TIDMCAT
RNS Number : 5930N
CATCo Reinsurance Opps Fund Ltd
26 September 2023
26 September 2023
CATCo Reinsurance Opportunities Fund Ltd. (the "Company")
Interim Financial Report
For the Six Months Ended 30 June 2023
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"), all
remaining investments are exposed to risk relating to reinsurance
contracts entered into from 2018 to 2019.
Markel CATCo Investment Management Ltd. (the "Investment
Manager") continues to be focused on proactively managing the
trapped capital and returning it to Shareholders in as timely and
cost effective a manner as possible.
Net Asset Value ("NAV")
The Company opened the year with a total NAV of $9.0m which
consisted of $1.5m Ordinary Share NAV and $7.5m of C Share NAV and
increased to $10.8m by 30 June 2023, of which $1.8m relates to the
Ordinary Share NAV and $9.0m to the C Share NAV.
The increase in NAV is due to further upside recorded relating
to positive development on the 2018 and 2019 reinsurance portfolios
plus interest income. This resulted in a closing NAV per share of
$15.76 and $114.69 for Ordinary Shares and C Shares
respectively.
2023 Ordinary Shares NAV ($m)
----------------------------------------------
Opening balance 1 January 2023 $1.5
---------------------------------------- ----
Investment appreciation net of expenses $0.3
---------------------------------------- ----
Closing balance 30 June 2023 $1.8
---------------------------------------- ----
2023 C Shares NAV ($m)
----------------------------------------------
Opening balance 1 January 2023 $7.5
---------------------------------------- ----
Investment appreciation net of expenses $1.5
---------------------------------------- ----
Closing balance 30 June 2023 $9.0
---------------------------------------- ----
RETURN OF CAPITAL TO SHAREHOLDERS
From the commencement of the Run-Off (26 March 2019) to 30 June
2023, the Company has successfully returned $413.9m of capital to
Shareholders by means of dividends, tender offer, share buybacks,
compulsory share redemptions and completion of the Buy-Out
Transaction.
Form of Return Payment or Ordinary
Redemption Date Shares C Shares Total
/ Period ($m) ($m) ($m)
------------------------------ ----------------- -------- -------- -----
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
------------------------------ ----------------- -------- -------- -----
Buy-Out Transaction 11 April 2022 51.7 53.9 105.6
------------------------------ ----------------- -------- -------- -----
Partial Compulsory Redemption
8 29 November 2022 4.6 13.2 17.8
------------------------------ ----------------- -------- -------- -----
Total Capital Return 119.3 294.6 413.9
------------------------------------------------- -------- -------- -----
Commutations
The Investment Manager is continuing to proactively pursue the
run-off of the remaining 2018 and 2019 risk portfolios.
Whilst the underlying risk contracts typically have a 36-month
reporting period post expiry of the risk period, the Investment
Manager has the discretion to either commute the contract or
continue to hold it open if it considers that to do so is in the
best interest of Shareholders.
At the time of this report, there were 10 open contracts
remaining at the Reinsurer, of which seven related to the 2018
underwriting year and three to the 2019 underwriting year. As at 30
June 2023, all open contracts are subject to commutation
negotiations.
Overview of Investments
The following table outlines the investments held by the
Ordinary Shares and C Shares respectively.
Investments Held by Share Class as at 30 June 2023:
SPI's % of Share NAV Value in $ millions
---------------- -------------- -------------------
Ordinary Shares
---------------- -------------- -------------------
SPI 2018 64.09% 1.15
---------------- -------------- -------------------
SPI 2019 15.84% 0.28
---------------- -------------- -------------------
C Shares
---------------- -------------- -------------------
SPI 2018 73.19% 6.57
---------------- -------------- -------------------
SPI 2019 13.08% 1.18
Additionally, as at 30 June 2023, cash of $0.37m and $1.23m is
held by the Ordinary Shares and C Shares respectively.
Whilst it is not possible to determine the ultimate value of
Side Pocket Investments ("SPIs") to be realised, the Investment
Manager will continue to report the fair value of underlying
investments through the issuance of Ordinary and C Share NAVs on a
quarterly basis.
Further, whilst it is not possible to determine the ultimate
future value of the remaining contracts, it is likely that
additional commutations will be achieved within the next six to 12
months. The Investment Manager is committed to working on the
remaining commutations with the cedants in the best interests of
Shareholders.
SIDE POCKET INVESTMENTS ("SPIs")
As at 30 June 2023, the SPIs in total represent c. 79.93 per
cent of Ordinary Share NAV (31 December 2022: c. 77.16 per cent)
and c. 86.27 per cent of the C Share NAV (31 December 2022: c.
84.69 per cent).
The positions of the 2018 and 2019 SPIs as at 30 June 2023 were
as follows:
-- 2018 SPIs, principally relating to Hurricanes Michael and
Florence, Typhoon Jebi and the 2018 California Wildfires, amount to
c. 64.09 per cent of Ordinary Share NAV and c. 73.19 per cent of C
Share NAV (31 December 2022: c. 66.58 per cent and c. 75.94 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. 15.84 per cent
of Ordinary Share NAV and c. 13.08 per cent of C Share NAV (31
December 2022: c. 10.58 per cent and c. 8.75 per cent of Ordinary
Share and C Share NAV respectively).
