TIDMCAT
RNS Number : 9726M
CATCo Reinsurance Opps Fund Ltd
27 September 2021
27 September 2021
CATCo Reinsurance Opportunities Fund Ltd. (the "Company")
Interim Financial Report
For the Six Months Ended 30 June 2021
To: Specialist Fund Segment, London Stock Exchange and Bermuda
Stock Exchange
Chairman's Statement
As the investment portfolios of CATCo Reinsurance Opportunities
Fund Ltd. (the "Company") are in run-off (the "Run-Off"), Markel
CATCo Investment Management Ltd. (the "Investment Manager") wrote
no new risk contracts in 2020, therefore the Company is not exposed
to any new reinsurance risk from 1 January 2020 onwards. All
remaining investments held by the Company are exposed to risk
relating to reinsurance contracts entered into from 2016 to 2019
only, and the Investment Manager remains focused on proactively
managing the trapped cash and returning capital to Shareholders in
as timely and orderly a manner as possible.
On 27 September 2021, the Company announced the buy-out
transaction which offers an early return of substantially all NAV
to investors in the Company, while allowing investors to retain the
right to receive any upside at the end of the current run-off
period if currently held reserves are more than sufficient to pay
claims. A copy of the announcement and further details regarding
the proposal can be accessed at
https://catcobuyout.alixpartners.com/.
Net Asset Value ("NAV")
The Company opened the year with a total NAV of $111.8m which
consisted of $47.8m Ordinary Share NAV and $64.0m of C Share NAV.
During the first half of the year, the NAV reduced to $91.0m, of
which $45.8m relates to the Ordinary Shares and $45.2m to the C
Shares. The reduction of the NAV is due mainly to the returns of
capital to Shareholders in 2021 of a total of $27.2m as further
described in the following section of this half-yearly report.
During the six-month period ended 30 June 2021, the NAV per Share
of the Ordinary Share and C Shares have increased moderately to
$0.3065 per Ordinary Share ($0.2828: 1 Jan 2021) and $0.5441 per C
Share ($0.5071: 1 Jan 2021). The moderate increase in the NAVs per
share is attributable to the reduction in loss notifications
relating to the 2017 and 2018 California Wildfires.
RETURN of capital TO SHAREHOLDERS
The return of capital to the Company by Markel CATCo Reinsurance
Fund Ltd (the "Master Fund SAC") is subject to the approval of the
Bermuda Monetary Authority and driven by the contractual
arrangements between cedants and Markel CATCo Re Ltd. ("the
Reinsurer"), with such cedants typically releasing capital that is
held in a Side Pocket Investment ("SPI") on the earlier of:
i. the capital no longer being needed to cover potential losses
(in accordance with the terms of the relevant reinsurance
contract); or
ii. upon settlement commutation (the negotiation of which will
begin no later than 36 months after the end of the risk
period).
Since commencement of the Run-Off, to date, the Company has
successfully returned $325.2m of capital to Shareholders by means
of dividends, tender offer, share buybacks and compulsory share
redemptions.
During the period from 1 January 2021 to 30 June 2021, the
Company returned $27.2m of capital to Shareholders by means of
compulsory share redemptions. The total capital returned since 26
March 2019 is highlighted below.
Total Capital Return since 26 March 2019 (Date on which
Shareholders approved the Run-Off):
Form of Return Payment or Redemption Ordinary C Shares Total
Date / Period Shares ($m) ($m)
($m)
------------------------------ ---------------------- -------- -------- -----
Dividend 25 February 2019 10.4 24.3 34.7
------------------------------ ---------------------- -------- -------- -----
23 September
Tender Offer 2019 15.3 28.0 43.3
------------------------------ ---------------------- -------- -------- -----
Interim Dividend 1 November 2019 4.0 11.9 15.9
------------------------------ ---------------------- -------- -------- -----
Share Buyback Oct to Dec 2019 1.9 5.9 7.8
------------------------------ ---------------------- -------- -------- -----
Partial Compulsory Redemption
1 20 April 2020 5.3 24.0 29.3
------------------------------ ---------------------- -------- -------- -----
Partial Compulsory Redemption
2 18 May 2020 4.6 14.2 18.8
------------------------------ ---------------------- -------- -------- -----
Partial Compulsory Redemption
3 1 July 2020 3.6 12.2 15.8
------------------------------ ---------------------- -------- -------- -----
Partial Compulsory Redemption
4 1 August 2020 7.0 30.9 37.9
------------------------------ ---------------------- -------- -------- -----
Partial Compulsory Redemption
5 7 October 2020 15.9 78.6 94.5
------------------------------ ---------------------- -------- -------- -----
Partial Compulsory Redemption
6 11 January 2021 2.0 6.0 8.0
------------------------------ ---------------------- -------- -------- -----
Partial Compulsory Redemption
7 11 May 2021 3.4 15.8 19.2
------------------------------ ---------------------- -------- -------- -----
Total Capital Return 73.4 251.8 325.2
------------------------------------------------------ -------- -------- -----
On 27 September 2021 the Company announced a proposed
transaction to return substantially all NAV to investors in the
Company (the "Buy-Out Transaction") in exchange for mutual releases
more fully described in the announcement. The Buy-Out Transaction
is being offered to avoid significant delays in the return of
additional capital to investors in connection with claims
threatened or asserted by certain small investors. If sufficient
investor support is obtained, the proposed Buy-Out Transaction will
be implemented by a scheme of arrangement under Bermuda law, to run
simultaneously (and be inter-conditional on) a separate scheme of
arrangement of Markel CATCo Reinsurance Fund Ltd. (together, the
"Schemes"). To support the implementation of the Buy-Out
Transaction through the Schemes, each of the Company, Markel CATCo
Reinsurance Fund Ltd., the Investment Manager and the Reinsurer has
filed applications with the Supreme Court of Bermuda for the
appointment of joint provisional liquidators with limited powers
(the "JPLs"). The appointment of the JPLs will allow for the smooth
implementation of the Buy-Out Transaction and approval of the
Schemes (provided that the Buy-Out Transaction receives sufficient
investor support) and the Company does not intend to make further
returns of capital while the JPLs are appointed and the Buy-Out
Transaction is being considered and implemented.
SIDE POCKET INVESTMENTS ("SPIs")
As at 30 June 2021, the SPIs in total represent c. 96.95 per
cent of Ordinary Share NAV (31 December 2020: c. 92.40 per cent)
and c. 89.99 per cent of the C Share NAV (31 December 2020: c.
