REG - CATCo Re-ins Opps Fd - Final Results
26/04/2023 07:00
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RNS Number : 4543X CATCo Reinsurance Opps Fund Ltd 26 April 2023
26 April 2023
CATCo Reinsurance Opportunities Fund Ltd. (the "Company")
Annual Financial Report
For the 12 month period 1 January 2022 to 31 December 2022
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.
Buy-OUT TRANSACTION
On 27 September 2021, the Company announced a proposal for a Buy-Out
Transaction, which successfully completed in Q1 of 2022 and provided for,
inter alia, an accelerated return of substantially all the net asset value
("NAV") in Markel CATCo Reinsurance Fund Ltd. (the "Master Fund SAC") and the
Company (together, the "Funds") to investors in exchange for mutual releases
more fully described in the announcement. The Buy-Out Transaction terms were
improved on 26 October 2021, and it was implemented with funding provided by
Markel Corporation through Bermuda schemes of arrangement (the "Schemes")
proposed by both the Company and the Master Fund SAC.
To support the implementation of the Buy-Out Transaction through the Schemes,
each of the Company, the Master Fund SAC, the Investment Manager and Markel
CATCo Re Ltd. (the "Reinsurer") filed applications with the Supreme Court of
Bermuda for the appointment of joint provisional liquidators with limited
powers (the "JPLs"). The JPLs were appointed on 1 October 2021. On 5 October
2021, the JPLs petitioned for the provisional liquidation proceedings to be
recognised by the United States Bankruptcy Court in the Southern District of
New York. This request was subsequently granted along with other ancillary
relief.
The appointment of the JPLs and the United States 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. Following completion of the
Buy-Out Transaction, the JPLs were discharged effective 10 June 2022.
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 of NAV to
investors.
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 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, which will be used 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, the proceeds of which
were paid to investors on 11 April 2022, amounting to $51.7m and $53.9m for
the Ordinary Shares and C Shares respectively.
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 and formed part of the investor
Buy-Out settlement. As such, these fees have been recognised as Scheme of
Arrangement Ordinary Course fees in the statements of assets and liabilities
and the related statements of operations, changes in net assets and cash
flows.
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 and settlement of reinsurance claims.
Net Asset Value ("NAV")
The Company opened the year with a total NAV of $106.8m which consisted of
$50.6m Ordinary Share NAV and $56.2m of C Share NAV. During the year, the NAV
reduced to $9.0m, of which $1.5m relates to the Ordinary Share NAV and $7.5m
to the C Share NAV. The overall reduction in the NAV is due to the completion
of the Buy-Out Transaction which resulted in payment to investors on 11 April
2022 amounting to $51.7m and $53.9m for the Ordinary Shares and C Shares
respectively and a subsequent distribution of capital in the amount of $17.8m
derived from favorable loss reserve development in the underlying portfolio as
highlighted in the sub-section Return of Capital to Shareholders. These
distributions were offset by further upside recorded in Q4 2022 relating to
positive development on the 2018 and 2019 reinsurance portfolios resulting in
a closing NAV per share of $13.22 and $96.08 for Ordinary Shares and C Shares
respectively.
2022 Ordinary Shares NAV ($m)
Opening balance 1/1/22 $ 50.6
Buy-Out Transaction (51.7)
Partial Compulsory Redemption 8 (4.6)
Investment appreciation net of expenses 7.2
Closing balance 12/31/22 $ 1.5
2022 C Shares NAV ($m)
Opening balance 1/1/22 $ 56.2
Buy-Out Transaction (53.9)
Partial Compulsory Redemption 8 (13.2)
Investment appreciation net of expenses 18.4
Closing balance 12/31/22 $ 7.5
RETURN OF CAPITAL TO SHAREHOLDERS
Following the Buy-Out Transaction and the successful commutation of all of
2017 contracts and a number of 2018 and 2019 contracts, the Company returned
$4.6m and $13.2m of capital to Ordinary Shareholders and C Shareholders
respectively, by means of a compulsory share redemption in November 2022.
From the commencement of the Run-Off (26 March 2019) to 31 December 2022, the
Company has successfully returned $413.9m of capital to Shareholders by means
of dividends, tender offer, share buybacks, compulsory share redemptions and a
Buy-Out Transaction.
During the period from 1 January 2022 to 31 December 2022, the Company
returned $123.4m of capital to Shareholders by means of a Buy-Out Transaction
and a compulsory share redemption.
Total Capital Return since 26 March 2019 (date on which Shareholders approved
the Run-Off) to 31 December 2022:
Form of Return Payment or Ordinary Shares ($m) C Shares Total
Redemption Date
($m) ($m)
Tender Offer 23 September 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 2 September 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, having successfully, at the date of
this report, commuted all 2016 and 2017 contracts. 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 31 December 2022, 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 31 December 2022:
SPIs % of Share NAV Value in $m
Ordinary Shares
SPI 2018 66.58% 1.0
SPI 2019 10.58% 0.2
C Shares
SPI 2018 75.94% 5.7
SPI 2019 8.75% 0.7
Additionally, as at 31 December 2022, cash of $0.3m and $1.1m 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 as explained further in this
statement.
sIDE POCKET INVESTMENTS
As at 31 December 2022, the SPIs in total represent c. 77.16 per cent of
Ordinary Share NAV (31 December 2021: c. 97.66 per cent) and c. 84.69 per cent
of the C Share NAV (31 December 2021: c. 92.36 per cent).