James Keyes
Chairman,
CATCo Reinsurance Opportunities Fund Ltd.
For and on behalf of the Board
26 September 2023
Directors' Report
EFFICIENT CAPITAL MANAGEMENT DURING RUN-OFF OF PORTFOLIO AND
DISTRIBUTIONS
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 Preference Shares of the
Reinsurer.
With effect from 26 March 2019 (the "Run-Off Inception Date"),
when the Company's Shareholders approved an amendment to the
Company's investment policy so as to allow an orderly Run-Off of
the Company's portfolios with the effect that the Company's
investment policy is now limited to realising the Company's assets
and distributing any net proceeds to the relevant Shareholders, the
Company has taken a number of actions in order to progress the
Run-Off and return capital to Shareholders as efficiently as
possible. These actions are described in more detail in the
Company's successive Annual Reports for the years ended 31 December
2020 onwards, most recently in the Annual Report for the year ended
31 December 2022 (the "2022 Annual Report"), which is available on
the Company's website. The Chairman's Statement summarises these
actions and all returns of capital to Shareholders for the period
from the Run-Off Inception Date to 30 June 2023. The Chairman's
Statement also summarises the Investment Manager's current
activities in progressing further recoveries for eventual
distribution to Shareholders.
In view of the amendment to the Company's investment policy
referred to above, the Directors have concluded that the Company
will not raise further capital in any circumstances, and so the
Company is being wound down by means of a managed process leading
to liquidation in due course. Accordingly, the only further
business that will be undertaken is that necessary to complete the
Run-Off of each of the Company's portfolios.
The Directors remain of the view that it is currently in the
best interests of the Company for the Investment Manager to
continue to manage the Run-Off, rather than to commence a formal
members' voluntary liquidation. The Directors will keep this
approach under review and currently anticipate that they will not
look to put the Company into members' voluntary liquidation until
the Run-Off is substantially completed. At such time, a further
circular will be delivered to Shareholders to convene a further
meeting at which the Shareholders will be asked to approve the
liquidation.
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 share price and
liquidity, and the efficient management of the Run-Off process. The
Run-Off process is managed by the process of formal oversight at
each Board meeting, and by interim progress update reports provided
by the Investment Manager to the Board. Operational disruption,
accounting and legal risks are covered annually, and regulatory
compliance is reviewed at each Board meeting. The Board is assured
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 (after repayment of the Buy-Out Amount,
as described in the 2022 Annual Report) and the management of costs
and expenses, will continue to be managed efficiently.
Additionally, emerging risks in the reinsurance market are not
relevant to the underlying portfolio that is in Run-Off.
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 2023 amounted to
114,104 Ordinary Shares and 78,324 C Shares. As at the date of this
Report, the Company's issued share capital is unchanged.
capital Related party disclosure and transactions with the
Investment Manager
The Investment Manager, which was appointed as the Company's
Investment Manager on 8 December 2015, is also the investment
manager of the Master Fund SAC and the insurance manager of the
Reinsurer. The Company entered into a new investment management
agreement with the Investment Manager on 28 March 2022 (the
"Investment Management Agreement") in connection with the Buy-Out
Transaction which completed on 11 April 2022 (as further detailed
in the 2022 Annual Report). The terms of the Investment Management
Agreement substantially reflect the terms of the investment
management agreement between the Company and the Investment Manager
entered into on 8 December 2015. The Investment Manager is entitled
to a management fee. Beginning in July 2022, following the move to
quarterly reporting announced on 14 July 2022, the management fee
is calculated and payable quarterly in arrears equal to 1/4 of 1.5
per cent of the net asset value of the Company which was not
attributable to the Company's investment in the Master Fund Shares
as at the last calendar day of each calendar quarter. In addition,
the Investment Manager was entitled to a monthly fee payable for
secretarial, accounting and administrative services of 1/12 of
$275,000. This latter fee will no longer be charged to the Company
with effect from 1 January 2022.
On 28 January 2021, the Company announced the continuation of
its decision in 2020 to consent to a partial waiver of 50.00%
(one-half) of the management fee paid by the Master Fund SAC to the
Investment Manager in respect of such of its Master Fund Shares
that are exposed to side pocket investments (the "SP Management
Fees") for the period 1 January 2021 to 31 December 2021, resulting
in an effective management fee of 0.75% per annum for that period.
That partial waiver will now continue in force for the foreseeable
future. Performance fees are also payable to the Investment Manager
by the Master Fund SAC, subject to certain performance targets
being met.
As at the date of this report, Markel Corporation ("Markel"),
which holds the entire share capital of the Investment Manager,
holds, through its asset management subsidiary, 3.91 per cent of
the total voting rights of the Ordinary Shares and C Shares issued
by the Company.
In addition, one of the Directors of the Company is also a
Shareholder of 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.
