Asset Allocation

The CATCo Group of Companies seeks to deploy investor funds across several non-correlated risk pillars to minimize the amount of investor capital at risk with respect to a single catastrophic insured loss event. These investments will also be diversify geographically (for example, US, Europe, Japan, etc) as well as by peril exposures.

Summary of Investments

	Catastrophe Bonds	Cat Derivatives/ ILWs	Reinsurance Investments	Other
Overview	Issued by reinsurers seeking collateralized protection from investors, as opposed to traditional reinsurance market	Losses are determined by an index of insured industry losses Most commonly traded in reinsurance form, but can also trade in swap or security form, as well as on an exchange	indemnifies buyer against losses on own reinsurance portfolio Removes basis risk inherent in CAT Bonds and ILWs May be Collateralized	Sidecars (equity & debt) Proportional collateralized reinsurance investments CDO-like structures
Return Profile	Generally LIBOR based floaters with risk spreads of 3%-5% for 1% underlying expected loss; Hard to diversify as only a few non-correlated regions offered	Generally LIBOR + 10-20% premium rates	Generally LIBOR + 10-30% premium rates	Generally money market or corporate fixed income return on collateral plus risk premiums of 20%-40%
Liquidity	1-3 year term, 144A LIBOR floaters Quasi-Active secondary market	Commodity-like products with periodic swings in price and available capital and typically 12 month term No secondary market to speak of	Typically 12 month risk period No liquidity	Maturities can vary Minimal liquidity

Participations in Traditional Reinsurance

Reinsurance is a widely utilized mechanism for event risk transfer. The range of risks traded in the traditional reinsurance market is much broader and more diversified relative to the Insurance Linked Securities, Industry Loss Warranties and insurance-linked swaps markets. In a reinsurance agreement, the reinsurer will typically receive reinsurance premiums in exchange for agreeing to make reimbursement payments for losses occurring on an indemnity basis as a result of certain events.

Insurance-Linked Securities (“ILS”)

ILS include catastrophe linked securities, commonly referred to as “cat bonds” (“Catastrophe Bonds” or “Cat Bonds”), and are a class of fixed income assets offering investors a defined return, usually in the form of U.S. Treasuries or LIBOR plus a spread, in exchange for the acceptance of risk tied to the occurrence of a specified catastrophe or extreme mortality event. Specified events may be on a parametric (i.e., based on an event’s physical characteristics), indemnity (i.e., based on actual losses experienced by a certain company or companies) or index (i.e., based on an estimate of insurance industry-wide losses, such as the estimates provided by Property Claim Services, Inc.) basis. ILS also include equity or debt investments in “sidecars”, which are similar to Cat Bonds, but the risk transferred is typically the risk of first dollar loss on a pro rata basis, rather than the risk after a certain “trigger” is reached.

Insurance-Linked Swaps and Industry Loss Warranties (“ILWs”)

Fundamentally similar to ILS, insurance-linked swaps and ILWs offer a defined premium payment in exchange for an event contingent loss payment upon the occurrence of a defined catastrophe or extreme mortality event.

The return on Insurance-Linked Instruments is tied primarily to property catastrophe insurance risk, and investment may be exposed to losses arising from hurricanes, earthquakes, typhoons, hailstorms, floods, tsunamis, tornados, windstorms, extreme temperatures, aviation accidents, fires, explosions, marine accidents and other perils.

Insurance-Linked Security Derivatives or Other Types of Derivative Instruments

These types of instruments will be used for a variety of reasons, including hedging purposes and other risk management purposes in order to (i) protect against possible changes in the market value of the investment portfolios resulting from fluctuations in the securities markets and changes in interest rates; (ii) protect unrealized gains in the value of the investment portfolios; (iii) hedge the interest rate or currency exchange rate liabilities or assets; or (iv) protect against any increase in the price of any securities anticipated acquiring in the future.