After the successful commutation of all 2016 and 2017 SPIs during the year,
the position of the 2018 and 2019 SPIs as at 31 December 2022 was as follows:
2018 SPIs, principally relating to Hurricanes Michael and Florence, Typhoon
Jebi and the 2018 California Wildfires, amount to c. 66.58 per cent of
Ordinary Share NAV and c. 75.94 per cent of C Share NAV (31 December 2021: c.
12.38 per cent and c. 62.41 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. 10.58 per cent of Ordinary Share NAV and c.
8.75 per cent of C Share NAV (31 December 2021: c. 8.06 per cent and c. 29.95
per cent of Ordinary Share and C Share NAV respectively).
As previously disclosed, in respect of the underlying investments related to
underwriting years 2018 and 2019, the Investment Manager relies on the latest
available claim information provided by cedants which, at this point in time,
post the loss events, supersedes the modelled losses or the insured loss
estimates provided by third parties.
QUARTERLY NAV REPORTING
The Investment Manager has successfully implemented a move to quarterly
reporting of the NAV since it estimates this will generate appropriate cost
savings and because all of the remaining cedants report their losses on a
quarterly basis.
Changing the Funds' NAV reporting frequency enables the Investment Manager to
track the information received from the Reinsurer's cedants at the same pace.
The implementation of a quarterly NAV was effective from 1 July 2022.
OUTLOOK
The Board is pleased with the progress made during 2022 in terms of
distributing funds to Shareholders in the most efficient manner possible
whether as a result of the Buy-Out Transaction or derived through further
releases of trapped capital subsequent to the Buy-Out Transaction.
The Board continues to meet with the Investment Manager to determine the
outlook for the Company and evaluate the future potential for further upside
from the underlying portfolio.
As the Company has reported before, whilst it is not possible to determine the
ultimate future value of the remaining contracts, the Investment Manager is
confident that it is likely that additional commutations will be achieved
within the next six to 12 months.
Consistent with the upside achieved in 2022, any further possible upside will
be reflected in the future reported NAVs and such proceeds will be distributed
to Shareholders thereafter.
In the meantime, the Investment Manager is committed to working on the
remaining commutations with the cedants in the best interest of Shareholders.
Board and ongoing costs
The Board has been working with the Investment Manager to reduce the ongoing
operational expenses of the Company and will continue to ensure that these
expenses are kept as low as possible in order to maximise value for
Shareholders.
During the year, the Board reduced in size from three to two as part of this
exercise, and achieved operational costs savings during 2022 where possible.
The Board has previously considered the benefits of maintaining a UK listing.
While a number of contracts remain open and the possibility for valuation
upside remains, the Board has determined, once again, that it is appropriate
to remain listed at this point in time.
James Keyes
Chairman,
CATCo Reinsurance Opportunities Fund Ltd.
26 April 2023
REVIEW OF BUSINESS
A review of the Company's activities is given in the Chairman's Statement.
This includes a review of the business of the Company and its principal
activities, and likely future developments of the business.
The Company is a limited liability closed ended fund, registered and
incorporated as an exempted mutual fund company in Bermuda with an indefinite
life. The Company's Ordinary Shares and C Shares are admitted to trading on
the special fund segment of the London Stock Exchange.
STRATEGY
The management of the investment portfolio is conducted by the Investment
Manager. The Company is a feeder fund and invests substantially all of its
assets in Markel CATCo Diversified Fund (the "Master Fund"), a segregated
account of the Master Fund SAC, a segregated accounts company incorporated in
Bermuda. The Investment Manager also manages the Master Fund and the Master
Fund SAC. The Master Fund in turn accesses all of its exposure to fully
collateralised Reinsurance Agreements through the Reinsurer. As noted in the
section below headed "Efficient Capital Management during Run-Off of Portfolio
and Distributions", the Company has elected to redeem 100% of its Master Fund
Shares and will distribute the proceeds of any such redemption 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 for working
capital purposes).
The Board is responsible for the stewardship of the Company, including overall
strategy, investment policy, borrowings, dividends, corporate governance
procedures and risk management.
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 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 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 (after repayment of the Buy-Out
Amount, as described below).Consequently, the Company exercised a special
redemption right in respect of 100 per cent of its holding in the Master Fund
(the "Master Fund Shares") with effect from 30 June 2019 (the "Special
Redemption").
The Investment Manager announced on 25 July 2019 that it would cease accepting
new investments in the Master Fund SAC and would not write any new business
going forward through the Reinsurer. The Investment Manager then commenced the
orderly 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
Master Fund SAC will return capital to its investors, including the Company
(after repayment of the Buy-Out Amount, as described below).
The Company distributed the net proceeds of the Special Redemption received
during the year ended 31 December 2019 by means of special dividend, tender
offer and share buybacks. On 6 April 2020, Shareholders approved the proposals
set out in the Shareholder Circular dated 13 March 2020 to permit the Company
to return further capital to Shareholders by means of compulsory share
redemptions. During the year ended 31 December 2021, the Company returned
$27.2m to Shareholders by means of compulsory share redemptions.
On 27 September 2021, the Company announced a proposal for a buy-out
transaction (the "Buy-Out Transaction") that successfully completed in Q1 2022
and provided 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. In order to implement the Buy-Out Transaction, Schemes
of Arrangement in Bermuda (the "Schemes") were overwhelmingly approved by the
Funds' respective investors at scheme meetings convened by Bermuda court order
on 7 March 2022, and sanctioned by the Bermuda court on 11 March 2022. 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 net asset value (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
(the "Buy-Out Amount") after the settlement of reinsurance related claims.