After due and careful consideration of the Company's
circumstances and objectives as described elsewhere in this
document, the Directors have concluded that the Company has
adequate financial resources to continue its operational existence
for the foreseeable future, and at least six months from the date
of this half-yearly report or until such time as the Board
considers it appropriate, having taken advice, to place the Company
into voluntary liquidation. Accordingly, the Board continues 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 26
September 2023, 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
26 September 2023
CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
(Expressed in United States As at As at As at
Dollars) 30 June 30 June 31 Dec.
2023 (Unaudited) 2022 (Unaudited) 2022 (Audited)
----------------------------------- ----------------- ----------------- ---------------
$ $ $
Assets
Investments in Markel CATCo
Reinsurance Fund Ltd. - Markel
CATCo Diversi ed Fund (Note
4) 9,187,391 12,790,043 7,537,919
Cash and cash equivalents (Note
2) 4,213,381 8,831,376 4,395,950
Other assets 40,258 45,416 44,665
----------------------------------- ----------------- ----------------- ---------------
Total assets 13,441,030 21,666,835 11,978,534
----------------------------------- ----------------- ----------------- ---------------
Liabilities
Schemes of Arrangement Buy-Out
Ordinary Course Fees (Note
1, Note 6 and Note 12) 2,490,070 2,932,754 2,780,635
Schemes of Arrangement Buy-Out - 167,813 -
Transaction Cost (Notes 1 and
6)
Due from Markel CATCo Reinsurance - 200,920 -
Fund Ltd. - Markel CATCo Diversi
ed Fund
Management fee payable (Note
8) 2,990 79,387 2,806
Accrued expenses and other
liabilities 166,103 132,452 160,717
----------------------------------- ----------------- ----------------- ---------------
Total liabilities 2,659,163 3,513,326 2,944,158
----------------------------------- ----------------- ----------------- ---------------
Net assets 10,781,867 18,153,509 9,034,376
----------------------------------- ----------------- ----------------- ---------------
NAV per Share (Note 6)
CONDENSED STATEMENTS OF OPERATIONS
(Expressed in United States Six months Six months Year ended
Dollars) to 30 June to 31 Dec.
2023 (Unaudited) 30 June 2022 (Audited)
2022 (Unaudited)
------------------------------------- ----------------- ----------------- ---------------
$ $ $
Net investment income allocated
from
Master Fund (Note 4)
Net realised gain on Schemes
of Arrangement Buy-Out Transaction - 9,204,153 9,204,154
Interest income 11,335 4,482 11,098
Schemes of Arrangement Buy-Out
Transaction Cost (Notes 1 and
6) - (27,380) 68,627
Management fee waived (Note
8) 33,840 84,924 125,575
Management fee (Note 8) (67,680) (169,848) (251,150)
Administrative fee (Note 9) (32,204) (43,651) (79,383)
Professional fees and other (24,133) (37,204) (42,944)
Schemes of Arrangement Buy-Out
Ordinary Course Fees (Note
12) 90,177 (961,225) (346,325)
------------------------------------- ----------------- ----------------- ---------------
Net investment income allocated
from Master Fund 11,335 8,054,251 8,689,652
------------------------------------- ----------------- ----------------- ---------------
Investment income
Income from Buy-Out Transaction
(Note 6) - - 1,482,176
Interest 98,019 8,453 115,955
------------------------------------- ----------------- ----------------- ---------------
Total investment income 98,019 8,453 1,598,131
------------------------------------- ----------------- ----------------- ---------------
Company expenses
Schemes of Arrangement Buy-Out
Transaction Cost (Notes 1 and
6) - (368,733) (245,245)
Schemes of Arrangement Buy-Out
Ordinary Course Fees (Note
12) 290,565 (2,932,754) (2,780,635)
Management fee waived (Note
8) 5,884 152,073 165,018
Professional fees and other (267,681) (376,974) (622,637)
Management fee (Note 8) (11,768) (304,146) (330,036)
Administrative fee (Note 9) (17,000) (37,500) (54,500)
------------------------------------- ----------------- ----------------- ---------------
Total Company expenses - (3,868,034) (3,868,035)
------------------------------------- ----------------- ----------------- ---------------
Net investment income 109,354 4,194,670 6,419,748
------------------------------------- ----------------- ----------------- ---------------
Net realised loss and net change
in unrealised gain / (loss)
on securities allocated from
Master Fund
Net realised loss on securities - (17,788,652) (12,399,264)
Net change in unrealised loss
on securities 1,638,137 30,555,616 33,103,014
------------------------------------- ----------------- ----------------- ---------------
Net gain on securities allocated
from Master Fund 1,638,137 12,766,964 20,703,750
------------------------------------- ----------------- ----------------- ---------------
Net increase in net assets
resulting from operations 1,747,491 16,961,634 27,123,498
------------------------------------- ----------------- ----------------- ---------------
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS
(Expressed in United States Six months Six months Year ended
Dollars) to to 30 June 31 Dec. 2022
2022 (Unaudited)
30 June (Audited)
2023 (Unaudited)
--------------------------------- ------------------ ----------------- --------------
$ $ $
Operations
Net investment gain 109,354 4,194,670 6,419,748
Net realised loss on securities