83.07 per cent). The position of the 2016, 2017, 2018 and 2019 SPIs
is as follows, as at 30 June 2021:
-- 2016 SPIs, established for the Fort McMurray Wildfire,
Jubilee Oil Field, Hurricane Matthew, and the South Island
earthquake in New Zealand, amount to c. 11.71 per cent of the
Company's Ordinary Share NAV (31 December 2020: c. 10.51 per cent
of Ordinary Share NAV)
-- 2017 SPIs, principally relating to Hurricanes Harvey, Irma
and Maria and the 2017 California Wildfires, amount to c. 66.91 per
cent of the Company's Ordinary Share NAV (31 December 2020: c.
58.38 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. 9.64 per cent of Ordinary Share NAV and c.
53.77 per cent of C Share NAV (31 December 2020: c. 10.56 per cent
and c. 43.24 per cent of Ordinary Share and C Share NAV
respectively)
-- 2019 SPIs relating to Hurricane Dorian, Typhoons Faxai and
Hagibis and the Australian bushfires, amount to c. 8.69 per cent of
Ordinary Share NAV and c. 36.22 per cent of C Share NAV (31
December 2020: c. 12.95 per cent and c. 39.83 per cent of Ordinary
Share and C Share NAV respectively).
In respect of the underlying investments related to underwriting
years 2016-2019, the Investment Manager places increasing reliance
on the latest available claim information from cedants which, at
this point in time post the loss events, is given more weight than
modelled losses or the insured loss estimates provided by third
parties. Whilst the Investment Manager believes that the existing
loss reserves are deemed sufficient, there is always an element of
uncertainty in relation to underlying prior year loss event
contracts which may lead to favourable or adverse loss development
in the future.
For the six-month period ended 30 June 2021, the Investment
Manager has seen some reductions in the 2017 and 2018 California
wildfire losses over previous loss notifications. This resulted in
an approximate 8.0% increase in the Ordinary and C Share NAV in May
2021. During the same period, the Company's Ordinary Share NAV
reflected an approximate 1.0% increase during April 2021 as a
result of a reduction in claims associated with the 2016
portfolio.
Meanwhile, the underlying investment values for the 2019 risk
portfolio have remained unchanged during the period.
The Investment Manager continues to liaise with cedants in order
to determine the effect of any remaining California wildfire
subrogation recoveries (where applicable) on reported losses on
indemnity contracts.
Overview of Investments
The following table outlines the investments held by the
Ordinary Shares and C Shares respectively as at 30 June 2021:
Investments Held by Share Class:
SPI's % of Share NAV Value in millions
Ordinary Shares
---------------- -------------- -----------------
Cash 3.05% 1.4
---------------- -------------- -----------------
SPI 2016 11.71% 5.4
---------------- -------------- -----------------
SPI 2017 66.91% 30.6
---------------- -------------- -----------------
SPI 2018 9.64% 4.4
---------------- -------------- -----------------
SPI 2019 8.69% 4.0
---------------- -------------- -----------------
C Shares
---------------- -------------- -----------------
Cash 10.01% 4.5
---------------- -------------- -----------------
SPI 2018 53.77% 24.3
---------------- -------------- -----------------
SPI 2019 36.22% 16.4
---------------- -------------- -----------------
PROACTIVE MANAGEMENT OF RUN-OFF
The exact timing and amount of capital to be released is
difficult to estimate as it is dependent on: (i) contractual
obligations to release capital due to certain event thresholds no
longer being met; and (ii) commutation/settlement agreements that
allow agreed loss positions to be reached with certain cedants,
facilitating the release of remaining excess collateral.
Typically, cedants are entitled to trap capital for up to 36
months from the expiration of the risk period, after which a
commutation process is entered into. In certain circumstances, the
Investment Manager may deem it to be in the best interest of
Shareholders to delay the commutation until further loss
information becomes available.
Shareholders are reminded that the distribution of capital by
the Company is contingent on the required Bermuda Monetary
Authority regulatory approvals for capital releases between the
Reinsurer and the Master Fund SAC.
However as noted above in the section "Return of Capital to
Shareholders", the proposed Buy-Out Transaction, if approved by
investors, will materially increase the amount of capital that can
be returned in the short term.
The Board of Directors is engaged in regular contact with the
Investment Manager regarding the Run-Off process and has received
assurances from the owner of the Investment Manager, Markel
Corporation, that adequate resources will remain in place until the
conclusion of the Run-Off.
Consequently, the Directors believe the Investment Manager
remains the best-placed organization to manage the Run-Off. The
Directors will closely monitor the implementation of the Run-Off
and the return of capital to Shareholders.
James Keyes
Chairman,
CATCo Reinsurance Opportunities Fund Ltd.
For and on behalf of the Board
27 September 2021
Directors' Report
Risks and Uncertainties
The Board of Directors has identified a number of key risks that
affect the Company's business.
During the period from inception of the Company to 26 March
2019, the investment objective of the Company and the Master Fund
SAC was to give their Shareholders the opportunity to participate
in the returns from investments linked to catastrophe reinsurance
risks, principally by investing in fully collateralised Reinsurance
Agreements accessed by investments in preferred shares of Markel
CATCo Re Ltd. (the "Reinsurer"). With effect from 26 March 2019,
the Company's Shareholders voted to amend the Company's investment
policy so as to implement the orderly Run-Off of the Company's
portfolios, with the effect that the Company's investment policy is
limited to realising the Company's assets and distributing any net
proceeds to the relevant shareholders. Consequently, the Company
exercised a redemption right to redeem its shareholding in the
Master Fund SAC.
The Company's portfolio now comprises cash and side pocket
shares in the Master Fund holding risk from 2016-2019. Side pocket
shares are illiquid and will not be redeemed until such time as the
corresponding side pocket investments are realised. Proceeds of any
redemptions of such share that are received by the Company will be
distributed to Shareholders of the applicable class (after payment
of any costs and save for any amount required for reserves in
respect of anticipated liabilities and working capital
purposes).
During the period under review, the Company has distributed the
net proceeds of the redemptions received to date to Shareholders as
detailed in the Chairman's Statement. The timing and amount of each
further distribution will be at the Company's discretion and the
Company intends to make an announcement by means of a Regulatory
Information System prior to each distribution regarding the amount
and timing of the distribution. The Company has announced the
Buy-Out Transaction which, if approved, will see an accelerated
return of NAV to investors in the Company in the short-term.
Management of Risk
The Board of Directors regularly reviews the major strategic and
emerging risks that the Board and the Investment Manager have
identified and, against these, the Board sets out the delegated
controls designed to manage those risks. The principal risks facing
the Company relate to market price, interest rate, liquidity and
credit risk and the efficient management of the Run-Off process.
Operational disruption, accounting and legal risks are also covered
annually, and regulatory compliance is reviewed at each Board
meeting. The emergence of the novel coronavirus ("COVID-19") at the
start of January 2020 has not had a significant financial impact on
the Company, and is not expected to do so in the foreseeable future
(please refer to Note 3 in to the Financial Statements ("COVID-19
Considerations")).
