Catco Reinsurance Opport... Share Discussion Threads

[topvest] 09/1/2013 18:17

Yes, well placed for 2013 particularly if Sandy costs lower.

[dg1337] 09/1/2013 10:44

CATCo 2013 potential returns have gone up to 27%, no doubt as an effect of Hurriance Sandy causing premiums to go up
(2012 potential was 23%)
Further update due in January on the effects of Hurricane Sandy (in terms of cost) - hopefully this might move the NAV up a bit

[jonwig] 09/1/2013 07:10

1337dg - thanks for that link.

Dividend $0.05006, xd on 16/01, paid in March.

Slightly lower NAV at end-Dec following reassessment of Costa Concordia liabilities.

[1337dg] 24/12/2012 11:06

I'd like to see how the Iris and BCGR perform for a while. That's in terms of price / NAV performance and also in terms of how they grow in size. BCGR might appeal due to it's sterling denomination, but it's only small and I'm always wary of being one of the first investors in a just launched fund.

A friend sent me the below link, which has a nice one page summary of the 3 different investment trusts in the insurance linked sector (hopefully it's copied correctly)

[deepvalueinvestor] 23/12/2012 18:08

I agree jonwig that reinsurance looks really interesting for 2013 but I don't like paying premiums and hopefully the current nav for catco is the worst case scenario and we may see an upward rerating over the coming months, so I keep just adding to cat. You are right in that iris looks less risky though.

[jonwig] 23/12/2012 14:19

1337dg - I think CAT checks the 'high risk - high rewards' buttons, yes.

It concerns me that their RNSs are pretty opaque and badly written. Anyway, the latest NAV corresponds to the current share price (just about), and retrocession lines will be pricier next year, no doubt!

I'm wondering whether to add IRIS to my holdings, as it seems to have a much lower risk profile.

[1337dg] 23/12/2012 13:07

I think CATCo is a interesting option for my portfolio. I had been looking at GAM's CAT bond fund, but I think I'd rather go for CATCo as it seems to be targetting the part of the reinusrance market that has higher potential returns.
There's some good information on both CATCo's and GAM's website on the reinsurance market for those that haven't seen it.

[deepvalueinvestor] 11/12/2012 20:45

Both IRIS and BCGR trade at premiums so still tempted to opt for CAT as the NAV could be much higher

[jonwig] 11/12/2012 07:36

Just announced: $0.9668 at 30/11.

Thanks - hadn't come across Blue Capital. Will look. Prospectus for BCGR:



DCG Iris [IRIS] is probably safer than CAT and sterling-denominated.

[deepvalueinvestor] 10/12/2012 20:42

Interesting that there is little stock available within the spread of $0.91-$0.95, which I see as encouraging as I was expecting them to be better offered but, as you say Jonvig, it is all very vague. The NAV could be much higher.

I feel that with many asset classes looking expensive, the case for investment in reinsurance now looks compelling but I am just deciding how to invest further. I see there is a new launch called Blue Capital (BCGR).

[jonwig] 10/12/2012 11:46

Portfolio update including Sandy.
Again quite vague, but some substance here:

Hypothetically, if all US hurricane exposure written in 2012 was completely eroded, which is highly unlikely, given the range of expected loss occurrence probabilities on the contracts written, the maximum 'capped' impact on gross expected returns would be 27%, resulting in an expected gross return of 1% for the year, absent the impact of Costa Concordia.

We'll get the end-November NAV any day now, which will include a provision.
They have exposure to Costa Concordia, and adding that in suggests the current share price is around the end-year NAV.

[topvest] 06/12/2012 13:41

Yes, agreed - a good sign. Lots of yield potentially on offer here.

[jonwig] 06/12/2012 10:21

Cazenove bought again, taking their holding over 10%, following a director buy last month and Premier increasing its stake in October.

Encouraging - and we do need some encouragement.

[jonwig] 28/11/2012 06:45

dv - thanks for comments. Agree with what you say.

Note the correction to the director shareholding: bought 86,000 not 6,000. (Twice they've had to issue RNS corrections, and their Sandy RNS was unclear.)

[deepvalueinvestor] 27/11/2012 20:31

Thanks for that as I hadn't seen the Swiss Re announcement today. There was stock on offer at $0.91 before the $11bn estimate last Thursday but it now stands at $0.925. I remain a buyer but certainly the Swiss Re news is a concern and it is anyone's guess how CATCo will be affected at this stage.

I'm sure the sensible money is sitting on the sidelines until we hear more but with reinsurance rates to rise in 2013, next year could could be very profitable. The low correlation to equities and bonds appeals to those of us who worry that there will be few safe havens when QE stops.

[jonwig] 27/11/2012 08:49

This is the opinion of Credit Suisse on the impact of Sandy (DCG Iris RNS 26/11):

"Let us update you on the insurance market impact of Super Storm Sandy as at Monday 26th November 2012. Estimates of the insurance market impact of Sandy are characterised by a high level of uncertainty and we are receiving mixed signals and reports from insurers, reinsurers and modeling firms.

To start with we would like to summarise developments in the loss impact estimates provided by the three modeling firms. Initially, at around the time of Sandy's landfall, the three modeling firms estimated the average impact on the insurance market at around US$10bn claims costs. In the week after Sandy it rose to US$13bn and then, with the increase in RMS's estimate to around US$20bn to US$25bn, the average of the three modeling firms increased further to US$16bn insured market loss.

Last week Property Claim Services (PCS) published their initial estimated insured market loss of US$11bn, a figure which can and will be revised upwards over the next months. The question is by how much that figure will be revised in future. For recent historical events the steepest increase between PCS's initial estimate and its final estimate has been 70%. If, given the uncertainty and complexity of Sandy, we take that highest figure as the benchmark the final PCS loss will be around US$18.7bn.

