CATCo Reinsurance Opportunities Fund Ltd. Releases Highlights of 2014 Annual Report and Chairmans Statement

Annual Financial Report

For the 12 month period 1 January 2014 to 31 December 2014

To: Specialist Fund Market, 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.

2014 Highlights

·       NAV growth of 14.08%

·       Share price total return of 9.20%

·       2014 annual dividend of USD0.05929 per share paid to Shareholders

·       USD35m Return of Value to Shareholders in January 2015

CHAIRMAN’S STATEMENT

Financial Performance

Welcome to the 2014 CATCo Reinsurance Opportunities Fund Ltd. (the "Company") Annual Report. The Company has delivered another strong performance in the year ending 31 December 2014, achieving a net return for Shareholders of 14.08 percent. This result was comfortably within the Company's stated target annual gross return of LIBOR plus 12 to 15 percent per annum, outperforming other ILS indices in what is an increasingly challenging retrocessional market. Including the annual dividend (at a rate of LIBOR plus 5 percent of the Company's NAV) it resulted in a Share price total return of 9.20 percent.

These positive gains were down, prior to the cost of hedging the portfolio, from last year's record NAV return of 21.90 percent and reflect the pressure on pricing experienced in 2014 in comparison to 2013. The continued influx of capacity into the ILS arena and absence of significant natural catastrophe losses are exerting downward pressure on retrocessional reinsurance pricing. The Company is navigating this environment with an approach that combines disciplined underwriting, innovative product design and prudent capital management.

The Company built an attractive and well-diversified investment portfolio in 2014, with a broad geographic spread and balanced exposure to differing risk perils. By taking advantage of more competitively-priced catastrophe reinsurance coverage available from other carriers, the Company was able to opportunistically purchase broader balance sheet protection for 2014 at a reduced price year-on-year.

Convergence Trends and 2015 Investment Portfolio Deployment

If 2013 was the year of convergence then 2014 was the year when the non-traditional reinsurance and ILS market firmly established itself as an alternative to traditional reinsurance. There was record catastrophe bond issuance of in excess of US$8bn for the year, according to Aon Benfield Securities, with collateralised reinsurance capacity approaching the US$40bn mark. These alternatives are offering reinsurance buyers more choice and greater diversification of counterparties.

However, as capacity continues to enter the market it is causing heightened levels of competition and reduced pricing for catastrophe cover, particularly in the reinsurance and ILS space, but it is also now trickling over into the retrocessional arena in which the Company primarily operates. What is now firmly a buyer's market was evident at the midyear and 1 January 2015 renewals, with cedants locking in rates and favourable terms with multiyear structures, as well as buying more protection at the top end of their programmes.

In the absence of major losses, these trends will continue into 2015. The most recent renewals at 1 January saw a further depression of reinsurance pricing. US and European property rates declined some 10 percent to 15 percent on loss free accounts, according to Willis Re.

With differing risk and return profiles to their traditional counterparts, ILS funds are well-placed to compete in this environment. Should this year bring a sizable loss or series of losses the ILS space could seize the opportunity to further grow its influence in the global catastrophe market.

Return of Value

As a result of the ongoing competitive pressures in the retrocession reinsurance space, the Company will continue to focus on prudent capital management, as demonstrated by the Return of Value of approximately US$74m made in January 2014 and the Share buyback programme, which took place in May 2014. The Directors will continue to consider ways in which Shareholder value can be optimised, whilst ensuring the Company does not constrain its growth potential.

It is our belief there is an optimum level of capital required to achieve the Company's target investment objective, beyond which these aims may start to become impaired. As such, the Board once again determined that a Return of Value of approximately US$0.11528 per Share or approximately US$35m in aggregate - equating to around 10 percent of the Company's market capitalisation - was in the best interests of the Company and its Shareholders.

As announced on 5 January 2015, this special one-off payment was put to a Shareholder vote on 29 January 2015 where Shareholders were able to determine how they wanted to receive their Return of Value. While largely in line with the mechanism used in last year's Return of Value, one difference is that Shareholders were not offered the opportunity to remain invested for their share of the Return of Value.

The Return of Value is separate, and in addition, to the annual dividend of US$0.05929 in respect of the Ordinary Shares for the year to 31 December 2014, as announced on 5 January 2015. The 2014 annual dividend was in line with the Company's target annual distribution of an amount equal to LIBOR plus 5 percent of the Net Asset Value at the end of each Fiscal Year. This final dividend was paid to Shareholders on 30 January 2015.

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. During 2014, the Bermuda Monetary Authority completed a review of the Investment Manager, I am pleased to report, without any significant matters being raised. The Board places a high emphasis on risk management and assesses internal controls each year.

Shareholders

I would like to thank Shareholders for their continued support throughout 2014, during which time the Company has continued to consolidate its market leading position. If you would like any further information about the Company then please do not hesitate to contact me, or our Manager.

Nigel Barton

Chairman,

CATCo Reinsurance Opportunities Fund Ltd.

17 February 2015

For further information, go here:

http://www.catcoreoppsfund.com/