The Board is assured that the operational activities of the
Investment Manager continue to be substantially unaffected by
COVID-19 In terms of quality and continuity, that there are
sufficient systems and controls in place to ensure the continuity
and adequacy of the services provided by the Investment Manager,
and that the Run-Off process, including returns of capital to
Shareholders, will continue to be managed efficiently.
In the view of the Board, there have not been any changes to the
fundamental nature of these risks since the previous report, and
these principal risks and uncertainties are equally applicable to
the remaining six months of the financial year as they were to the
six months under review.
Share Capital
The Company's issued share capital at 1 January 2021 amounted to
168,898,993 Ordinary Shares and 126,369,585 C Shares. As noted in
the section "Return of Capital to Shareholders" in the Chairman's
Statement, during the period 1 January 2021 to 30 June 2021, the
Company completed two compulsory partial share redemptions.
The Company's issued share capital at 30 June 2021 amounted to
149,305,187 Ordinary Shares and 83,230,467 C Shares. The total
number of voting rights in the Company was 232,535,654.
Related party disclosure and transactions with the Investment
Manager
The Investment Manager is regarded as a related party and
details of the management fees payable are set out in the unaudited
Statement of Operations and Note 8. The Company has also been
working with the Investment Manager to develop the Buy-Out
Transaction that was announced on 27 September 2021, and will
continue to work with the Investment Manager to implement this
transaction, should it be supported by investors in the
Company.
Going Concern status
The Company's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Chairman's Statement.
The Board of Directors have undertaken a rigorous review of the
Company's ability to continue as a going concern. The Board of
Directors have also considered the Company's longer-term
viability.
The Company's assets consist of cash and investment exposure,
through the side pocket shares in the Markel CATCo Diversi ed Fund
(the "Master Fund") holding risk from 2016-2019.
The Board of Directors have reviewed forecasts and they believe
that the Company has adequate financial resources to continue its
operational existence for the foreseeable future, and at least one
year from the date of this half-yearly report. Accordingly, the
Directors continue to adopt the going concern basis in preparing
these accounts.
Directors' Responsibility Statement
The Directors are responsible for preparing the Half-Yearly
Financial Report in accordance with applicable law and regulations.
The Directors confirm that, to the best of their knowledge:
1. The condensed set of Financial Statements contained within
the unaudited Half-Yearly Financial Report has been prepared in
accordance with U.S. Generally Accepted Accounting Principles
("U.S. GAAP"). These Financial Statements present fairly, in all
material respects, the assets, liabilities, financial position and
profit or loss of the Company.
2. The Chairman's Statement, the Directors' Report, the
Financial Highlights and the notes to the Condensed Interim
Financial Statements provide a fair review of the information
required by rule 4.2.7R of the Disclosure Guidance and Transparency
Rules (being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of unaudited Financial Statements and a
description of the principal risks and uncertainties for the
remaining six months of the financial year) and rule 4.2.8R (being
related party transactions that have taken place during the first
six months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions described in the last Annual Report that could do
so).
The Half-Yearly Financial Report was approved by the Board on 27
September 2021 and the above responsibility statement was signed on
its behalf by the Chairman.
James Keyes
Chairman,
CATCo Reinsurance Opportunities Fund Ltd.
For and on behalf of the Board
27 September 2021
CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
(Expressed in United States Six months Six months
Dollars) to to Year ended
30 June 30 June 2020 31 Dec. 2020
2021 (Unaudited) (Unaudited) (Audited)
$ $ $
Assets
----------------------------------- ----------------- ------------- -------------
Investments in Master Fund,
at fair value (Note 4) 85,118,306 237,996,473 97,370,089
----------------------------------- ----------------- ------------- -------------
Cash and cash equivalents
(Note 2) 6,405,020 4,971,921 4,268,386
----------------------------------- ----------------- ------------- -------------
Due from Markel CATCo Reinsurance
Fund Ltd. -
Markel CATCo Diversified
Fund - 15,794,343 10,696,244
----------------------------------- ----------------- ------------- -------------
Other assets 31,884 26,975 53,369
----------------------------------- ----------------- ------------- -------------
Total assets 91,555,210 258,789,712 112,388,088
----------------------------------- ----------------- ------------- -------------
Liabilities
----------------------------------- ----------------- ------------- -------------
Management fee payable 3,709 12,767 9,053
----------------------------------- ----------------- ------------- -------------
Accrued expenses and other
liabilities 502,786 365,681 532,664
----------------------------------- ----------------- ------------- -------------
Total liabilities 506,495 378,448 541,717
----------------------------------- ----------------- ------------- -------------
Net assets 91,048,715 258,411,264 111,846,371
----------------------------------- ----------------- ------------- -------------
CONDENSED STATEMENTS OF OPERATIONS
(Expressed in United States Six months Six months Year ended
Dollars) to 30 June to 30 June 31 Dec. 2020
2021 (Unaudited) 2020 (Unaudited) (Audited)
$ $ $
Net investment loss allocated
from
Master Fund (Note 4)
---------------------------------- ----------------- ----------------- ---------------
Interest income 708 423,879 436,586
---------------------------------- ----------------- ----------------- ---------------
Legal contingency provision
(Note 12) (3,677,284) - -
---------------------------------- ----------------- ----------------- ---------------
Management fee waived (Note
8) 337,865 985,076 1,516,824
---------------------------------- ----------------- ----------------- ---------------
Management fee (Note 8) (675,730) (1,970,152) (3,033,648)
---------------------------------- ----------------- ----------------- ---------------
Professional fees and other (56,419) (131,421) (150,707)
---------------------------------- ----------------- ----------------- ---------------
Administrative fee (48,998) (79,733) (181,302)
---------------------------------- ----------------- ----------------- ---------------
Net investment loss allocated
from Master Fund (4,119,858) (772,351) (1,412,247)
---------------------------------- ----------------- ----------------- ---------------
Investment income
---------------------------------- ----------------- ----------------- ---------------
Interest 347 52,929 53,416
---------------------------------- ----------------- ----------------- ---------------
Total investment income 347 52,929 53,416
---------------------------------- ----------------- ----------------- ---------------
Company expenses
---------------------------------- ----------------- ----------------- ---------------
Management fee waived (Note
8) 35,121 118,867 224,034
---------------------------------- ----------------- ----------------- ---------------
Professional fees and other (486,685) (655,777) (1,415,303)
---------------------------------- ----------------- ----------------- ---------------
