Catco Reinsurance Opportunities (CAT) has wiped nearly 14% off its net asset value (NAV) as it starts to tally the cost of the recent spate of hurricanes in the Caribbean and US.
The fund has reported an-end-of-September NAV of $1.0795, down 13.7% over the month, to reflect the potential losses from hurricanes Harvey, Irma and Maria that hit the US and Puerto Rico.
Shares in the company tumbled 7.4% to $1.25 at the end of August as investors feared the worst, and currently trade at $1.10.
Catco had implemented a 6% loss reserve to the August NAV following hurricane Harvey but has had to revise this, meaning it has implemented loss reserves of 20%.
Manager Markel Catco said that uncertainty still remains over the full extent of insurance losses but added that its loss reserve would have been greater if the company had not bought reinsurance protections to hedge its exposure.
In a note to the stock exchange, the fund said: ‘The manager will continue to monitor any possible further impact from these hurricanes and will reassess the loss reserves for each remaining 2017 monthly NAV calculation.’
It added that Catco can already absorb the losses created by the recent earthquakes in Mexico.
The fund is planning on raising more money from investors with a placing of new C shares in November, which will not be exposed to historic events.
The money will be raised via the Markel Catco Diversified fund and the master fund, through which the trust invests all of its assets.
The board said the proposed share issue was ‘in response to demand from both current shareholders and new investors’ looking to take advantage of firmer reinsurance rates following the hurricanes.
Catco targets a US dollar net return of 9%-12% over Libor, the inter-bank lending rate. It invests in reinsurance contracts written to protect against low frequency but high severity events such as hurricanes and earthquakes.
Ewan Lovett-Turner, analyst at Numis Securities, which is acting as a broker for the share placing, said: ‘The maximum net return on invested capital this year has been c.16%, assuming no losses, and the maximum loss to any single event, regardless of magnitude, would result in net portfolio returns for investors of no worse than -10%.’