Desire to be more meaningful in ILS inspired CATCo acquisition: Markel

by Artemis on November 13, 2015

A result of the current hunt for scale and relevance in the global reinsurance industry has been the greater use of insurance-linked securities (ILS) by global re/insurers, the opportunities of which inspired Markel’s acquisition of CATCo, says Richard R. Whitt.

President and Co-Chief Operating Officer of Markel, Richard R. Whitt, said during the firm’s recent third-quarter 2015 earnings call that a desire to become more deeply involved in the ILS space was a key reason for its acquisition of CATCo Investment Management, the reinsurance and retrocessional reinsurance linked investment and fund manager.

Whitt highlighted that ILS, or alternative and third-party reinsurance capital, has been coming into the insurance and reinsurance sector for the last decade or so now, and that he expects the trend is going to continue.

“And it’s going to become more and more meaningful. We have got a small taste of that, with our purchase of Alterra,” said Whitt, referring to Markel’s acquisition of that firm which came with a small third-party reinsurance capital and ILS venture.

“And Jed Rhoads and myself we talked about the fact that we felt like we needed to be more meaningful in that ILS going forward, and CATCo provided us with that opportunity,” added Whitt.

As the ILS market continued to grow its share of the overall reinsurance space global players increasingly sought to utilise its structures and capacity to diversify portfolios and increase cost efficiency, a trend that is predicted to continue throughout 2016 and beyond.

The fact that an insurance, reinsurance and financial services group like Markel Corporation acquired an ILS investment manager like CATCo, supports the expectation of continued convergence market growth and greater penetration of ILS.

The challenging operating environment has driven a wave industry consolidation, and also seen companies establish their own reinsurance, or third-party capital backed entities to improve cost efficiencies and access ILS capacity, enabling investors access to largely uncorrelated, diversified risk and to their underwriting expertise.

Whitt explains that Markel saw an opportunity with CATCo owing to synergies between the fund and Markel’s reinsurance division, citing that moving forward, under the Markel CATCo brand, the two teams will work very closely together.

“So they will sit beside each other and that array of product set we hope to make available to our ceded clients,” said Whitt.

Adding; “We really view that as kind of extending our product set across the reinsurance base, both traditional and ILS. And then, going forwards, we hope to develop new products and that could potentially mean moving into different areas of insurance as opposed to just reinsurance.”

It will be interesting to see if the M&A trend across the industry results in re/insurers increasingly acquiring ILS funds as opposed to typically, smaller insurers or reinsurers, as seen with the Markel CATCo deal.

There is an expectation that if M&A is going to impact the ILS manager sector it is most likely to be traditional companies acquiring ILS units, rather than mergers between ILS managers.

Markel clearly feel the growth of ILS is going to continue and expand its reach, so getting in early, and in a meaningful way could prove extremely beneficial to them and their investors in the future.

Whitt continued to underline the underwriting expertise at both Markel and CATCo, and that combined with CATCo’s relationships with investors and proven ability to raise funds, there will be many opportunities moving forward.

Also read:

Markel invests in CATCo retro fund, reveals purchase price of manager.

CATCo raises $88.4m for retro Reinsurance Opportunities Fund.

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