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, the proceeds of which
were paid to investors via CREST on 11 April 2022.
A further return of capital to Shareholders by way of a compulsory share
redemption took place on 29 November 2022. Further details appear in the
Chairman's Statement.
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.
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 member's 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.
REVIEW OF PERFORMANCE
An outline of the performance, market background, investment activity and
portfolio during the year under review, as well as the investment outlook, are
provided in the Chairman's Statement. The distribution of the Company's
investments is shown in Note 6 to the Financial Statements.
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, liquidity
and interest rate risk and the efficient management of the Run-Off process.
Such key risks relating to investment underwriting and strategy are managed
through investment policy guidelines and restrictions, and by the process of
formal oversight at each Board meeting. 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 to date had a significant financial impact
on the Company, and is not expected to do so in the foreseeable future.. 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 (after repayment of the Buy-Out Amount, as described above) and
the management of costs and expenses, 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. Additionally, emerging risks
in the reinsurance market are not relevant to the underlying portfolio that is
in Run-Off.
DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Board is responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations.
The Companies Act 1981 of Bermuda, as amended, requires the Board to prepare
financial statements for each financial year.
Under those laws, the Board has elected to prepare the financial statements in
accordance with US Generally Accepted Accounting Principles ("US GAAP"). The
financial statements are required by the Bermuda Companies Act 1981 to present
fairly in all material respects the state of affairs of the Company and of the
profit or loss of the Company for that year. In preparing these financial
statements, the Board is required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable and
prudent; and
• state whether applicable Accounting Standards have
been followed, subject to any material departures disclosed and explained in
the financial statements.
The Board is responsible for keeping proper accounting records that are
sufficient to disclose the Company's transactions and that disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Bermuda
Companies Act. The Board is also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Board considers that the Annual Report and Financial Statements, taken as
a whole, are fair, balanced and understandable, and provide the information
necessary for Shareholders to assess the Company's performance, business model
and strategy.
The financial statements will be published on www.catcoreoppsfund.com, which
is maintained by the Investment Manager, Markel CATCo Investment Management
Ltd. The maintenance and integrity of the website maintained by the Investment
Manager is, so far as it relates to the Company, the responsibility of the
Investment Manager.
The Board is responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation in
Bermuda governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
In accordance with Chapter 4 of the Disclosure Guidance and Transparency
Guidance, and to the best of their knowledge, each Director confirms that the
financial statements have been prepared in accordance with the applicable set
of accounting standards and present fairly the assets, liabilities, financial
position and profit or loss of the Company.
Furthermore, each Director confirms that, to the best of his knowledge, the
management report (which consists of the Chairman's Report, the Strategic
Report and the Directors' Report) includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that the Company faces.
Arthur Jones
Chairman of the Audit Committee
26 April 2023
STATEMENTS OF ASSETS AND LIABILITIES
(Expressed in United States Dollars) 31 Dec. 2022 31 Dec. 2021
$ $
Assets
Investments in Markel CATCo Reinsurance Fund - 7,537,919 101,307,151
Markel CATCo Diversified Fund, at fair value (Notes 2 and 6)
Cash and cash equivalents (Note 3) 4,395,950 5,606,161
Other assets 44,665 59,963
Total assets 11,978,534 106,973,275
Liabilities
Management fee payable (Note 10) 2,806 3,420
Accrued expenses and other liabilities 160,717 193,343
Schemes of Arrangement Buy-Out Ordinary Course Fees 2,780,635 -
(Note 1, Note 8 and Note 15)
Total liabilities 2,944,158 196,763
Net assets 9,034,376 106,776,512
NAV per Share (Note 8)
STATEMENTS OF operations
(Expressed in United States Dollars) 31 Dec. 2022 31 Dec. 2021
$ $
Net investment loss allocated from Master Fund (Note 6)
Income from Buy-Out Transaction 9,204,154 -
Interest income 11,098 1,074
Schemes of Arrangement Buy-Out Transaction Cost (Note 14) 68,627 (4,437,070)
Management fee waived (Note 10) 125,575 684,764
Management fee (Note 10) (251,150) (1,369,528)
Administrative fee (Note 11) (79,383) (112,234)
Professional fees and other (42,944) (116,558)
Schemes of Arrangement Buy-Out Ordinary Course Fees (Note 15) (346,325) -
Net investment gain/(loss) allocated from Master Fund 8,689,652 (5,349,552)
Investment income
Income from Buy-Out Transaction (Note 8) 1,482,176 -
Interest 115,955 657
Total investment income 1,598,131 657
Company expenses
Schemes of Arrangement Buy-Out Transaction Cost (Note 14) (245,245) (229,415)
Schemes of Arrangement Buy-Out Ordinary Course Fees (Note 15) (2,780,635) -
Management fee waived (Note 10) 165,018 56,526
Professional fees and other (622,637) (659,723)
Management fee (Note 10) (330,036) (113,052)
Administrative fee (Note 11) (54,500) (75,000)
Total Company expenses (3,868,035) (1,020,664)
Net investment gain/(loss) 6,419,748 (6,369,559)
Net realised loss and net change in unrealised gain /
(loss) on securities allocated from Master Fund
Net realised loss on securities (12,399,264) (63,096,478)
Net change in unrealised loss on securities 33,103,014 91,596,068
Net gain on securities allocated from Master Fund 20,703,750 28,499,590
Net increase in net assets resulting from operations 27,123,498 22,130,031
STATEMENTS OF changes in net assets
(Expressed in United States Dollars) Year ended Year ended
31 Dec. 2022 31 Dec. 2021
$ $
Operations
Net investment gain (loss) 6,419,748 (6,369,559)
Net realised loss on securities allocated from Master Fund (12,399,264) (63,096,478)