allocated from Master Fund - (17,788,652) (12,399,264)
Net change in unrealised loss
on securities
allocated from Master Fund 1,638,137 30,555,616 33,103,014
--------------------------------- ------------------ ----------------- --------------
Net increase in net assets
resulting from
operations 1,747,491 16,961,634 27,123,498
--------------------------------- ------------------ ----------------- --------------
Capital share transactions
--------------------------------- ------------------ ----------------- --------------
Repurchase of Class Ordinary
Shares (Note 6) - (51,727,869) (56,327,613)
Repurchase of Class C Shares
(Note 6) - (53,856,768) (67,055,845)
Dividends paid (Note 6) - - (1,482,176)
--------------------------------- ------------------ ----------------- --------------
Net decrease in net assets
resulting from
capital share transactions - (105,584,637) (124,865,634)
--------------------------------- ------------------ ----------------- --------------
Net increase/ (decrease) in
net assets 1,747,491 (88,623,003) (97,742,136)
--------------------------------- ------------------ ----------------- --------------
Net assets, beginning of period 9,034,376 106,776,512 106,776,512
--------------------------------- ------------------ ----------------- --------------
Net assets, end of period 10,781,867 18,153,509 9,034,376
--------------------------------- ------------------ ----------------- --------------
CONDENSED STATEMENTS OF CASH FLOW
(Expressed in United States Six months Six months Year ended
Dollars) to to 31 Dec. 2022
(Audited)
30 June 30 June
2023 2022
(Unaudited) (Unaudited)
---------------------------------------- -------------- -------------- --------------
$ $ $
Cash flows from operating activities
Net increase in net assets
resulting from operations 1,747,491 16,961,634 27,123,498
Adjustments to reconcile net
increase in net
assets resulting from operations
to net cash
provided by/ (used in) operating
activities:
Net investment income, net
realised loss and net change
in unrealised gain / (loss)
on
securities allocated from
Master Fund (1,649,472) (20,821,215) (29,393,399)
Sale of investment in Markel
CATCo Reinsurance Fund Ltd.
- Markel CATCo Diversified
Fund - 109,338,323 114,022,425
Dividends from Buy-Out Transaction - - 9,140,206
Changes in operating assets
and liabilities:
Due from Markel CATCo Reinsurance - 200,920 -
Fund Ltd. - Markel CATCo Diversified
Fund
Other assets 4,407 14,547 15,298
Schemes of Arrangement Buy-Out
Ordinary Course Fees (Note
12) (290,565) 2,932,754 2,780,635
Schemes of Arrangement Buy-Out - 167,813 -
Transaction Cost (Notes 1
and 6)
Management fee payable 184 75,967 (614)
Accrued expenses and other
liabilities 5,386 (60,891) (32,626)
---------------------------------------- -------------- -------------- --------------
Net cash provided by (used
in) operating activities (182,569) 108,809,852 123,655,423
---------------------------------------- -------------- -------------- --------------
Cash flows from financing activities
Repurchase of Class Ordinary
Shares - (51,727,869) (56,327,613)
Repurchase of Class C Shares - (53,856,768) (67,055,845)
Dividends paid (Note 6) - - (1,482,176)
---------------------------------------- -------------- -------------- --------------
Net cash used in financing
activities - (105,584,637) (124,865,634)
---------------------------------------- -------------- -------------- --------------
Net increase / (decrease) in
cash and cash equivalents (182,569) 3,225,215 (1,210,211)
---------------------------------------- -------------- -------------- --------------
Cash and cash equivalents,
beginning of period 4,395,950 5,606,161 5,606,161
---------------------------------------- -------------- -------------- --------------
Cash and cash equivalents,
end of period 4,213,381 8,831,376 4,395,950
---------------------------------------- -------------- -------------- --------------
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS - 30 JUNE
2023
(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 Diversified Fund (the "Master Fund").
The Master Fund is a segregated account of Markel CATCo Reinsurance
Fund Ltd. (the "Master Fund SAC"), 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 2023,
the Company's ownership is 17.03 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 course of 2024. 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 (after repayment of the Buy-Out Amount,
as described below). Refer to Going Concern Considerations under
Basis of Presentation below.
On 27 September 2021, the Company announced a proposal for a
buy-out transaction (the "Buy-Out Transaction") that would provide
for, inter alia, an accelerated return of substantially all the net
asset value ("NAV") in the Master Fund SAC and the Company
(together, the "Funds") to investors (further details of the
Buy-Out Transaction appear in the Chairman's Statement and the
Directors' Report). To support the implementation of the Buy-Out
Transaction through the Schemes of Arrangement in Bermuda (the
"Schemes"), each of the Company, the Master Fund SAC, the
Investment Manager and the Reinsurer filed applications with the
Supreme Court of Bermuda for the appointment of joint provisional
liquidators with limited powers (the "JPLs"). On 1 October 2021 the
JPLs were appointed. On 5 October 2021, the JPLs petitioned for the
provisional liquidation proceedings to be recognised by the U.S.
