Bermuda-based Catco Reinsurance Opportunities Fund Ltd earned a net return of 14 per cent for its shareholders in 2014.

That performance was lower than the 21.9 per cent achieved in 2013, a drop which the fund said partly reflects increasing capacity entering the retrocessional market.

However, given the market conditions and the downward pressure on pricing due to a lack of natural catastrophe losses, Catco said in a statement that it had delivered a “strong performance” to achieve the 14.08 per cent return for shareholders.

The fund is listed on the Bermuda and London stock exchanges and has total net assets of more than $350 million. It invests in reinsurance-related products.

Catco has offices on Par-la-Ville Road, Hamilton and makes investments linked to catastrophe reinsurance risks, primarily through collateralised reinsurance contracts. It also operates Catco Re, a Bermuda reinsurance company.

In the fund’s annual report, published yesterday, it stated: “This result was comfortably within the company’s stated target annual gross return of LIBOR plus 12 to 15 per cent per annum, outperforming other ILS indices in what is an increasingly challenging retrocessional market. Including the annual dividend it resulted in a share price total return of 9.2 per cent.”

Catco said disciplined underwriting, innovative product design and prudent capital management, had all helped it to navigate the tighter ILS market caused by an influx of capacity and absence of catastrophe losses.

It said in its statement: “If 2013 was the year of convergence then 2014 was the year when the non-traditional reinsurance and ILS market firmly established itself as an alternative to traditional reinsurance.

“There was record catastrophe bond issuance of in excess of $8 billion for the year, according to Aon Benfield Securities, with collateralised reinsurance capacity approaching the $40 billion mark. These alternatives are offering reinsurance buyers more choice and greater diversification of counterparties.”

It noted: “What is now firmly a buyer’s market was evident at the midyear and 1 January renewals, with cedants locking in rates and favourable terms with multi-year structures, as well as buying more protection at the top end of their programmes.

“In the absence of major losses, these trends will continue into 2015. The most recent renewals at 1 January saw a further depression of reinsurance pricing.

“US and European property rates declined some 10 per cent to 15 per cent on loss free accounts, according to Willis Re.

“With differing risk and return profiles to their traditional counterparts, ILS funds are well-placed to compete in this environment. Should this year bring a sizeable loss or series of losses the ILS space could seize the opportunity to further grow its influence in the global catastrophe market.”

The company has determined a “Return of Value” to shareholders of $35 million, down from the $74 million figure of January 2014.

Unlike last year, shareholders have not been offered the opportunity to remain invested for their share of the Return of Value.

The annual dividend on ordinary shares was $0.05, which is separate and in addition to the Return of Value.