Net change in unrealised loss on securities allocated from 33,103,014 91,596,068
Master Fund
Net increase in net assets resulting from operations 27,123,498 22,130,031
Capital share transactions
Repurchase of Class Ordinary Shares (Note 8) (56,327,613) (5,399,961)
Repurchase of Class C Shares (Note 8) (67,055,845) (21,799,929)
Dividends paid (Note 8) (1,482,176) -
Net decrease in net assets resulting from capital share transactions (124,865,634) (27,199,890)
Net decrease in net assets (97,742,136) (5,069,859)
Net assets, at 1 January 106,776,512 111,846,371
Net assets, at 31 December 9,034,376 106,776,512
STATEMENTS OF cash flows
(Expressed in United States Dollars) Year ended Year ended
31 Dec. 2022 31 Dec. 2021
$ $
Cash flows from operating activities
Net increase in net assets resulting from operations 27,123,498 22,130,031
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Net investment gain/(loss), net realised loss and net change in unrealised (29,393,399) (23,150,038)
gain/(loss) on securities allocated from Master Fund
Sale of investment in Master Fund 114,022,425 19,212,976
Dividends from Buy-Out Transactions 9,140,206 -
Changes in operating assets and liabilities:
Due from Markel CATCo Reinsurance Fund Ltd. - - 10,696,244
Markel CATCo Diversified Fund
Other assets 15,298 (6,594)
Management fee payable (614) (5,633)
Schemes of Arrangement Buy-Out Ordinary Course Fees 2,780,635 -
(Note 15)
Accrued expenses and other liabilities (32,626) (339,321)
Net cash provided by operating activities 123,655,423 28,537,665
Cash flows from financing activities
Repurchase of Class Ordinary Shares (56,327,613) (5,399,961)
Repurchase of Class C Shares (67,055,845) (21,799,929)
Dividends paid (Note 8) (1,482,176) -
Net cash used in financing activities (124,865,634) (27,199,890)
Net (decrease) / increase in cash and cash equivalents (1,210,211) 1,337,775
Cash and cash equivalents, at 1 January 5,606,161 4,268,386
Cash and cash equivalents, at 31 December 4,395,950 5,606,161
NOTES TO THE FINANCIAL STATEMENTS - 31 December 2022
(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 31 December
2022, the Company's ownership is 17.33 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 now 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 (the "Private Fund") and the Company (together, the "Funds")
to investors (further details of the Buy-Out Transaction appear in the
Chairman's Statement. To support the implementation of the Buy-Out Transaction
through the Schemes of Arrangement in Bermuda (the "Schemes"), each of the
Company, the Private Fund, 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 Private Fund 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 repay claims and after the repayment of the "Buy-Out Amount"
provided by affiliates of Markel Corporation to fund the return of NAV to
investors.
On 3 February 2022, the Manager, the Private Fund 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
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 Private Fund shares in full and final satisfaction of
their interests in the Private Fund 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 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 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, the proceeds of which
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 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"). The audited 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"), except for the recognition of future operating expenses in the
financial statements.
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 and formed part of the investor
Buy-Out settlement. As such, these fees have been recognised as Scheme of
Arrangement Ordinary Course fees (Note 15) in the statements of assets and
liabilities and the related statements of operations, changes in net assets
and cash flows.
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 on or around 31 December 2023, 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 year ended 31 December 2022.
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 11, 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.
Fair Value - Definition and Hierarchy (Master Fund)
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability (i.e., the "exit price") in an orderly
transaction between market participants at the measurement date.
In determining fair value, the Investment Manager uses various valuation
approaches. A fair value hierarchy for inputs is used in measuring fair value
that maximises the use of observable inputs and minimises the use of
unobservable inputs by requiring that the most observable inputs are to be
used when available. Observable inputs are those that market participants
would use in pricing the asset or liability based on market data obtained from
sources independent of the Investment Manager. Unobservable inputs reflect the
assumptions of the Investment Manager in conjunction with the Board of
Directors of the Master Fund (the "Board of the Master Fund") about the inputs
market participants would use in pricing the asset or liability developed
based on the best information available in the circumstances.
The fair value hierarchy is categorised into three levels based on the inputs
as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for
identical assets or liabilities that the Master Fund has the ability to
access. Valuation adjustments are not applied to Level 1 investments. Since
valuations are based on quoted prices that are readily and regularly available
in an active market, valuation of these investments does not entail a
significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or
for which all significant inputs are observable, either directly or
indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement. The availability of valuation techniques
and observable inputs can vary from investment to investment and are affected
by a wide variety of factors, including the type of investment, whether the
investment is new and not yet established in the marketplace, and other
characteristics particular to the transaction. To the extent that valuation is
based on models or inputs that are less observable or unobservable in the
market, the determination of fair value requires more judgment. Those
estimated values do not necessarily represent the amounts that may be
ultimately realised due to the occurrence of future circumstances that cannot
be reasonably determined. Because of the inherent uncertainty of valuation,
those estimated values may be materially higher or lower than the values that
would have been used had a ready market for the investments existed.