Bankruptcy Court in the Southern District of New York, which
request was subsequently granted along with other ancillary
relief.
The appointment of the JPLs and U.S. recognition allowed, along
with the necessary investor support, for the smooth implementation
of the Buy-Out Transaction and approval of the Schemes. The Company
did not make any further returns of capital while the JPLs were
appointed and the Buy-Out Transaction was being considered and
implemented.
Upon the expiry of the "Early Consent Deadline" for the Buy-Out
Transaction on 22 October 2021, investors representing over 90% of
the Master Fund SAC and investors representing over 95% of the
Company had entered into support undertakings or otherwise
indicated their support for the Buy-Out Transaction.
On 26 October 2021, it was announced that Markel Corporation had
agreed to increase the funding it would provide, to facilitate
certain improvements to the terms of the Buy-Out Transaction. The
improvements resulted in the buy-out of all segregated accounts of
the Funds, plus an additional cash distribution to investors by way
of an increased consent fee and other cash consideration provided
by Markel Corporation and its affiliates. On 28 October 2021, the
Funds launched the Schemes to implement the Buy-Out
Transaction.
Under the improved terms of the Buy-Out Transaction, investors
in the Funds retained the right to receive any possible upside at
the end of the applicable Run-Off period if currently held reserves
exceed the amounts ultimately necessary to pay claims and after the
repayment of the "Buy-Out Amount" provided by affiliates of Markel
Corporation to fund the return to NAV of investors.
On 3 February 2022, the Investment Manager, the Master Fund SAC
and Markel Corporation entered into a settlement agreement with
certain investors that had opposed the Schemes (the "Litigation
Claimants"), which resolved their opposition to the Schemes and
certain litigation brought against a former officer of the
Investment Manager in the U.S. (the "Settlement"). Pursuant to the
Settlement, the Litigation Claimants withdrew their opposition to
the Schemes and, following the Closing Date of the Buy-Out
Transaction, the Litigation Claimants received (i) the NAV of their
Master Fund SAC shares in full and final satisfaction of their
interests in the Master Fund SAC and (ii) an aggregate additional
payment of $20 million funded by Markel Corporation and D&O
insurance coverage in consideration for granting the releases of
their claims and dismissing with prejudice the U.S. litigation.
On 7 March 2022 at scheme meetings convened by Bermuda court
order, the Funds' respective investors voted overwhelmingly to
approve the Schemes to implement the Buy-Out Transaction. On 11
March 2022, the Supreme Court of Bermuda entered orders approving
the Schemes. On 16 March 2022, the United States Bankruptcy Court
for the Southern District of New York entered orders approving the
enforcement in the United States of the Bermuda court sanctioning
orders pursuant to Chapter 15 of the United States Bankruptcy Code.
The Closing Date of the Buy-Out Transaction occurred on 28 March
2022 in accordance with the terms of the Schemes.
Under the Buy-Out Transaction, the Funds' investors received an
accelerated return of 100% of the NAV of the Funds as at 31 January
2022, with investors retaining the right to any upside at the end
of the applicable Run-Off period if currently held reserves exceed
the amounts advanced by affiliates of Markel Corporation to fund
the return of capital after the ultimate claims related to
reinsurance loss events have been settled. Investors in the Master
Fund SAC, including the Company, also received their pro rata share
of an additional cash contribution of approximately $54 million
from a Markel Corporation affiliate to off-set transaction costs
and future running costs of the Master Fund SAC and to provide
additional cash consideration to investors.
In relation to the Company, the Buy-Out Transaction was
implemented by way of a redemption of 99% of the holdings of each
investor in the Master Fund, the proceeds of which, along with all
additional consideration, were paid to investors on 11 April 2022
amounting to $51.7m and $53.9m for Ordinary Shares and C Shares
respectively.
Investors remain entitled, through their retained interest in
the Company, to receive the remaining assets of the Company (as and
when such assets become available for distribution and the Board
determines it is appropriate to make such distributions), including
any surplus from the existing cash reserves held by the Company and
any upside following the repayment of the Buy-Out Amount.
In June 2022, the Reinsurer repaid an amount of $24m to the
affiliates of Markel Corporation who financed the Buy-Out Amount
for the Master Fund.
The Investment Manager is subject to the ultimate supervision of
the Board, and 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. On 15 November 2021, Markel announced its intention to
wind down LCML, its retrocessional Insurance Linked Securities
(ILS) fund manager based in Bermuda.
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 accesses 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 nancial information. Accordingly,
certain information and footnote disclosures normally included in
the nancial statements prepared in accordance with U.S. GAAP have
been condensed pursuant to such guidance. These interim condensed
nancial statements should be read in conjunction with the annual
nancial statements and related notes as of 31 December 2022 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
Codi cation ("ASC").