Management fee (Note 8) (70,242) (237,732) (448,068)
---------------------------------- ----------------- ----------------- ---------------
Administrative fee (Note
9) (37,500) (37,500) (75,000)
---------------------------------- ----------------- ----------------- ---------------
Total Company expenses (559,306) (812,142) (1,714,337)
---------------------------------- ----------------- ----------------- ---------------
Net investment loss (4,678,817) (1,531,564) (3,073,168)
---------------------------------- ----------------- ----------------- ---------------
Net realised loss and net
change in unrealised loss
on securities allocated
from Master Fund (Note 4)
---------------------------------- ----------------- ----------------- ---------------
Net realised loss on securities (8,088,046) (91,899,348) (169,722,417)
---------------------------------- ----------------- ----------------- ---------------
Net change in unrealised
loss on securities 19,169,097 93,127,326 174,126,929
---------------------------------- ----------------- ----------------- ---------------
Net gain on securities allocated
from Master Fund 11,081,051 1,227,978 4,404,512
---------------------------------- ----------------- ----------------- ---------------
Net increase / (decrease)
in net assets resulting
from operations 6,402,234 (303,586) 1,331,344
---------------------------------- ----------------- ----------------- ---------------
CONDENSED STATEMENTS CHANGE IN NET ASSETS
(Expressed in United States Six months Six months Year ended
Dollars) to 30 June to 30 June 31 Dec. 2020
2021 (Unaudited) 2020 (Unaudited)
(Audited)
$ $ $
Operations
------------------------------- ----------------- ----------------- ---------------
Net investment loss (4,678,817) (1,531,564) (3,073,168)
------------------------------- ----------------- ----------------- ---------------
Net change in unrealised
loss on securities allocated
from Master Fund (8,088,046) (91,899,348) (169,722,417)
------------------------------- ----------------- ----------------- ---------------
Net change in unrealised
loss on securities allocated
from Master Fund 19,169,097 93,127,326 174,126,929
------------------------------- ----------------- ----------------- ---------------
Net increase / (decrease)
in net assets resulting
from operations 6,402,234 (303,586) 1,331,344
------------------------------- ----------------- ----------------- ---------------
Capital share transactions
------------------------------- ----------------- ----------------- ---------------
Repurchase of Ordinary Shares
(Note 6) (5,399,961) (9,933,959) (36,433,899)
------------------------------- ----------------- ----------------- ---------------
Repurchase of Class C Shares
(Note 6) (21,799,929) (38,229,923) (159,929,806)
------------------------------- ----------------- ----------------- ---------------
Net decrease in net assets
resulting from capital share
transactions (27,199,890) (48,163,882) (196,363,705)
------------------------------- ----------------- ----------------- ---------------
Net decrease in net assets (20,797,656) (48,467,468) (195,032,361)
------------------------------- ----------------- ----------------- ---------------
Net assets, beginning of
period 111,846,371 306,878,732 306,878,732
------------------------------- ----------------- ----------------- ---------------
Net assets, end of period 91,048,715 258,411,264 111,846,371
------------------------------- ----------------- ----------------- ---------------
CONDENSED STATEMENTS OF CASH FLOW
Six month
to
30 June
2021
Six months Year ended
(Expressed in United States to 30 June 31 Dec. 2020
Dollars) (Unaudited) 2020 (Unaudited) (Audited)
$ $ $
Cash flows from operating
activities
---------------------------------- -------------- ----------------- --------------
Net increase / (decrease)
in net assets resulting from
operations 6,402,234 (303,586) 1,331,344
---------------------------------- -------------- ----------------- --------------
Adjustments to reconcile
net increase / decrease in
net assets resulting from
operations to net cash provided
by operating activities:
---------------------------------- -------------- ----------------- --------------
Net investment loss, net
realised loss on securities
and net change in unrealised
loss on securities allocated
from Master Fund (6,961,193) (455,627) (2,992,265)
---------------------------------- -------------- ----------------- --------------
Sale of investment in Markel
CATCo Reinsurance Fund Ltd.
- Markel CATCo Diversified
Fund 19,212,976 45,099,625 188,262,647
---------------------------------- -------------- ----------------- --------------
Changes in operating assets
and liabilities
---------------------------------- -------------- ----------------- --------------
Due from Markel CATCo Reinsurance
Fund - Markel CATCo Diversified
Fund 10,696,244 6,330,596 11,428,695
---------------------------------- -------------- ----------------- --------------
Other assets 21,485 50,809 24,415
---------------------------------- -------------- ----------------- --------------
Management fee payable (5,344) 8,030 4,316
---------------------------------- -------------- ----------------- --------------
Accrued expenses and other
liabilities (29,878) (228,763) (61,780)
---------------------------------- -------------- ----------------- --------------
Net cash provided by operating
activities 29,336,524 50,501,084 197,997,372
---------------------------------- -------------- ----------------- --------------
Cash flows from financing
activities
---------------------------------- -------------- ----------------- --------------
Repurchase of Ordinary Shares (5,399,961) (9,933,959) (36,433,899)
---------------------------------- -------------- ----------------- --------------
Repurchase of Class C Shares (21,799,929) (38,229,923) (159,929,806)
---------------------------------- -------------- ----------------- --------------
Net cash used in financing
activities (27,199,890) (48,163,882) (196,363,705)
---------------------------------- -------------- ----------------- --------------
Net increase in cash and
cash equivalents 2,136,634 2,337,202 1,633,667
---------------------------------- -------------- ----------------- --------------
Cash and cash equivalents,
beginning of period 4,268,386 2,634,719 2,634,719
---------------------------------- -------------- ----------------- --------------
Cash and cash equivalents,
end of period 6,405,020 4,971,921 4,268,386
---------------------------------- -------------- ----------------- --------------
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS - 30 JUNE
2021
(Expressed in United States Dollars)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
CATCo Reinsurance Opportunities Fund Ltd. (the "Company") is a
closed-ended mutual fund company, registered and incorporated as an
exempted mutual fund company under the laws of Bermuda on 30
November 2010, which commenced operations on 20 December 2010. The
Company is organised as a feeder fund to invest substantially all
of its assets in Markel CATCo Diversi ed Fund (the "Master Fund").
The Master Fund is a segregated account of Markel CATCo Reinsurance
Fund Ltd., a mutual fund company incorporated in Bermuda and
registered as a segregated account company under the Segregated
Accounts Company Act 2000, as amended (the "SAC Act"). Markel CATCo
Reinsurance Fund Ltd. establishes a separate account for each class
of shares comprised in each segregated account (each, a "SAC
Fund"). Each SAC Fund is a separate individually managed pool of
assets constituting, in effect, a separate fund with its own
investment objective and policies. The assets attributable to each
SAC Fund of Markel CATCo Reinsurance Fund Ltd. shall only be
available to creditors in respect of that segregated account.