Accordingly, the degree of judgment exercised by the Investment Manager in
determining fair value is greatest for investments categorised in Level 3 of
the fair value hierarchy. In certain cases, the inputs used to measure fair
value may fall into different levels of the fair value hierarchy. In such
cases, for disclosure purposes, the level in the fair value hierarchy within
which the fair value measurement falls in its entirety, is determined based on
the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a
market participant rather than an entity-specific measure. Therefore, even
when market assumptions are not readily available, the Master Fund's own
assumptions are set to reflect those that market participants would use in
pricing the asset or liability at the measurement date. The Master Fund uses
prices and inputs that are current as of the measurement date, including
periods of market dislocation. In periods of market dislocation, the
observability of prices and inputs may be reduced for many investments. This
condition could cause an investment to be reclassified to a lower level within
the fair value hierarchy.
Fair Value - Valuation Techniques and Inputs
Investments in Securities (Master Fund)
The value of preference shares issued by the Reinsurers and subscribed for by
the Master Funds and held with respect to a reinsurance agreement will equal:
i. the amount of capital invested in such preference shares; plus
ii. the amount of net earned premium (as described below) that has been
earned period-to-date for such contract; plus
iii. the amount of the investment earnings earned to date on both the
capital invested in such preference shares and the associated reinsurance
premiums in respect of such contract; minus
iv. the amount of any loss estimates associated with potential claims
triggering covered events (see "Estimates" below); minus
v. the amount of any risk margin considered necessary to reflect
uncertainty and to compensate a market participant for bearing the uncertainty
of cash flows in an exit of the reinsurance transaction.
As a result of the Reinsurer conducting reinsurance activities, it incurs
expenses. The Reinsurer established a separate preference share (the "Expense
Cell") to allocate these expenses to the Master Fund. To the extent that the
inputs into the valuation of preference shares are unobservable, the
preference shares would be classified as Level 3 within the fair value
hierarchy.
Reinsurance Protections
The Reinsurer also issues preference shares in relation to reinsurance
protections purchased specifically to meet the desired level of risk as set
out in the Master Fund's investment strategy ("Reinsurance Protections"). The
Master Fund subscribes for Protections on behalf of itself and the Feeder
Fund. The underlying premiums are amortised over the duration of the
contracts.
As of 31 December 2022 and 2021, the Master Fund has no remaining reinsurance
protections.
Derivative Financial Instruments
The Master Fund invests in derivative financial instruments such as industry
loss warranties ("ILWs"), which are recorded at fair value as at the reporting
date. The Master Fund generally records a realised gain or loss on the
expiration, termination or settlement of a derivative financial instrument.
Changes in the fair value of derivative financial instruments are recorded as
net change in unrealised gain or loss on derivative financial instruments in
the Statement of Operations in the year.
The fair value of derivative financial instruments at the reporting date
generally reflects the amount that the Master Fund would receive or pay to
terminate the contract at the reporting date.
These derivative financial instruments used by the Master Fund are fair valued
similar to preference shares held with respect to reinsurance agreements,
unless otherwise unavailable, except that following a Covered Event (as
defined below), loss information from the index provider on the trade will be
used.
As of 31 December 2022 and 2021, the Master Fund held no ILW contracts.
Investment in Securities issued by the Reinsurer and subscribed to by the
Master Fund
This section identifies the inputs and considerations used in the fair value
determination of the Investment in Preference of the Reinsurer held by the
Master Fund. Refer to note 2 & 7 for further discussion on the
unobservable inputs.
Earned Premiums
Premiums are considered earned with respect to computing the Master Fund's net
asset value in direct proportion to the percentage of the risk that is deemed
to have expired year-to-date. Generally, all premiums, net of acquisition
costs, are earned uniformly over each month of the risk period. However, for
certain risks, there is a clearly demonstrable seasonality associated with
these risks. Accordingly, seasonality factors are utilised for the recognition
of certain instruments, including preference shares relating to reinsurance
agreements, ILWs and risk transfer derivative agreements, where applicable.
Prior to the investment in any seasonal contract, the Investment Manager is
required to produce a schedule of seasonality factors, which will govern the
income recognition and related fair value price for such seasonal contract in
the absence of a covered event. The Investment Manager may rely on catastrophe
modeling software, historical catastrophe loss information or other
information sources it deems reliable to produce the seasonality factors for
each seasonal contract. As a result of the Run-Off of the Company's existing
portfolio, as discussed in Note 1, no new premiums were written in 2022 and
2021.
Estimates
The Investment Manager provides monthly loss estimates of all incurred loss
events ("Covered Events") potentially affecting investments relating to a
retrocessional reinsurance agreement of the Reinsurer to the Administrator for
review. As the Reinsurer's reinsurance agreements are fully collateralised,
any loss estimates above the contractual thresholds as contained in the
reinsurance agreements will require capital to be held in a continuing
reinsurance trust account with respect to the maximum contract exposure with
respect to the applicable Covered Event.
"Fair Value" Pricing used by the Master Fund
Any investment that cannot be reliably valued using the principles set forth
above (a "Fair Value Instrument") is marked at its fair value, based upon an
estimate made by the Investment Manager, in good faith and in consultation or
coordination with the Administrator, as defined in Note 10, 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 valuation 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.