Under the terms of the Schemes of Arrangement Buy-Out agreement,
estimated ordinary course fees, including estimated fees for the
remaining Run-Off period of the Company, were accelerated in 2022
and formed part of the investor Buy-Out settlement. As such, these
fees have been recognised as Schemes of Arrangement Ordinary Course
Fees (Note 12) in the financial statements.
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, and (ii) the Investment Manager and the Board have
reviewed the Company's cash forecast for 12 months from the date of
this report and have determined that the Company has sufficient
cash to adequately meet operational expenses. 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 2023.
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 the Master Fund
The Company records its investments in the Master Fund 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 4, 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 financial 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 Fund's
income, expenses, realised and unrealised gains and losses on
investment in securities on a quarterly 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 specific identification 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 reflected 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 fluctuations arising from changes in
market prices of investments held. Such fluctuations 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 benefit recognised is measured as the largest
amount of benefit that has a greater than fifty per cent likelihood
of being realised upon ultimate settlement with the relevant taxing
authority. De-recognition of a tax benefit 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 benefits as of 30 June 2023. 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 benefits 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 2023.
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 six month period ended 30 June 2023.
Use of Estimates
The preparation of Financial Statements in conformity with U.S.
GAAP requires the Company's management to make estimates and
assumptions in determining the reported amounts of assets and
liabilities, including fair value of investments, the disclosure of
contingent assets and liabilities as of 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.
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") had
been conducting inquiries (the "Markel CATCo Inquiries") into loss
reserves recorded in late 2017 and early 2018 at the Investment
Manager and its subsidiaries (collectively, "Markel CATCo"). Those
reserves were held at Markel CATCo Re Ltd., an unconsolidated
subsidiary of the Investment Manager. The Markel CATCo Inquiries
were limited to Markel CATCo and did not involve Markel Corporation
or its other 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 judgement in the setting of reserves and making
related disclosures during late 2017 and early 2018. Markel
Corporation's outside counsel met with the Governmental Authorities
and reported the findings from the internal review.
On 27 September 2021, Markel Corporation was notified by the
U.S. Securities and Exchange Commission that it had concluded its
investigation and it did not intend to recommend an enforcement
action against Markel CATCo. Additionally, On 28 September 2021,
the U.S. Department of Justice advised Markel Corporation that it
had concluded its investigation and would not take any action
against Markel CATCo. There are currently no pending requests from
the Bermuda Monetary Authority.
California Bankruptcy Court and the PG&E Settlement (at
August 2022)
The Investment Manager believes that any subrogation benefitting
Markel CATCo was substantially realised as at 31 December 2021
through reductions in updated cedant loss reports. Therefore, the
Investment Manager is of the view that the benefits of such
subrogation are reflected in the Company's investments in the
underlying participating shares of the Reinsurer.
2. CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company maintains its cash
balances (not assets supporting retrocessional reinsurance
transactions) in financial institutions, which at times may exceed
federally insured limits. The Company is subject to credit risk to
the extent any financial institution with which it conducts
business is unable to fulfill contractual obligations on its
behalf. Management monitors the financial condition of such
financial institutions and does not anticipate any losses from
these counterparties. At 30 June 2023, cash and cash equivalents
were 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. russia - ukraine War CONSIDERATIONS
The Russia-Ukraine war caused severe disruptions of the global
supply chain, putting significant pressure on inflation. The recent
commencement of war in Ukraine had an impact on international
financial markets, leading to a significant rise in the price of
oil and gas. The unpredictable outcome of this conflict could
inflict on the world economy significant and/or prolonged harm.
Recent Russian military actions in Ukraine have prompted and might
prompt further sanctions on Russia from the United States, the
European Union, and other nations. Despite the fact that the
Company has no direct exposure to Russia or the surrounding
regions, the military incursion by Russia and the sanctions that
follow could have a negative impact on the world's energy and
financial markets. The extent and duration of the military action,
sanctions and resulting market disruptions are impossible to
predict, but could be substantial. Any such disruptions caused by
Russian military action or resulting sanctions may magnify the
impact of other risks described herein.
4. INVESTMENTS IN MASTER FUND, AT FAIR VALUE
The following table summarises the Company's Investment in the
Master Fund as at 30 June 2023:
(Expressed in United States Dollars) 30 June 2023
$
-------------------------------------------------- -------------
Investment in Markel CATCo Reinsurance Fund Ltd.
-
Markel CATCo Diversified Fund, at fair value 9,187,391
-------------------------------------------------- -------------
During this period, there was nil net realised loss on
securities allocated from the Master Fund in the Statements of
Operations included. Over the same period, the net change in
unrealised gain/loss on securities allocated from the Master Fund
included gross unrealised gains of $1,638,137 and gross unrealised
loss of nil.
5. LOSS RESERVES
The following disclosures on loss reserves are included for
information purposes and relate specifically to the Reinsurer and
are reflected 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 makes 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 may 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 2023,
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.
Markel CATCo Investment Management Ltd., (the "Insurance
Manager"), believes that the total loss reserve established from
the previous years is sufficient to provide for all unpaid losses
and loss expenses based on best estimates of ultimate settlement
values and on the industry loss information currently available.
