Markel CATCo fund closes majority of its Pemex loss side pockets

by Artemis on May 11, 2017

Insurance and reinsurance linked investment manager Markel CATCo Investment Management Ltd. has resolved and closed the majority of its side pocket investments related to the Pemex oil rig fire and explosion, by redeeming the C Shares issued, which will now be converted back to ordinary shares in the fund.

It’s a sign that Markel CATCo has settled or commuted on the majority of any loss exposure to the April 2015 oil rig fire on the Mexican state energy company Pemex’s installation.

The fire on the Pemex rig was estimated to have caused an insurance industry loss of as high as $1.3 billion to $1.5 billion initially, but it was reported that Pemex settled with the majority of its insurers for around $700 million and PCS’ industry loss estimate from its new marine and energy service was for a market impact of $650 million.

However, Tom Johansmeyer of PCS told Artemis today that; “The estimate remains subject to the PCS Global Marine and Energy resurvey process, as a portion of the placement is reported not to have settled yet.”

Exposure that Markel CATCo’s listed CATCo Reinsurance Opportunities Fund Ltd. had to the Pemex loss will likely have been through retrocessional reinsurance contracts, which could have been called on by global reinsurers exposed to the loss event.

Now though, Markel CATCo is seeking to draw a line under this loss and is ready to convert the shares back to their standard form.

The ILS investment manager prudently segregates any at-risk investments, creating side pockets and C Shares in order to protect investors from any worsening of losses, or new investors into the fund from any exposure to prior events.

The Board of the CATCo Reinsurance Opportunities Fund Ltd. said today that the CATCo Diversified Fund (which is a segregated account of CATCo Reinsurance Fund Ltd.) which the listed fund invests in, has closed the majority of the side pockets linked to the Pemex loss exposure through a compulsory redemption of the shares issued for each side pocket, on the 10th May 2017.

As a result, the CATCo Reinsurance Opportunities Fund‘s ordinary shares are no longer considered to have any material exposure to the Pemex side pockets and so the related C Shares are to be converted back into ordinary shares on the 23rd May.

Settling losses is a key part of the job for ILS funds and their managers, particularly as fund’s grow their assets and so their exposure widens to include a much broader set of potential loss events.

By segregating exposed reinsurance assets, managing the claims and then folding any safe assets back into the main fund, Markel CATCo protects its investors and ensures loss events are able to be managed in a manner that protects the rest of the fund and its investors.

The news today suggests that the Pemex loss is finally getting fully settled and as a result the managers of exposed assets or reinsurance contracts can get more certainty over their exposure and take steps to close the file on the Pemex loss completely.

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