The process used to estimate a fair value for an investment may include a
single technique or, where appropriate, multiple valuation techniques, and may
include (without limitation and in the discretion of the Investment Manager,
or in the discretion of the Administrator subject to review by the Investment
Manager where practicable) the consideration of one or more of the following
factors (to the extent relevant): the cost of the investment to the Master
Funds, a review of comparable sales (if any), a discounted cash flow analysis,
an analysis of cash flow multiples, a review of third-party appraisals, other
material developments in the investment (even if subsequent to the valuation
date), and other factors.
For each Fair Value Instrument, the Investment Manager and/or the
Administrator, may as practicable, endeavor to obtain quotes from
broker-dealers that are market makers in the related asset class,
counterparties, the Master Fund's prime brokers or lending agents and/or
pricing services. The Investment Manager, may, but will not be required to,
input pricing information into models (including models that are developed by
the Investment Manager or by third parties) to determine whether the
quotations accurately reflect fair value.
From time to time, the Investment Manager may change its fair valuation
technique as applied to any investment if the change would result in an
estimate that the Investment Manager in good faith believes is more
representative of fair value under the circumstances.
The determination of fair value is inherently subjective in nature, and the
Investment Manager has a conflict of interest in determining fair value in
light of the fact that the valuation determination may affect the amount of
the Investment Manager's management and performance fee. This risk of conflict
of interest is mitigated through the rigorous quarterly loss reserving
process, which includes a review of the loss reserves by Markel Corporation's
executives.
At any given time, a substantial portion of the Master Fund's portfolio
positions may be valued by the Investment Manager using the fair value pricing
policies. Prices assigned to portfolio positions by the Administrator or the
Investment Manager may not necessarily conform to the prices assigned to the
same financial instruments if held by other accounts or by affiliates of the
Investment Manager.
Side Pocket Investments
The Board of the Master Fund, in consultation with the Investment Manager, may
classify certain Insurance-Linked Instruments as Side Pocket Investments in
which only investors who are shareholders at the time of such classification
can participate ("Side Pocket Investments"). This typically will happen if a
Covered Event has recently occurred or seems likely to occur under an
Insurance-Linked Instrument, because determining the fair value of losses once
a Covered Event has occurred under an Insurance-Linked Instrument is often
both a highly uncertain and a protracted process. When a Side Pocket
Investment is established, the Master Fund converts a corresponding portion of
each investor's Ordinary Shares into Side Pocket Shares (Note 7).
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 effective 1 July 2022 (previously a monthly basis to 30
June 2022) - Note 10. In addition, the Company incurs and accrues its own
income and expenses.
Investment transactions of the Master Funds 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
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 31 December 2022. 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 years
ended 31 December 2022 and 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 years ended
31 December 2022 and 2021.
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) 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.
On September 27, 2021, Markel Corporation was notified by the, U.S. Securities
and Exchange Commission that it has concluded its investigation and it does
not intend to recommend an enforcement action against MCIM. Additionally, On
September 28, 2021, the U.S. Department of Justice advised Markel
Corporation that it has concluded its investigation and will not take any
action against MCIM. There are currently no pending requests from the Bermuda
Monetary Authority.
California Bankruptcy Court and the PG&E Settlement (at 19 April 2022)
The Investment Manager closely monitored the procedural developments in the
California Bankruptcy Court with the assistance of external counsel. Further
detailed information regarding the PG&E chapter 11 case can be found on
https://restructuring.primeclerk.com/pge/. 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. SCHEDULE OF THE COMPANY'S SHARE OF THE INVESTMENTS HELD IN THE MASTER
FUND AND FAIR VALUE MEASUREMENTS
The following table reflects the Company's proportionate share of the fair
value of investments in the Reinsurer held by the Master Fund at 31 December
2022.
Preference Shares - Investments Number of Shares Cost ($) Percentage of Net Assets (%) Fair Value
in Markel CATCo Re Ltd.
($)
Class DE 955 647 0.99 89,427
Class DG 130,286 2,159 0.01 870
Class DR 23 721 20.87 1,885,266
Class DZ 441,208 20,692 14.48 1,308,305
Class EB - - 0.26 23,049
Class ED 46,205 2,008 30.59 2,763,770
Class EM 3 6 0.01 1,030
Class EQ 12,539 1,311 0.13 11,994
Class ER 2,280 1,091 2.12 191,201
Class EX 75 186 0.03 3,031
Class EY 213 384 1.80 162,641
Class FA - - 1.22 109,926
Class FB - - 0.81 73,284
Class FD 17 0 0.37 33,010
Class FE 6,841 36 6.51 588,028
Class FO - - 0.53 48,264
Expense Cell 13 1,134,897 1.78 160,862
Total Investments in Markel CATCo Re Ltd. Preference Shares $ 1,164,138 82.51 7,453,958
The following table reflects the Company's proportionate share of the fair
value of investments in the Reinsurer held by the Master Fund at 31 December
2021.
Preference Shares - Investments $ Fair Value Preference Shares - Investments $ Fair Value
in Markel CATCo Re Ltd.
in Markel CATCo Re Ltd.