The objective of the Master Fund is to provide shareholders the
opportunity to participate in the investment returns of various
fully-collateralised reinsurance-based instruments, securities
(such as notes, swaps and other derivatives), and other financial
instruments. The majority of the Master Fund's exposure to
reinsurance risk is obtained through its investment (via preference
shares) in Markel CATCo Re Ltd. (the "Reinsurer"). At 30 June 2021,
the Company's ownership is 16.24 per cent of the Master Fund.
On 25 July 2019, the Board of Directors (the "Board") announced
that the Company will cease accepting new investments and will not
write any new business going forward through the Reinsurer. As of
this date, the Investment Manager commenced the orderly Run-Off
(the "Run-Off") of the Reinsurer's existing portfolio, which is
reasonably expected to be completed in the first half of 2023. As
part of this Run-Off, the Company will return capital (which will
continue to be subject to side pockets) to investors as such
capital becomes available. Refer to Going Concern Considerations
under Basis of Presentation below.
Pursuant to an investment management agreement, the Company is
managed by Markel CATCo Investment Management Ltd. (the "Investment
Manager"), a Bermuda based limited liability company that is
subject to the ultimate supervision of the Board. The Investment
Manager is responsible for all of the Company's investment
decisions. On 1 January 2020, the Investment Manager entered into a
Run-Off Services Agreement with Lodgepine Capital Management
Limited ("LCML"), under which LCML will provide services relating
to the management of the Run-Off business of the Investment
Manager.
The Reinsurer is a Bermuda licensed Class 3 reinsurance company,
registered as a segregated account company under the SAC Act,
through which the Master Fund access the majority of its
reinsurance risk exposure. The Reinsurer forms a segregated account
that corresponds solely to the Master Fund's investment in the
Reinsurer with respect to each particular reinsurance agreement.
The Reinsurer focuses primarily on property catastrophe insurance
and may be exposed to losses arising from hurricanes, earthquakes,
typhoons, hailstorms, winter storms, floods, tsunamis, tornados,
windstorms, extreme temperatures, aviation accidents, fires,
wildfires, explosions, marine accidents, terrorism, satellite,
energy and other perils.
The Company's shares are listed and traded on the Specialist
Fund Segment of the Main Market of the London Stock Exchange
("SFS"). The Company's shares are also listed on the Bermuda Stock
Exchange ("BSX").
Basis of Presentation
The interim condensed Financial Statements are expressed in
United States dollars and have been prepared in conformity with
accounting principles generally accepted in the United States of
America ("U.S. GAAP") for interim financial information.
Accordingly, certain information and footnote disclosures normally
included in the financial statements prepared in accordance with
U.S. GAAP has been condensed pursuant to such guidance. These
interim condensed financial statements should be read in
conjunction with the annual financial statements and related notes
as of 31 December 2020 which are readily available on the
Regulatory News Service ("RNS") of the London Stock Exchange. The
Company is an investment company and follows the accounting and
reporting guidance contained within Topic 946, "Financial Services
Investment Companies", of the Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC").
Going Concern Considerations
In accordance with ASC 205-40-50, Presentation of Financial
Statements-Going Concern, the Investment Manager and the Board have
reviewed the Company's ability to continue as a going concern and
have confirmed their intent to continue to run-off the Company's
portfolios as a going concern with no imminent plans to liquidate
the Company. The Investment Manager and the Board have concluded
that the Company has sufficient financial resources to continue as
a going concern based on the following key considerations: (i) the
Company holds investments in the Master Fund which are supported by
underlying fully collateralised reinsurance contracts in the
Reinsurer that are expected to be settled in the first half of
2023, (ii) the Investment Manager and the Directors have reviewed
the Company's cash forecast for 18 months from the date of this
report and have determined that the Company has sufficient cash to
adequately meet operational expenses, and (iii) Markel Corporation,
is fully committed to the orderly run-off of the Reinsurer and
Master Fund portfolios. Based on the aforementioned reasons, the
Company continues to adopt the going concern basis in preparing the
financial statements for the six-month period ended 30 June
2021.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, highly liquid
investments, such as money market funds, that are readily
convertible to known amounts of cash and have original maturities
of three months or less.
Valuation of Investments in Master Fund
The Company records its investments in the Master Funds at fair
value based upon an estimate made by the Investment Manager, in
good faith and in consultation or coordination with Centaur Fund
Services (Bermuda) Limited (the "Administrator"), as defined in
Note 9, where practicable, using what the Investment Manager
believes in its discretion are appropriate techniques consistent
with market practices for the relevant type of investment. Fair
value in this context depends on the facts and circumstances of the
particular investment, including but not limited to prevailing
market and other relevant conditions, and refers to the amount for
which a financial instrument could be exchanged between
knowledgeable, willing parties in an arm's length transaction. Fair
value is not the amount that an entity would receive or pay in a
forced transaction or involuntary liquidation.
Financial Instruments
The fair values of the Company's assets and liabilities, which
qualify as nancial instruments under ASC 825, "Financial
Instruments", approximate the carrying amounts presented in the
Statements of Assets and Liabilities.
Investment Transactions and Related Investment Income and
Expenses
The Company records its proportionate share of the Master Funds'
income, expenses, realised and unrealised gains and losses on
investment in securities on a monthly basis. In addition, the
Company incurs and accrues its own income and expenses.
Investment transactions of the Master Fund are accounted for on
a trade-date basis. Realised gains or losses on the sale of
investments are calculated using the speci c identi cation method
of accounting. Interest income and expense are recognised on the
accrual basis.
Translation of Foreign Currency
Assets and liabilities denominated in foreign currencies are
translated into United States dollar amounts at the period-end
exchange rates. Transactions denominated in foreign currencies,
including purchases and sales of investments, and income and
expenses, are translated into United States dollar amounts on the
transaction date. Adjustments arising from foreign currency
transactions are re ected in the Statements of Operations.
The Company does not isolate the portion of the results of
operations arising from the effect of changes in foreign exchange
rates on investments from uctuations arising from changes in market
prices of investments held. Such uctuations are included in net
gains or losses on securities in the Statements of Operations.
Income Taxes
Under the laws of Bermuda, the Company is generally not subject
to income taxes. The Company has received an undertaking from the
Minister of Finance of Bermuda, under the Exempted Undertakings Tax
Protection Act 1966 that in the event that there is enacted in
Bermuda any legislation imposing income or capital gains tax, such
tax shall not until 31 March 2035 be applicable to the Company.
However, certain United States dividend income and interest income
may be subject to a 30% withholding tax. Further, certain United
States dividend income may be subject to a tax at prevailing treaty
or standard withholding rates with the applicable country or local
jurisdiction.
