CATCo reports 8%+ 2016 return, reserves for Matthew & NZ quake

by Artemis on January 20, 2017

Markel CATCo has revealed an annual return of 8.12% for the ordinary shares of its CATCo Reinsurance Opportunities Fund Ltd. for 2016, despite setting up two loss reserves for hurricane Matthew and the New Zealand earthquake.

Retrocessional and reinsurance linked investment manager Markel CATCo Investment Management Ltd.has reserved prudently for the two fourth-quarter catastrophe events that it anticipates could hit the portfolio of its stock exchange listed retrocessional reinsurance focused investment fund.

Markel CATCo announced this morning that its CATCo Reinsurance Opportunities Fund has delivered a net asset value annual return of 8.12% for its ordinary shares and 7.27% for its C shares in 2016.

It’s a very impressive annual return for the year, given the manager has established a number of side-pocket loss reserves for a variety of natural and man-made catastrophe events during the year.

The CATCo reinsurance opportunities fund established a 1% loss reserve for the Fort McMurray Canada wildfires in July, but the manager of the fund Markel CATCo said today that it has increased this loss reserve to circa 3% of NAV, partly offset by 1% of unused annual attritional loss reserve.

The manager had also reserved 3.5% of the funds NAV for potential business interruption, joint hull and machinery claims due to the Jubilee oil field, Ghana, FPSO loss in September.

Today, Markel CATCo revealed that it has set up a loss reserve of approximately 1% of NAV for losses due to hurricane Matthew’s impact on the Caribbean, Florida and U.S. southeast coast. Additionally, another 1% loss reserve has been established to cover losses due to the magnitude 7.8 New Zealand earthquake in November.

So with around 8% of loss reserves established during 2016 the 8%+ annual return is particularly impressive.

Markel CATCo tends to reserve prudently for loss events, to protect its investors from any loss estimate deterioration. That can result in some loss reserves flowing back into the fund at later dates, which has been seen in recent years and we’re likely to see the same happen in 2017 from the 2016 side-pockets.

By segregating loss threatened reinsurance assets, Markel CATCo can ensure that the funds investors are only exposed to losses from the time they are invested in the fund as well, ensuring new investors can enter the ILS fund without concern of sharing in prior loss events.

2016 has been a relatively loss heavy year for the insurance-linked securities (ILS) market, in terms of the market’s history. With numerous attritional catastrophe and severe weather losses, as well as some man-made loss impact.

But still the majority of ILS funds have reported attractive returned for the year, which is testament both to the diversification of the market, which helps to ensure that attritional losses can be absorbed, as well as the investment managers diligence.

It will be interesting to see just how much of the loss reserves established by Markel CATCo could be released in months to come, as the final impact of these events becomes clear.

Investment manager Markel CATCo Investment Management saw further growth in its assets under management during 2016, ending the year with around $4.3 billion of reinsurance linked assets in its variety of funds, mandates and strategies.

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