Class P 3,332 Class DR 4,391
Class Z 4 Class DS 25,857
Class BY 189,729 Class DZ 2,481,453
Class BZ 6 Class EB 827,397
Class CB 9,468,390 Class ED 1,464
Class CD 1,049,768 Class EG 210
Class CE 2,112,789 Class EI 430
Class CI 32 Class EK 2,646,721
Class CL 2,893,982 Class EL 1,299
Class CM 1,548,225 Class EM 198,735
Class CQ 2,679,089 Class EQ 1,145
Class CT 2,032,338 Class ER 1,036
Class CW 743,309 Class EX 178
Class DC 2,822,531 Class EY 190,901
Class DE 5,572 Class FA 2,487,081
Class DF 8 Class FB 1,658,063
Class DG 829 Class FC 1,431
Class DH 31 Class FD 2,099
Class DI 21 Class FE 1,598,531
Class DK 15 Class FG 1,195
Class DL 795 Class FN 420,877
Class DN 993 Class FO 213,371
Class DO 2,588 Class FQ 672,968
Class DQ 167 Expense Cell 104,161
Total Investments in Markel CATCo Re Ltd. Preference Shares $ 39,095,537
As at 31 December 2022, the Company's proportionate share of the Master Fund's
cash and cash equivalents was $485,924 (2021: $1,169,848).
As at 31 December 2022 and 2021, 100.00 per cent of total investments held by
the Master Fund were classified as Side Pocket Investments.
In accordance with FASB ASC Sub-topic 820-10, certain investments that are
measured at fair value using the NAV per share (or its equivalent) practical
expedient are not required to be classified within the fair value hierarchy.
As the Company's investments as at 31 December 2022 comprised solely of
investments in another investment company, the Master Fund, which are valued
using the net asset value per share (or its equivalent) practical expedient,
no fair value hierarchy has been disclosed.
The Company considers all short-term investments with daily liquidity as cash
equivalents and are classified as Level 1 within the fair value hierarchy.
As at 31 December 2022 and 2021, The Master Fund's investment in securities
are classified as Level 3 within the fair value hierarchy. The table below
summarises information about the significant unobservable inputs used in
determining the fair value of the Master Fund's Level 3 assets:
Type of Investment Valuation Technique Unobservable Input Range
Preference Shares NAV of the Reinsurer Premium earned - straight line for uniform perils 12 months
Premium earned - Seasonality adjusted for 5 to 6 months
non-uniform perils
Loss reserves Loss reserves* 0 to contractual limit
* Based on underlying cedant loss notifications with management judgement
applied as deemed appropriate
Master Fund's Other Assets and Liabilities
As at 31 December 2022, the Company's proportionate share in the Master Fund's
other net liabilities amounted to approximately $474,375 (2021 net assets:
$61,840,690) and is included in 'Investments in Markel CATCo Reinsurance Fund
- Markel CATCo Diversified Fund' on the Statement of Assets and Liabilities.
This includes net amounts due from other segregated accounts of the Master
Fund and amounts due to the Manager and other accrued expenses.
3. 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.
Cash and cash equivalents are held at major financial institutions and are
subject to credit risk to the extent those balances exceed applicable Federal
Deposit Insurance Corporation (FDIC) or Securities Investor Protection
Corporation (SIPC) limitations. At 31 December 2022, 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-1 as issued by Standard & Poor's.
4. CONCENTRATION OF REINSURANCE RISK
The principal exposure of the Fund's portfolio is primarily through its
investment in the Reinsurer as the performance of the Fund is directly
affected by the performance of the Reinsurer and its underlying reinsurance
contracts. For the year ended 31 December 2022, the Reinsurer's unsettled
contracts provided reinsurance property protection against natural catastrophe
perils for financial years 2018 and 2019. Geographically, these contracts
cover locations including, but not limited to, the U.S. (43.00 per cent; 2021:
49.00 per cent), Japan (47.00 per cent; 2021: 41.00 per cent) and the rest of
the world (10.00 per cent; 2021: 10.00 per cent). Prior year comparatives have
been reclassified to conform with the current year presentation.
5. 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.
6. INVESTMENTS IN MASTER FUND, AT FAIR VALUE
The net investment loss allocated from the Master Fund, and the net realised
loss and net change in unrealised loss on securities allocated from Master
Fund in the Statements of Operations consisted of the results from the
Company's Investments in the Master Fund. Net realised loss on securities
includes gross realised gain on securities of $18,141,690 (2021: $15,332,410)
and gross realised loss on securities of $30,540,954 (2021: $78,428,888). Net
change in unrealised loss on securities includes gross change in unrealised
gain on securities of $41,903,442 (2021: $104,247,330) and gross change in
unrealised loss on securities of $8,800,428 (2021: $12,651,262).
31 Dec. 2022 31 Dec. 2021
Investment in Markel CATCo Reinsurance Fund Ltd. - $ 7,537,919 $ 101,307,151
Markel CATCo Diversified Fund, at fair value
7. 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 judgment 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 year-end, 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' loss events
mainly on the 2018 losses pertaining to Hurricane Michael, Typhoon Jebi,
Hurricane Florence, and the 2018 California Wildfires, and 2019 losses
pertaining predominantly to Hurricane Dorian, Typhoon Faxai and Typhoon
Hagibis 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. The significant uncertainty underlying the
industry loss estimates 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 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.
As at 31 December 2022 and 2021, all of the Company's investments were in Side
Pocket Investments in the Master Fund, which reflect the remaining investments
held by the Master Fund in respect of each investment year.
During 2022, the Reinsurer paid claims of $168,676,352 (December 2021:
$395,922,603). Of this amount $59,093,141 related to the 2017 events,
$64,905,059 related to the 2018 loss events and $44,678,152 was in respect of
2019 events.