The Company is required to determine whether its tax positions
are more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. The tax bene t recognised is measured as the largest
amount of bene t that has a greater than fty per cent likelihood of
being realised upon ultimate settlement with the relevant taxing
authority. De-recognition of a tax bene t previously recognised
results in the Company recording a tax liability that reduces
ending net assets. Based on its analysis, the Company has
determined that it has not incurred any liability for unrecognised
tax bene ts as of 30 June 2021. However, the Company's conclusions
may be subject to review and adjustment at a later date based on
factors including, but not limited to, on-going analyses of and
changes to tax laws, regulations and interpretations thereof.
The Company recognises interest and penalties related to
unrecognised tax bene ts in interest expense and other expenses,
respectively. No tax-related interest expense or penalties have
been recognised as of and for the period ended 30 June 2021.
Generally, the Company may be subjected to income tax
examinations by relevant major taxing authorities for all tax years
since its inception.
The Company may be subject to potential examination by United
States federal or foreign jurisdiction authorities in the areas of
income taxes. These potential examinations may include questioning
the timing and amount of deductions, the nexus of income among
various tax jurisdictions and compliance with United States federal
or foreign tax laws. The Company was not subjected to any tax
examinations during the period ended 30 June 2021.
Use of Estimates
The preparation of Financial Statements in conformity with U.S.
GAAP requires the Investment Manager to make estimates and
assumptions in determining the reported amount of assets and
liabilities, including fair value of investments, the disclosure of
contingent assets and liabilities at the date of the Financial
Statements, and the reported amounts of income and expenses during
the reported period. Actual results could differ from those
estimates.
The preparation of Financial Statements in conformity with U.S.
GAAP requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the Financial Statements. Actual results could differ
from those estimates.
Offering Costs
The costs associated with each capital raise are expensed
against paid-in capital and the Company's existing cash reserves as
incurred.
Premium and Discount on Share Issuance
Issuance of shares at a price in excess of the Net Asset Value
(the "NAV") per share at the transaction date results in a premium
and is recorded as paid-in capital. Discounts on share issuance are
treated as a deduction from paid-in capital.
Other Matters
Markel CATCo Governmental Inquiries
Markel Corporation previously reported that the U.S. Department
of Justice, U.S. Securities and Exchange Commission and Bermuda
Monetary Authority (together, the Governmental Authorities) are
conducting inquiries into loss reserves recorded in late 2017 and
early 2018 at our Markel CATCo. Those reserves are held at Markel
CATCo Re Ltd., an unconsolidated subsidiary of Markel CATCo
Investment Management ("MCIM"). The Markel CATCo Inquiries are
limited to MCIM and its subsidiaries (together, Markel CATCo) and
do not involve other Markel Corporation subsidiaries.
Markel Corporation retained outside counsel to conduct an
internal review of Markel CATCo's loss reserving in late 2017 and
early 2018. The internal review was completed in April 2019 and
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. At
this time, Markel Corporation is unable to predict the duration,
scope or result of the Markel CATCo Governmental Inquiries.
California Bankruptcy Court and the PG&E Proposed Settlement
(at 14 December 2020)
The Investment Manager closely monitored the procedural
developments in the California Bankruptcy Court with the assistance
of external counsel. The information contained in this section is a
summary of publicly available information and further detailed
information regarding the PG&E chapter 11 case can be found on
https://restructuring.primeclerk.com/pge/.
As reported earlier, effective 1 July 2020, the California
Bankruptcy Court formally approved the PG&E reorganization
plan. Part of that plan included an $11 billion settlement with the
Ad Hoc Subrogation Group (originally, primary insurers only, now
primary insurers and hedge funds that bought subrogation rights
from primary insurers).
Whilst it is estimated that the $11 billion plan represents a
55% recovery on an aggregate basis to those primary insurers, such
distributions are subject to a confidential allocation formula
based upon the applicable fire (defined as claims relating to the
2017 North fires and 2018 Camp fire). Thus not all 2017 and 2018
California Wildfire losses are in scope for PG&E subrogation
proceeds.
There remains uncertainty with regards to the allocation of
recoveries across the insurance sector. Estimating recoveries is
further complicated by the fact that many primary insurers have
sold their claims during the course of the chapter 11 proceeding at
what may have been at discounted rates, which will ultimately
decrease the amount available to reinsurers.
Contractually any reduction due to subrogation in ground up loss
(or recovery) to the original Insurance companies will flow through
to the reinsurance placements. Any potential recoveries will be
based on the reduction in loss to treaty reinsurance and
retrocessional reinsurance programs and will be based on the level
of each applicable layer - the order of recovery will flow from the
top down. For companies that have sold their subrogation rights,
any reduction in cedant reported loss would have been computed
already by the flow of any sale price, and the likelihood of any
additional recovery flowing through to Markel CATCo as a result of
the $11 billion payment will be less likely. The Master Fund has
not accrued any amount for the PG&E proposed settlement.
Whilst there was also a modest reduction in 2018 California
Wildfire claims reported during the 2020 financial reporting period
FY2020, this was offset by some adverse development experienced in
relation to Typhoon Jebi and Hurricane Michael resulting in the
Side Pocket Investments of 2018 remaining stable year on year.
The Manager continues to liaise with cedants in order to
determine the effect of any remaining California wildfire
subrogation recoveries (where applicable) on reported losses on
applicable indemnity contracts.
2. CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company maintains its cash
balances (not assets supporting retrocessional reinsurance
transactions) in nancial institutions, which at times may exceed
federally insured limits. The Company is subject to credit risk to
the extent any nancial institution with which it conducts business
is unable to ful ll contractual obligations on its behalf.
Management monitors the nancial condition of such nancial
institutions and does not anticipate any losses from these
counterparties. At 30 June 2021, cash and cash equivalents are held
with HSBC Bank Bermuda Ltd., which has a credit rating of A-/A-2,
and with HSBC Global Asset Management (USA) Inc., which has a
credit rating of A/A-2 as issued by Standard & Poor's.
3. COVID-19 CONSIDERATIONS
As at 30 June 2021, the Board and the Investment Manager have
concluded that the recent outbreak of the novel Coronavirus
("COVID-19") at the start of January 2020 did not have a
significant financial impact on the Company's going concern
assessment. There was minimal disruption in operational activities,
evident through the several commutations and the resulting nine
side pocket releases conducted between January 2020 and 30 June
2021. The rapid development and fluidity of COVID-19 precludes any
prediction to its ultimate impact, which may have a continued
adverse impact on economic and market conditions and trigger a
period of global economic slowdown.
The Investment Manager is monitoring developments relating to
COVID-19 and is coordinating its operational response based on
existing business continuity plans and on guidance from global
health organisations, relevant governments, and general pandemic
response best practices.
