authority signed a co-operation agreement with Europe. The Company may continue to be marketed in the EU under the applicable private placement regimes. The Directive also introduces new reporting obligations.

The Board will continue to monitor the progress and likely implications for the Company of both FATCA and the AIFM Directive.

Convergence results in a challenging renewal season

For many, 2013 was the year of "convergence", with traditional reinsurers and capital market capacity moving closer together in pricing and solutions on offer, particularly for US peak catastrophe risk. At the financial year-end, new capital from non-traditional sources had grown to reach USD50bn, offering buyers of reinsurance more choice and flexibility in their risk transfer solutions and broader coverage terms.

The growth of insurance-linked securities (ILS) and collateralised markets has been driven by increased investor interest in the catastrophe reinsurance sector at a time when interest rates remain low. Catastrophe reinsurance offers attractive returns to pension funds and other institutional investors, that are largely uncorrelated to broader financial markets.

So far, interest from investors has been largely focused on peak zone catastrophe covers, where ILS pricing has fallen by up to 25-40 per cent year-on-year in some cases, due to the oversupply of capital. The picture has been less acute in the retrocession arena in which the Group operates; however the oversupply of investment capital did result in a more challenging renewal season at 1 January 2014. Details about the 2014 portfolio written to date can be seen in the Managers’ Review.

Shareholders

I would like to thank shareholders for their continued support throughout 2013. Please do not hesitate to contact the Company, or our Investment Manager, if you have any questions.

Nigel Barton

Chairman,

CATCo Reinsurance Opportunities Fund Ltd.

18 February 2014

MANAGERS’ REVIEW

CATCo Reinsurance Opportunities Fund Ltd. (the "Company”) had an outstanding year in 2013 thanks to a well-balanced investment portfolio and a year that was largely unimpeded by catastrophe events. Aside from a modest exposure to US tornadoes, the Company enjoyed an otherwise clean year, generating a net return of 21.90 per cent. for shareholders while further growing its market share of the global retrocessional market.

As the end of the year approached, it became apparent that market conditions were changing, with pricing in the retrocessional sector coming under pressure. This is largely a result of the continued interest from capital market investors in the catastrophe reinsurance and retrocession space. The Company took advantage of the reduced pricing by purchasing significant global retrocessional protections for the period 1 November to 31 December to lock in the value of the portfolio until the end of the year at a cost of approximately one per cent. of net assets.

2013 investment portfolio update

While there is no such thing as a "typical" catastrophe year, 2013 stood out for its benign activity and, in particular, the low level of claims, which were around 25 per cent below the ten-year average.

There were however some significant catastrophes in 2013, notably the Central European floods, hail storms in Germany and Super Typhoon Haiyan in the Philippines. Even within Europe, with its relatively high levels of insurance penetration, these events were not at sufficient loss levels to trigger the Company's retrocessional agreements.

Floods in Central Europe and hailstorms in Germany were the highest catastrophe insurance losses for the year, estimated at USD3bn and USD4.1bn respectively. Other notable events included high levels of cyclonic activity in the Pacific Basin and a succession of winter storms in Europe towards the end of the year and into 2014. The latter, known as Winter Storms Xaver and Christian, are likely to generate losses in the low single-digit billion dollar range.

Super Typhoon Haiyan, one of the strongest tropical cyclones ever recorded, was a human catastrophe for the Philippines. It struck central Philippines at a Category 5 strength, resulting in over 6,000 fatalities and causing widespread destruction to infrastructure and agriculture. While the total economic loss is estimated at USD10bn, the insured loss from Haiyan is predicted by AIR Worldwide to be between USD300m and USD700m, due to the country's very low insurance penetration.

The North Atlantic Hurricane season was very quiet in spite of forecasts for an above-average year, and no hurricanes made landfall in the US in 2013. The most serious natural catastrophe for the year in the US was an EF5 intensity tornado near Moore, Oklahoma on 20 May 2013. It was part of a strong weather system which produced 16 tornado touchdowns on 18 May, 29 on 19 May and 31 on 20 May. Total insured losses from these tornadoes are estimated at USD1.8bn. In Canada, flooding in Calgary, Alberta in June 2013 generated insured losses of USD1.6bn, making it the country's costliest natural catastrophe on record.

Side Pocket Investments (SPIs)

Since the Company's launch, SPIs have been formed to reserve for catastrophic loss events including the 2011 Japan Earthquake, 2011 New Zealand Earthquake, Costa Concordia Marine disaster of 2012 and Hurricane Sandy in 2012.

During the course of 2013, any outstanding claims in relation to the SPIs for 2011 earthquakes were fully settled and there remains no further liability connected to either the Japan or New Zealand events.

Regarding SPIs related to Costa Concordia and Hurricane Sandy, there remains little or no change in the expectations of the Company's exposure to these events. CATCo Investment Management Ltd. (the “Investment Manager”) continues to anticipate that 100 per cent of the Costa Concordia loss reserve will be paid out in claims settlements during the course of 2014.

