A Bermuda-based fund that invests in reinsurance-related products earned a return of more than 20 percent for its shareholders in 2013.

CATCo Reinsurance Opportunities Fund Ltd said yesterday that its portfolio had benefited from lower catastrophe losses than normal.

However, the company is also seeing “a depression in pricing” in some areas of catastrophe reinsurance, because of a quiet period for losses and competing capital adding to industry capacity.

CATCo, which is run from offices on Par-la-Ville Road, Hamilton, makes investments linked to catastrophe reinsurance risks, principally through collateralised reinsurance contracts. It also operates CATCo Re, a Bermuda reinsurance company.

The fund’s annual report, published by the Bermuda Stock Exchange yesterday, stated: “In the 12-month period to 31 December 2013, the Company’s investment portfolio generated a very strong financial performance for the year, achieving a net return for shareholders of 21.9 percent.

“The share price growth of 19.04 percent for the full year reflected an expansion of the premium to net asset value (NAV). Including the annual dividend (at a rate of LIBOR plus five percent of the company’s NAV) it resulted in a share price total return of 24.34 percent. These positive gains resulted from a well-diversified and balanced investment portfolio of global risks.”

In the outlook for its 2014 portfolio, CATCo’s observations echo those of others in the industry on the impact on reinsurance pricing of the surge in volume of insurance-linked securities and catastrophe bonds.

“The influx of capacity into the property catastrophe reinsurance and retrocession market, compounded by fewer favourable catastrophe losses over the past 12 months, has led to a depression in pricing for certain types of products,” CATCo notes.

“This downturn is more pronounced in the traditional reinsurance market and ILS space, where prices were down by 25 percent to 40 percent in some cases.”

“In the retrocessional arena in which CATCo-Re Ltd, the company’s reinsurer, operates, market rates fell on average by 7.5 percent for business written at comparable risk levels to 2013, reflecting current market pricing conditions. At the same time, given the low level of catastrophe losses in 2013, some retrocession buyers have decreased the extent of their purchases for 2014.”

The fund’s managers have responded to these more competitive conditions with its “Return of Value” to shareholders, under which investors received $63.6 million and reinvested $10.4 million in their chosen option.

“The decision allows the investment manager to maintain an optimum level of capital in the company in order to continue to target effectively the company’s stated annual return of LIBOR plus 12 to 15 percent per annum,” CATCo’s statement continued.

“Should market conditions change and new opportunities present themselves throughout the year, as they did in 2011, it would very much be the intention of the investment manager to allow investors to participate in them.”