8. CAPITAL SHARE TRANSACTIONS
As of 31 December 2022, the Company has authorised share capital of
1,500,000,000 (31 December 2021: 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 31 December 2022, the Company had issued 114,104 (31 December 2021:
149,305,187) Class 1 Ordinary Shares (the "Ordinary Shares") and 78,324 (31
December 2021: 83,230,467) Class C Shares (the "C Shares").
Transactions in shares during the year, shares outstanding, NAV and NAV per
share are as follows:
31 December 2022
Beginning Shares Share Ending Ending Net Assets Ending NAV Per Share
Repurchase
Shares
Class 1 Ordinary Shares 149,305,187 (149,191,083) 114,104 $ 1,508,702 $ 13.2222
Class C Shares 83,230,467 (83,152,143) 78,324 $ 7,525,674 $ 96.0839
$ 9,034,376
31 December 2021
Beginning Shares Share Ending Shares Ending Net Assets Ending NAV Per Share
Repurchase
Class 1 Ordinary Shares 168,898,993 (19,593,806) 149,305,187 $ 50,598,834 $ 0.3389
Class C Shares 126,369,585 (43,139,118) 83,230,467 $ 56,177,678 $ 0.6750
$ 106,776,512
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 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 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. Accordingly, the only further
business that will be undertaken is that necessary to complete the Buy-Out of
the Company's portfolios.
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 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 $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.
9. 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 10).
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. 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.
10. RELATED PARTY TRANSACTIONS
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 2021, the Investment Manager agreed
to maintain the partial waiver of 50.00 per cent of the 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 2022. Total management fees charged
to the Company for the year ended 31 December 2022, net of the 50.00 per cent
partial waiver, amounted to $165,018 of which $2,806 was payable at year end.
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 (31 December 2021: 6.61 per cent) of the voting
rights of the Ordinary Shares and 0.00 per cent (31 December 2021: 0.00 per
cent) of the voting rights of the C Shares issued in the Company as of 31
December 2022.
As noted in Note 9, 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 31 December 2022, one of the Directors is also a
shareholder of the Company. The Directors' holdings are immaterial,
representing below 1.00 per cent of the Company NAV.
As at 31 December 2022 and 2021, the Company had no receivable due from or
payable due to Markel CATCo Diversified Fund.
11. 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.
12. FINANCIAL HIGHLIGHTS
Financial highlights for the years ended 31 December 2022 and 2021 are as
follows:
2022 2021
Class 1 Class Class 1 Class
Ordinary
C Shares
Ordinary
C Shares
Shares
Shares
Per share operating performance
Net asset value, beginning of year $ 0.3389 $ 0.6750 $ 0.2828 $ 0.5071
Income (loss) from investment operations:
Net investment gain (loss) 0.6973 1.8139 (0.0193) (0.0329)
Management fee (0.0287) (0.1941) (0.0022) (0.0038)
Net gain on investments 11.8392 86.5638 0.0763 0.2052
Total from investment operations $ 12.5078 $ 88.1836 $ 0.0548 $ 0.1685
Dividend (0.5144) (0.8579) - -
Discount on Share Buy-Back 0.8899 8.0832 0.0013 (0.0006)
Net asset value, end of year $ 13.2222 $ 96.0839 $ 0.3389 $ 0.6750
Total net asset value return
Total net asset value return before performance fee* 3,690.71 % 13,064.24 % 19.38 % 33.23 %
Performance fee - % - % - % - %
Total net asset value return after performance fee 3,690.71 % 13,064.24 % 19.38 % 33.23 %
Ratios to average net assets
Expenses other than performance fee** (4.22) % (4.77) % (6.94) % (6.15) %
Performance fee - % - % - % - %
Total expenses after performance fee (4.22) % (4.77) % (6.94) % (6.15) %
Net investment gain (loss) 197.29 % 239.97 % (7.60) % (7.24) %
Management fee waived (0.25) % (0.35) % (0.76) % (0.76) %
* Exclusive of discount on share buy backs
** Expenses presented above is net of management fees
waived by the Master Fund
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 years ended 31 December 2022 and
2021. The per share amounts and ratios reflect income and expenses allocated
from the Master Funds.
13. 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.
14. SCHEMES OF ARRANGEMENT Cost
During the year, the Master Fund recorded a net amount of $479,113
representing a reduction adjustment to the $27,232,774 incurred in 2021 for
legal fees and restructuring cost in relation to the Schemes of Arrangement.
Of this reduction amount, a reduction adjustment of $89,110 was allocated to
the $4,437,070 incurred by the Company in 2021. Additionally, the Company
incurred direct expenses relating to the finalisation of the Schemes of
Arrangement in the amount of $245,245 (2021: $229,415).
15. schemes of arrangement ordinary course fees
Per the Schemes of Arrangement Buy-Out agreement, after closing of the
Schemes, no additional fees or 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
will have been accelerated and included in the Ordinary Course Fees for the
Run-Off of the Funds. Post-closing of the Schemes with the Closing NAV
effective 31 January 2022, the Company incurred operational costs totaling
$772,131 in 2022 which were allocated against unutilised Scheme of Arrangement
costs of $167,813 and total accelerated reserves Schemes of Arrangement
Buy-Out Ordinary Course Fees of $3,384,953. The acceleration of future
operating expenses is a departure from U.S. GAAP, specifically in relation to
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 $2,780,635 excess liability and expense in the Company's financial
statements for the year ended 31 December 2022. 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 for the year ended 31 December
2022.
16. SUBSEQUENT EVENTS
These Financial Statements were approved by the Board and available for
issuance on 26 April 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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