Markel CATCo sees increased demand, fund deploys all capacity at 1/1

Reinsurance and retrocession linked investment manager Markel CATCo has successfully deployed all of its flagship listed fund’s capacity at January 1st 2017 after it saw an increased demand for products offered by its Markel CATCo Re Ltd. reinsurer.

The company recently revealed an 8.12% return for the ordinary shares of its CATCo Reinsurance Opportunities Fund Ltd. for 2016, despite a number of catastrophe events during the year having impacted the strategy.

Markel CATCo notes that this outperformed an index of insurance-linked securities (ILS) funds by 57%, demonstrating the effectiveness of the retrocessional reinsurance strategy and the Markel CATCo product in generating higher returns.

The increased demand for its product helped the fund to deploy 100% of its capacity at 1/1 2017 into a portfolio which could return an indicative 16% on invested capital (taking into account a 2% attritional loss reserve).

The target return of 16% is consistent with the 2016 portfolio, which is encouraging as it suggests that retrocessional reinsurance rates perhaps have not fallen as much as broader reinsurance at the recent renewal.

The 2017 portfolios average risk level is also equivalent to 2016 and Markel CATCo says that the maximum capital exposed to a worst case scenario event is 10%.

The Markel CATCo fund also provided an update on side pocket investments, which have been put in place over the course of the year to manage investments that are exposed to developing catastrophe losses.

At the end of 2016 the fund included Side Pocket Investments (SPI’s) totaling 10.5% of the fund’s NAV. SPI’s for the Ordinary Shares total approximately 11.5% NAV, with around 1.6% from 2014 loss events, 3.2% from 2015 events and 6.7% from 2016 events. 

Side pockets from 2015’s catastrophic loss events have now reduced to around 3.2% at 31st December 2016 from the 5.5% established a year earlier, demonstrating the ability of the manager to reserve prudently and then release reserves at a later date, flowing back into the fund’s NAV.

The C Shares of the fund held around 7% of their NAV in side pocket investments at the end of 2016 and these are only from 2016 loss events.

Some of these side pocket investments are likely to flow back into NAV in future months, as catastrophe loss estimates develop and exposed reinsurance contracts are commuted or settled.

The manager Markel CATCo now has around $4.3 billion of assets under management and holds a position in the market as perhaps the largest provider of specialist collateralised retrocessional reinsurance products.