4. INVESTMENTS IN MASTER FUND, AT FAIR VALUE
The following table summarises the Company's Investments in the
Master Fund:
(Expressed in United States Dollars) 30 June 2021
-------------------------------------------------- ------------------------------------------------------------------
$
-------------------------------------------------- ------------------------------------------------------------------
Investment in Markel CATCo Reinsurance Fund Ltd. -
Markel CATCo Diversified Fund, at fair
value 85,118,306
-------------------------------------------------- ------------------------------------------------------------------
From 1 January to 30 June 2021, the net investment loss, and net
realised loss on securities allocated from the Master Fund in the
Statements of Operations included gross realised gains on
securities of $8,627,697 and gross realised loss on securities of
$16,715,743. Over the same period, the net change in unrealised
gain on securities allocated from the Master Fund included gross
unrealised gains of $36,141,036 and gross unrealised loss of
$16,971,939.
5. LOSS RESERVES
The following disclosures on loss reserves are included for
information purposes and relate speci cally to the Reinsurer and
are re ected through the valuations of investments held by the
Company through the Master Fund.
The reserve for unpaid losses and loss expenses recorded by the
Reinsurer includes estimates for losses incurred but not reported
as well as losses pending settlement. The Reinsurer make a
provision for losses on contracts only when an event that is
covered by the contract has occurred. When a potential loss event
has occurred, the Reinsurer uses the underlying cedant loss
notifications along with management's judgement as deemed
appropriate to estimate the level of reserves required. The process
of estimating loss reserves is a complex exercise, involving many
variables and a reliance on actuarial modeled catastrophe loss
analysis. However, there is no precise method for evaluating the
adequacy of loss reserves when industry loss estimates are not
final, and actual results could differ from original estimates. In
addition, the Reinsurer's reserves include an implicit risk margin
to reflect uncertainty surrounding cash flows relating to loss
reserves. The risk margin is set by the actuarial team of the
Investment Manager.
Future adjustments to the amounts recorded as of 30 June 2021,
resulting from the continual review process, as well as differences
between estimates and ultimate settlements, will be reflected in
the Reinsurer's Statements of Operations in future periods when
such adjustments become known. Future developments may result in
losses and loss expenses materially greater or less than the
reserve provided.
The Reinsurer's loss reserves represent the Insurance Manager's
current best estimate of ultimate settlement values. The reserves
are subject to inherent uncertainty due to industry loss estimates
varying from final insured losses. The timing and the amount of
losses reported to the Reinsurer is in the control of third
parties, and has a direct effect on loss reserves, which may
require re-estimation as new information becomes available over
time.
As part of the ongoing reserving process, the Insurance Manager
reviews loss reserves on a monthly basis and will make adjustments,
if necessary and such future adjustments in loss reserves could
have further material impact either favourably or adversely on
investor earnings.
In the six months ended 30 June 2021, the Reinsurer paid total
net claims of $261,630,971. Of this amount $9,035,459 related to
the 2016 events, $165,877,505 related to the 2017 loss events,
$64,802,495 related to 2018, and $21,915,512 was in respect of 2019
events.
6. CAPITAL SHARE TRANSACTIONS
As of 30 June 2021, the Company has authorised share capital of
1,500,000,000 unclassified shares of US$0.0001 each and Class B
Shares ("B Shares") of such nominal value as the Board may
determine upon issue.
As of 30 June 2021, the Company has 149,305,187 Class 1 ordinary
shares (the "Ordinary Shares") and 83,230,467 Class C Shares (the
"C Shares") in issue.
Transactions in shares during the period under review, the
shares outstanding, and the net asset value ("NAV") per share are
as follows:
Beginning Share Ending Ending Net Ending NAV
30 June 2021 Shares Redemptions Shares Assets Per Share
----------------- ------------ -------------- ------------ ------------- -----------
Class 1 -
Ordinary Shares 168,898,993 (19,593,806) 149,305,187 $45,765,474 $0.3065
----------------- ------------ -------------- ------------ ------------- -----------
Class C Shares 126,369,585 (43,139,118) 83,230,467 $45,283,241 $0.5441
----------------- ------------ -------------- ------------ ------------- -----------
Total 295,268,578 (62,732,924) 232,535,654 $91,048,715
----------------- ------------ -------------- ------------ ------------- -----------
The Company has been established as a closed-ended mutual fund
and, as such, shareholders do not have the right to redeem their
shares. The shares are held in trust by Link Market Services (the
"Depository") in accordance with the Depository Agreement between
the Company and the Depository. The Depository holds the shares and
in turn issues depository interests in respect of the underlying
shares which have the same rights and characteristics of the
shares.
The Board has the ability to issue one or more classes of C
Share during any period when the Master Fund has designated one or
more investments as Side Pocket Investments. This typically will
happen if a covered or other pre-determined event has recently
occurred or seems likely to occur under an Insurance-Linked
Instrument. In such circumstances, only those shareholders on the
date that the investment has been designated as a Side Pocket
Investment will participate in the potential losses and premiums
attributable to such Side Pocket Investment. Any shares issued when
Side Pocket Investments exist will be as one or more classes of C
Share that will participate in all of the Master Fund's portfolio
other than in respect of potential losses and premiums attributable
to any Side Pocket Investments in existence at the time of issue.
If no Side Pocket Investments are in existence at the time of
proposed issue, it is expected that the Company will issue further
Ordinary Shares.
The Company's existing portfolio is currently in run-off and as
a result has only SPI Shares outstanding. The Company issued a
circular to Shareholders dated 28 February 2019 (the "February 2019
Circular") concerning the proposed implementation of the orderly
Run-Off of the Company's portfolios by means of a change to the
Company's investment policy to enable the Company to redeem all of
the Company's Master Fund Shares attributable to the Ordinary or C
Shares, as the case may be (the "Proposals"), and distributing the
net proceeds thereof to the relevant class of Shareholders. The
Proposals were approved at class meetings of the Ordinary and C
shareholders of the Company held on 26 March 2019.
On 13 March 2020, the Company issued a circular to Shareholder
announcing that the Company will not raise further capital in any
circumstances, and so the Company is being terminated by means of a
managed process ("Compulsory Redemptions") leading to liquidation
in due course. Accordingly, the only further business that will be
undertaken is that necessary to complete the run-off of the
Company's portfolios.
During the six-month period ended 30 June 2021, the Company
completed two partial Compulsory, returning a total amount c.$27.2m
to shareholders. Since February 2019, the Company has returned c.
$325.2m of capital to investors by way of a "reverse" tender offer
in September 2019, a subsequent share buyback programme during the
fourth quarter of 2019, and since April 2020, an ongoing compulsory
share redemptions programme.