Inherent uncertainty with regard to the final insured loss impact
of the 2018 and 2019 loss events continues. Therefore, actual
results may materially differ if actual reinsured client losses
differ from the established loss reserves. This could result in the
need to further adjust loss reserves, either in the event that
reserves are found to be insufficient or, conversely, if loss
reserves are found to be too conservative.
As part of the ongoing reserving process, the Insurance Manager
reviews loss reserves on a quarterly 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-month period ended 30 June 2023, the Reinsurer paid
net claims of $15,761,147. Of this amount, $8,275,997 related to
the 2018 loss events and $7,485,150 was paid in respect of 2019
loss events.
6. CAPITAL SHARE TRANSACTIONS
As of 30 June 2023, 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 2023, the Company had issued 114,104 Class 1
Ordinary Shares (the "Ordinary Shares"), and 78,324 Class C Shares
(the "C Shares").
Transactions in shares during the year, shares outstanding, NAV
and NAV per share are as follows:
Share Ending
30 June Beginning Share Issuance Ending Ending NAV Per
2023 Shares Redemptions Shares Net Assets Share
----------- ---------- ------------- ---------- -------- ------------ ---------
Class 1
-
Ordinary
Shares 114,104 - - 114,104 $1,798,554 $15.7624
----------- ---------- ------------- ---------- -------- ------------ ---------
Class C
Shares 78,324 - - 78,324 $8,983,313 $114.6943
----------- ---------- ------------- ---------- -------- ------------
Total 192,428 - - 192,428 $10,781,867
----------- ---------- ------------- ---------- -------- ------------
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.
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 only SPI Shares are 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 Shareholders
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. As discussed in Note 1, on 27 September 2021 the
Company announced the terms of the Buy-Out Transaction, which
facilitated an accelerated return of substantially all the net
asset value to the Shareholders of the Company.
Following the completion of the necessary applicable conditions
precedent to complete the Buy-Out of the Company's portfolios, the
Closing Date of the Schemes of Arrangement to implement the Buy-Out
Transaction occurred on 28 March 2022. Under the Buy-Out
Transaction, the Company received an accelerated return of 100% of
the NAV of its investment in the Master Fund as at 31 January 2022,
with investors retaining the right to any upside at the end of the
applicable Run-Off period if currently held reserves exceed the
Buy-Out Amount; and their pro rata share of an additional cash
contribution of approximately $54 million from a Markel Corporation
affiliate, to off-set transaction costs and future running costs of
the Master Fund SAC and to provide additional cash consideration to
investors.
In relation to the Company, the Buy-Out Transaction was
implemented by way of a redemption of 99% of the holdings of each
investor.
Consent Fees
The Early Consent Fee due to investors, totaling $1,482,176, was
paid on 30 March 2022 mostly through CREST to the accounts of
holders of shares that issued a valid Transfer to Escrow
Instruction, irrespective of whether such accounts continue to hold
Public Fund Shares.
The Early Consent Fee paid per Share was:
Early Consent Fee per Ordinary Share: $0.00676446
Early Consent Fee per C Share: $0.01347267
Redemption of Shares
On 6 April 2022, to effect the Buy-Out Transaction, the Company
redeemed 147,812,056 Ordinary Shares at a rate of USD 0.349957 per
Ordinary Share (approximately USD 0.3465 per Ordinary Share held on
the basis of 100% of each Shareholder's then outstanding Shares)
and 82,398,091 C Shares at a rate of USD 0.653616 per C Share
(approximately USD 0.6471 per C Share held on the basis of 100% of
each Shareholder's then outstanding Shares).
The resulting proceeds from the Buy-Out Transaction, amounting
to $51.7m for Ordinary Shares and $53.9m for C Shares, were paid to
Shareholders on 11 April 2022.
On 29 November 2022, the Company completed Partial Compulsory
Redemption #8, redeeming 1,379,027 Ordinary Shares at a rate of
$3.3355 per Ordinary Share and 754,052 C Shares at a rate of
$17.5042 per C Share. Following this redemption, the Company had
114,104 Ordinary Shares in issue and 78,324 C Shares in issue.
7. INVESTMENT MANAGEMENT AGREEMENT
Prior to the implementation of the Buy-Out Transaction, the
Company's investments were managed pursuant to an Investment
Management Agreement dated 8 December 2015 (the "Old Investment
Management Agreement"). In connection with the Buy-Out Transaction,
on 28 March 2022 the Old Investment Management Agreement was
terminated and the Company and the Investment Manager entered into
a new Investment Management Agreement (the "Investment Management
Agreement"), the terms of which substantially mirrored those of the
Old Investment Management Agreement. Pursuant to the Investment
Management Agreement, 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 SAC'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 the Investment Manager. LCML earns a fee from the
Investment Manager for such services. On 15 November 2021, Markel
announced its intention to wind down LCML, its retrocessional
Insurance Linked Securities ("ILS") fund manager based in Bermuda,
effective 1 January 2022.
