Bermuda-based CatCo Investment Management has announced it is establishing a retrocessional loss reserve for the expected impact of hurricane Sandy.The specialist reinsurance-linked investment manager, which manages an estimated $2 billion of retrocessional reinsurance portfolios for its clients, is ensuring it’s prepared for the eventual industry loss impact from Sandy by setting up a loss reserve provision in the net asset value of the CatCo Reinsurance Fund Ltd.The investment managers have modelled the projected loss distribution for Sandy across CatCo-Re Ltd’s 2012 portfolio based upon Property Claim Services’s (PCS) estimated industry loss as well as varying average expected industry insured losses suggested by Eqecat, AIR Worldwide and RMS. PCS investigates reported disasters and reports on the extent and type of damage, dates of occurrence and areas affected.The company stresses that this is a loss reserve provision and not an actual loss at this time.“The directors of the CatCo Reinsurance Fund have taken a cautious approach to this and are including a retrocessional reinsurance loss reserve provision based on an industry loss of $20 billion in the net asset value calculation for November 30,” the company said in a portfolio update to investors.Given the uncertainty surrounding the final industry loss from Sandy there is a chance it could go up or down. PCS’s preliminary estimate $11 billion in insured property damage from Sandy is likely to rise considerably.The PCS estimate is likely key to CatCo as they will probably have some exposure to ILWs (industry loss warranties) or reinsurance contracts which use the final published number as a trigger. It is also a good proxy for the ultimate net losses suffered by insurers and reinsurers who they may underwrite.CatCo said that a reinsurance loss reserve based on a $20 billion industry loss estimate could erode its gross expected returns for 2012 by up to 13.2 percent. The company had been expecting a stellar year of returns, forecasting 20 percent or more. Even with the impact of Sandy however, the fund will likely beat the return of many other asset classes such as equity indices.PCS will conduct another survey in about two months time and will update the loss estimate at that time with new data from affected insurers. CatCo says it will update shareholders with that updated information when it is released.