As at 31 December 2013, total claim payments made in relation to Sandy amounted to approximately 41 per cent. of the original retrocessional reinsurance loss reserve. At year-end 2013 this SPI amounted to 3.5 per cent. of the Company’s portfolio, less than half of the total retrocessional reinsurance loss reserves held at the same time a year ago.

2014 investment portfolio

The influx of capacity into the property catastrophe reinsurance and retrocession market, compounded by fewer favourable catastrophe losses over the past 12 months, has led to a depression in pricing for certain types of products. This downturn is more pronounced in the traditional reinsurance market and ILS space, where prices were down by 25 per cent to 40 per cent in some cases.

In the retrocessional arena in which CATCo-Re Ltd., the Company’s reinsurer, operates, market rates fell on average by 7.5 per cent for business written at comparable risk levels to 2013, reflecting current market pricing conditions. At the same time, given the low level of catastrophe losses in 2013, some retrocession buyers have decreased the extent of their purchases for 2014.

The Investment Manager  has responded to these more competitive conditions by targeting prudent capital management. The Return of Value to shareholders, which was approved by shareholders at a special general meeting on 27 January 2014, is one example of this disciplined approach.

Under the Return of Value, shareholders elected to receive approximately USD63.6m and reinvest approximately USD10.4m according to their chosen option. The decision allows the Investment Manager to maintain an optimum level of capital in the Company in order to continue to target effectively the Company’s stated annual return of LIBOR plus 12 to 15 per cent per annum. Should market conditions change and new opportunities present themselves throughout the year, as they did in 2011, it would very much be the intention of the Investment Manager to allow investors to participate in them.

For 2014, the investment portfolio has been further de-risked and diversified by geography and peril using the Master Fund's multi-pillared approach. For 2014, the Investment Manager  has only considered transactions that have met or exceeded the Company's investment return target while adhering to strict investment guidelines.

As at 15 January 2014, 85 per cent of available capital had been deployed with terms on new 2014 reinsurance transactions agreed with multiple reinsurance counterparties, both via existing relationships and through new counterparty arrangements. As renewals within the retrocessional sector were negotiated very late this year, a number of 1 January 2014 contracts have yet to be closed. The Investment Manager will hold back approximately 10% of its capital base as cash for opportunistic plays through the year.

Around one-third of the 2014 capital has been deployed into reinsurance contracts with approximately 40 per cent lower risk level. Overall, the portfolio has an aggregate risk level that is 20 per cent lower than the previous year. Taking into account the 2014 investment portfolio's well-diversified set of global risk pillars, the portfolio is in a strong position to generate a maximum no-loss return of 18 per cent for the year. This net return is inclusive of retrocessional protection, which was secured at competitive pricing and terms.

This ensures that exposure to a single loss event, no matter how great the magnitude, results in net portfolio returns for investors in the current financial year of not less than negative four per cent.

The positive impact of the property protections purchased can be observed by examining the impact of a modelled one-in-100-year event (i.e. one per cent annual probability of loss occurrence) for each of the 42 risk perils making up the 2014 investment portfolio.

Under this modelled scenario, even a severe one-in-100-year single catastrophic insured property event results in net portfolio returns of at least eight per cent. for all perils. The only exceptions to this would be the categories of US Wind, Europe Wind or Offshore Non Elemental Marine.

CATCo Reinsurance Opportunities Fund is able to offer its counterparties full certainty that claims will be met when they occur. There is no credit risk for clients as the Company is fully cash collateralised for every USD1 of risk it assumes.

Anthony Belisle

Chief Executive Officer

CATCo Investment Management Ltd.

On 14 January 2014, the Board declared a final dividend of $0.05737 per share in respect of the Ordinary Shares with a record date of 24 January 2014 and was paid on 31 January 2014.

In addition, the Board announced on 14 January 2014 that it had declared a contingent Distribution in relation to the cessation of the Japanese Tohoku earthquake loss reserve for 2011 (as discussed in Note 6) of $0.02887 per share to Ordinary Shares and was paid on 24 January 2014.

On 27 January 2014, the Board announced that the proposed return of value to shareholders of $0.20 per existing Ordinary Share, equivalent to approximately $74,000,000, and the subsequent share capital consolidation were approved. Following the share capital consolidation, a total of 299,577,962 Ordinary Shares were issued effective 28 January 2014. In addition, a total of 9,705,008 Ordinary Shares were issued effective 29 January 2014.

The financial statements were approved by the Board of Directors and available for issuance on 18 February 2014. The full text of this release together with additional information on the company is available via www.catcoreoppsfund.com

For further information, please contact:

CATCo Investment Management Ltd

Jason Bibb, Director

Telephone: +1 441 531 2227

Email: jason.bibb@catcoim.com  

Mark Way, Corporate Communications

Telephone: +44 7786 116991

Email: mark.way@catcoim.com  

Numis Securities Limited

David Benda / Hugh Jonathan

Telephone: +44 (0) 20 7260 1000

Prime Management Ltd

John Whiley

Tel: +1 (441) 295 0329