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's 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. The fees payable under
the Investment Management Agreement are the same as those which had
been payable under the Old Investment Management Agreement.
For the financial year ended 31 December 2022, the Investment
Manager agreed to maintain the partial waiver of 50.00 per cent of
the annual Management Fee on Side Pocket Investments of the
original fee of 1.50 per cent. This is equal to an annual
Management Fee of 0.75 per cent. The Investment Manager agreed to
extend this reduction for financial year 2023 and it will continue
in force for the foreseeable future.
Effective 1 July 2022, the Investment Manager successfully
implemented a move to quarterly reporting as one of the Company's
cost savings mechanisms. The move to quarterly reporting also
aligns the Master Portfolio results with cedants' quarterly loss
reporting.
Markel Corporation, which holds the entire share capital of the
Investment Manager, holds 6.60 per cent of the voting rights of the
Ordinary Shares and 0.00 per cent of the voting rights of the C
Shares issued in the Company as of 30 June 2023. This equates to a
holding of 3.91 per cent of the combined voting rights of the
Company's Ordinary and C Shares in issue.
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. Prior to 1 January 2022, LCML received a
monthly service fee of 75.00 per cent of the net management fees
due to the Investment Manager. Effective 1 January 2022, this
Run-Off Services Agreement was amended to a fixed fee arrangement
between LCML and the Investment Manager.
In addition, as at 30 June 2023, one of the Directors is also a
Shareholder of the Company. The Director's holdings are immaterial,
representing below 1.00 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 fixed monthly fee.
10. FINANCIAL HIGHLIGHTS
Financial highlights for the period from 1 January to 30 June
2023 are as follows:
Class 1 - Class C
Ordinary Shares Shares
----------------------------------------------------------------- ----------
Per share operating performance
Net asset value, beginning of period $ 13.2222 96.0839
Income (loss) from investment operations
Net investment income (loss) 0.2170 1.5872
Management fee charged (0.0581) (0.4225)
Net gain on investments 2.3813 17.4457
------------------------------------------------- --- ---------- ----------
Total Income from investment operations 2.5402 18.6104
------------------------------------------------- --- ---------- ----------
Dividend - -
Discount on Share Buy-Back - -
------------------------------------------------- --- ---------- ----------
Net asset value, end of period $ 15.7624 114.6943
------------------------------------------------- --- ---------- ----------
Total net asset value return
Total net asset value return before performance
fee 19.21% 19.37%
Performance fee 0.00% 0.00%
------------------------------------------------- --- ---------- ----------
Total net asset value return after performance
fee 19.21% 19.37%
------------------------------------------------- --- ---------- ----------
Ratios to average net assets
Expenses other than performance fee * 0.00% 0.00%
Performance fee 0.00% 0.00%
------------------------------------------------- --- ---------- ----------
Total expenses after performance fee 0.00% 0.00%
------------------------------------------------- --- ---------- ----------
Net investment income (loss) 1.20% 1.21%
------------------------------------------------- --- ---------- ----------
Management fee waived -0.41% -0.41%
------------------------------------------------- --- ---------- ----------
* Expenses presented above are net of management fees waived
by the Master Fund (Note 8).
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
six-month period ended 30 June 2023 and have not been annualised.
The per share amounts and ratios reflect income and expenses
allocated from the Master Fund.
11. INDEMNITIES OR WARRANTIES
In the ordinary course of its business, the Company may enter
into contracts or agreements that contain indemnifications 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. SCHEMES OF ARRANGEMENT ORDINARY COURSE FEES
Per the Schemes of Arrangement Buy-Out agreement, after closing
of the Schemes, no additional fees or expenses will be deducted
from distributions of the Closing NAV and there will be no
continuing management fees charged by the Investment Manager. Any
such fees were accelerated in 2022 and included in the Ordinary
Course Fees for the Run-Off of the Funds. In the first six months
of 2023, the Company incurred operational costs totaling $290,565,
which were applied against the Schemes of Arrangement Buy-Out
Ordinary Course Fees in the condensed Statements of Assets and
Liabilities.
The acceleration of future operating expenses in 2022 is a
departure from U.S. GAAP, specifically in relation to the U.S. GAAP
conceptual framework of accrual accounting whereby the financial
effects of an entity's transactions and other events and
circumstances are recognised in the period in which those
transactions, events, and circumstances occur. As a result of this
U.S. GAAP departure, there is an amount of $2,490,070 excess
liability in the Company's financial statements as of 30 June 2023.
As the acceleration of future operating expenses is in line with
the Schemes of Arrangement Buy-Out Agreement approved by investors,
the Investment Manager has included the estimated amount in the
financial statements.
13. SUBSEQUENT EVENTS
These Financial Statements were approved by the Board and
available for issuance on 26 September 2023. 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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Catco Reinsurance Opport... (LSE:CAT)
過去 株価チャート
から 12 2024 まで 1 2025
Catco Reinsurance Opport... (LSE:CAT)
過去 株価チャート
から 1 2024 まで 1 2025
