Reinsurance and retrocession linked investment manager Markel CATCo Investment Management Ltd. said it will protect new capital received in recent allocations made by investors from legacy loss events in 2015 that it has established side pockets for.
The announcement is related to the retrocessional reinsurance investment focused listed CATCo Reinsurance Opportunities Fund Ltd., which as we wrote recently has set up side-pockets for potential catastrophe events such as the UK flooding and U.S. tornadoes in December.
Markel CATCo had raised new capital from third-party investors for this fund back in October and issued C-Shares which were due to be converted to Ordinary Shares in early 2016. As a result of the establishment of these side pockets the reinsurance investment manager has decided to postpone the share conversion until the side pockets have either been released or deemed to be immaterial.
By setting up side pockets and putting potentially impacted investment positions into them, managers like Markel CATCo can segregate the affected contracts from the rest of their fund, and also better protect the investors, both existing and new.
It provides a greater degree of certainty on just how far any impact to fund NAV could go, also increasing transparency to investors through the way managers communicate side pocket information. In this case it means the new investment allocations to the fund will not be impacted by any NAV hit from the events that caused these side pockets to be set up, protecting the capital from legacy events.
Markel CATCo said that it anticipates “a significant proportion” of the side pockets will be released during the course of 2016, as it expects that the losses from these events will “stabilise relatively quickly.”
It’s encouraging to see ILS and reinsurance linked investment managers looking after the interests of investor stakeholders in this way. Side pocketing is a practice widely adopted in ILS fund management and with exposure to attritional events and aggregations of events increasing, as the reinsurance and retrocession investment landscape evolves, they will continue to prove a very valuable tool.
Also today Markel CATCo announced it was paying an annual dividend of $0.06619 in respect of the Ordinary Shares of the CATCo Reinsurance Opportunities Fund for the year to 31 December 2015.
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