The table below details the compulsory redemptions carried out
by the Company since the Proposals were approved:
Compulsory Redemption Ordinary C Share Total
Redemption Date Share Class ($m) ($m)
Class ($m)
-------------------- ---------------- ------------ ------------ ------
Partial Compulsory
Redemption 1 20 April 2020 5.3 24.0 29.3
-------------------- ---------------- ------------ ------------ ------
Partial Compulsory
Redemption 2 18 May 2020 4.6 14.2 18.8
-------------------- ---------------- ------------ ------------ ------
Partial Compulsory
Redemption 3 1 July 2020 3.6 12.2 15.8
-------------------- ---------------- ------------ ------------ ------
Partial Compulsory 2 September
Redemption 4 2020 7.0 30.9 37.9
-------------------- ---------------- ------------ ------------ ------
Partial Compulsory
Redemption 5 7 October 2020 15.9 78.6 94.5
-------------------- ---------------- ------------ ------------ ------
Partial Compulsory 11 January
Redemption 6 2021 2.0 6.0 8.0
-------------------- ---------------- ------------ ------------ ------
Partial Compulsory
Redemption 7 11 May 2021 3.4 15.8 19.2
-------------------- ---------------- ------------ ------------ ------
Total Capital
Return 41.8 181.7 223.5
-------------------------------------- ------------ ------------ ------
7. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to the Investment Management Agreement dated 8 December
2015, the Investment Manager is empowered to formulate the overall
investment strategy to be carried out by the Company and to
exercise full discretion in the management of the trading,
investment transactions and related borrowing activities of the
Company in order to implement such strategy. The Investment Manager
earns a fee for such services (Note 8).
The Investment Manager also acts as the Master Fund's investment
manager and the Reinsurer's insurance manager.
On 1 January 2020, the Investment Manager entered into a Run-Off
Services Agreement with Lodgepine Capital Management Limited
("LCML"), a subsidiary of Markel Corporation, under which, LCML
will provide services relating to the management of the Run-Off
business of Markel CATCo Investment Management.
8. RELATED PARTY TRANSACTIONS
The Investment Manager is entitled to a management fee,
calculated and payable monthly in arrears equal to 1/12 of 1.5 per
cent of the net asset value, which is not attributable to the
Company's investment in the Master Fund shares as at the last
calendar day of each calendar month. Management fees related to the
investment in the Master Fund shares are charged in the Master Fund
and allocated to the Company. Performance fees are charged in the
Master Fund and allocated to the Company.
On 28 January 2021, the Investment Manager announced its
decision to maintain a partial waiver of 50 per cent of the
management fees on Side Pocket Investments for the financial year
2021. This is equal to an annual Management Fee of 0.75 per cent.
The Management Fee on Side Pocket Investments will be reviewed
again at the end of the current financial year.
As noted in Note 7, on 1 January 2020, the Investment Manager
entered into a Run-Off Services Agreement with LCML, a subsidiary
of Markel Corporation. LCML receives a monthly service fee of 75
per cent of the net management fees due to the Investment
Manager.
Markel Corporation, which holds the entire share capital of the
Investment Manager, holds 4.24 per cent of the voting rights of the
Ordinary Shares issued in the Company as of 30 June 2021.
In addition, as at 30 June 2021, two of the Directors are also
shareholders of the Company. The Directors' holdings are
immaterial, representing less than 1 per cent of the Company
NAV.
9. ADMINISTRATIVE FEE
Centaur Fund Services (Bermuda) Limited serves as the Company's
Administrator. As a licensed fund administrator pursuant to the
provisions of the Bermuda Investment Funds Act, the Administrator
performs certain administrative services on behalf of the Company.
The Administrator receives a xed monthly fee.
10. FINANCIAL HIGHLIGHTS
Financial highlights for the period 1 January to 30 June 2021
are as follows:
Class 1 Class
Ordinary Shares C Shares
Per share operating performance
Net asset value, beginning of period $ 0.2828 0.5071
Income (loss) from investment operations
Net investment loss (0.0169) (0.0210)
Management fee (0.0010) (0.0017)
Net gain on investments 0.0405 0.0602
Total from investment operations 0.0226 0.0375
Discount on Share Buy-Back 0.0011 (0.0005)
Net asset value, end of period $ 0.3065 0.5441
Total net asset value return
Total net asset value return before
performance fee 7.98% 7.39%
Performance fee 0.00% 0.00%
Total net asset value return after
performance fee* 7.98% 7.39%
Ratios to average net assets
Expenses other than performance fee** -5.93% -3.70%
Performance fee 0.00% 0.00%
Total expenses after performance
fee -5.93% -3.70%
Net investment loss -6.34% -4.48%
* Adjusting the opening capital to reflect the partial
compulsory redemptions paid in January and May 2021, the normalised
total return for 2021 is equivalent to 7.95% and 7.38% for the
Ordinary and C Shares respectively.
** Expenses presented above is net of management fees waived by
the Manager (Note 8). The ratio of waived management fees to
average net assets are 0.38% for Class 1 Ordinary Shares and 0.37%
for Class C Shares
Financial highlights are calculated for each class of shares. An
individual shareholder's return may vary based on the timing of
capital transactions. Returns and ratios shown above are for the
period ended 30 June 2021 and have not been annualised. The per
share amounts and ratios re ect income and expenses allocated from
the Master Fund.
11. INDEMNIFICATIONS OR WARRANTIES
In the ordinary course of its business, the Company may enter
into contracts or agreements that contain indemni cations or
warranties. Future events could occur that lead to the execution of
these provisions against the Company. Based on its history and
experience, management believes that the likelihood of such an
event is remote.
12. LEGAL CONTINGENCY PROVISION
In May 2021, the Investment Manager recorded a provisional
contingency accrual for potential legal fees and restructuring cost
at the Master Fund level. Of this amount, $3,677,284 was
proportionately allocated to the Company based on its share of
investment in the Master Fund.
13. SUBSEQUENT EVENTS
On 27 September 2021, the Company announced the buy-out
transaction which offers an early return of substantially all NAV
to investors in the Company, while allowing investors to retain the
right to receive any upside at the end of the current run-off
period if currently held reserves are more than sufficient to pay
claims. A copy of the announcement and further details regarding
the proposal can be accessed at
https://catcobuyout.alixpartners.com.
The unaudited condensed interim Financial Statements were
approved by the Board and available for issuance on 27 September
2021. Subsequent events have been evaluated through this date.
For further information:
Markel CATCo Investment Management
Ltd.
Judith Wynne, General Counsel
Telephone: +1 441 493 9005
Email: judith.wynne@markelcatco.com
Mark Way, Chief of Investor Marketing
Telephone: +1 441 493 9001
Email: mark.way@markelcatco.com
Numis Securities Limited
David Benda / Hugh Jonathan
Telephone: +44 (0) 20 7260 1000
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