Conclusions

We believe that the impact of Sandy on the entire reinsurance industry is clearly below US$25bn (given the initial estimate of US$11bn) and we believe that it is very likely that the PCS figure will remain below US$20bn.

This is important as many trades, including many cat bonds, are based on industry loss triggers which are derived from PCS publications. We have calculated that at around US$20bn some positions, including some cat bonds, will start to see losses of their notional from Superstorm Sandy.

However, we also believe that figures such as RMS's estimate or today's estimate from Swiss Re, which estimate the insured loss from Sandy at between US$20bn and US$25bn, are both realistic and possible. Why this potentially large difference between PCS-based figures and RMS and Swiss Re figures?

PCS captures the US insurers but does not capture certain risks which are directly placed into the international reinsurance market such as the direct and facultative market of large risks. From that perspective a difference of opinions is obvious and can be explained.

Our Impact Estimates from last Friday and Weekly Performance Estimates

Our position is pretty much unchanged on the industry loss side where triggers are based on PCS published figures. Given PCS's initial estimates of US$11bn, our assumption first made on 2nd November (2 days after Sandy) remains unchanged at US$18.5bn.

However, the position taken on reinsurance and indemnity based transactions is rather more conservative because of the difference of opinions described above and remains in excess of US$20bn.

Our view remains cautious, therefore, and until we get more reliable information we will maintain this position. Our latest performance estimates fully take into account our cautious view on final industry losses from Superstorm Sandy."

This is a bit higher than the "$5 - 15bn" mentioned by CAT on 01/11.
The most obvious conclusion is still that nobody has a clue!

[topvest] 17/11/2012 17:43

Yes, that's quite positive. Will be very good value if we get a 5c+ dividend this year.

[jonwig] 17/11/2012 09:36

FT:

So-called catastrophe bonds are catching the eyes of wealth managers and private investors searching for uncorrelated assets to diversify investment portfolios.

These specialist bonds are issued by insurance and reinsurance companies and transfer some of the risk of natural catastrophes, such as a hurricane or an earthquake, to investors.

Each "cat bond" is linked to the occurrence of a specified natural disaster, such as a certain strength of earthquake or a specific region that might be hit. Payout of some or all of the cash to the insurer only occurs if all of the specific conditions are met.

The benefits of these products are that they pay investors a high regular income. Cat bond funds can yield as much as 8 per cent per annum after charges. The risks are that you might lose some or all of your initial investment.

Private investors can gain exposure to cat bonds through two specialist reinsurance funds listed on the London Stock Exchange: CatCo Reinsurance Opportunities and DCG Iris, which is managed by Credit Suisse. Yields are about 5 per cent.

Thomas Becket, chief investment officer at Psigma Investment Management, also likes the GAM FCM Catastrophe Bond fund, run by Fermat Capital.

"Catastrophe bonds are one of the most attractive risk/reward opportunities that we can currently find in financial markets. We like the fact that this investment effectively has no exposure to credit risk and low exposure to both interest rate risk and financial market risk," says Becket.



I see a director bought 6,000 [CORRECTED: 86,000 SHARES] shares on the 14th.

[topvest] 11/11/2012 11:50

This is what CATCo is in business to do, so don't think this is anything out of the ordinary for them. Terrible for the people involved, but these events are what generate the likes of CATCo a business.

[jonwig] 11/11/2012 07:50

Probably wise to wait, bisiboy. There's a lot of uncertainty over the level of insured losses from Sandy, with $7bn to $20bn being hawked around.

Reinsurance contracts get triggered at higher levels, and its interesting that Sandy was downgraded to a post-tropical cyclone rather than a hurricane. That might have implications for Cat bonds but I don't know whether for good or bad!

[bisiboy] 10/11/2012 18:31

thanks for the comments
i am tempted to buy these but i have to confess iam still not to sure about the
maximum impact.i would tend to agree with you both (that was my original understanding)but the company now appears to comment that although the minimum impact my be lower, the maximum impact is around twice 6cts.
not sure how the two reconcile either i am being stupid(possible)or they are not consistant with their statements.

[topvest] 04/11/2012 08:05

They are on the Specialist Fund Market so have to be careful responding to private investors I believe. Overall, I think this vehicle is an interesting concept. I would broadly agree with your projections. We should also still see a 5c dividend for 2012, unless we have another large event before the end of Dec.

[jonwig] 04/11/2012 07:36

I think this is the key:

For illustrative purposes only if any single US wind event led to complete losses (and presuming that no other event occurred), then the hypothetical maximum reduction in 2012 returns would be 24 per cent. net (27 per cent. gross).

And the key word is "returns" - ie. gains.
With no events, returns would be about 23c (latest factsheet, on website), so these would be impacted by around 6c. In fact, we've already had a share price fall of that amount.

However, the actual NAV wasn't on track to make these returns: I'd have expected a NAV of $1.12 at year end, so it should be reduced to $1.06 at worst.

The fall in January this year was down to the pair of 2011 events (Japan, NZ) which was worse than they'd set out. It's worth reading the 10 Jan RNS to see the terminology:



I agree, the wording of last week's RNS is awful. I doubt e-mailing them for clarification would help - they are very sniffy towards PIs.

We should get October's NAV in the next week or so, but it's too early to show anything.

[topvest] 03/11/2012 19:35

My understanding is that it is the 6cts impact rather than the 23cts. Not as clearly worded as it could be though!

[bisiboy] 03/11/2012 19:09

i may have missed something here
can someone please clarify
my understanding is that the maximum loss is 23% of opening NAV rather than 23%
of expected maximum performance i.e a hit of only about circa 6cts vs approx 23cts.
if i am wrong then i would agree they could be good value.
i have no interest here yet just watching my gut feel is they will take a hit.