CATCo investment fee income dips at Markel following catastrophes

Insurance and financial services giant Markel Corporation reported a dip in investment management fees generated by the collateralized reinsurance and retrocession linked investment activities of specialist manager Markel CATCo Investment Management, in the wake of recent catastrophe losses.

Markel’s third-quarter 2017 results show that investment management fees earned from Markel CATCo’s ILS and reinsurance linked fund management activities fell to $1.2 million for Q3 2017, down from $8.3 million in the prior year quarter.

The impact of the recent major catastrophe losses, including hurricanes Harvey, Irma and Maria as well as the Mexico earthquakes will be the cause, as Markel CATCo’s management fees and profit commission will have been slashed due to the heavy loss activity.

Despite this dip, investment management fees earned by Markel from CATCo’s activities for the first nine months of 2017 reached $19.9 million, down slightly from $22.8 million for the same period of 2016.

Considering the losses that Markel CATCo faces from the recent catastrophe events, as one of the largest retrocession markets in the world the impact was always going to be significant, the fact it continues to deliver positive fee income in the quarter is impressive.

Most of the decline will be from September, the month that has hit the retro market most thanks to hurricanes Irma and Maria, with the rest coming from August and hurricane Harvey’s impacts.

Markel CATCo has established loss reserves for hurricanes Harvey, Irma and Maria amounting to 20% of net asset value for one of its ILS funds, the listed CATCo Reinsurance Opportunities Fund Ltd. retrocession strategy.

As the impacts of these losses and the resulting trapping of collateral flow through, Markel Corporation naturally sees lower investment management fees. Depending on where these losses end up there is a chance that some additional fees from this last quarter flow through, once losses are settled and collateral released.

Markel CATCo currently has $4.5 billion of assets under management, which Markel notes includes funds held that will be used to settle claims on incurred losses.

Following recent loss events and with the market expecting an increase in retrocession pricing at the next renewal, Markel CATCo will likely seek to raise new capital to ensure it can provide continuity to its client-base and take advantage of any rate increase for its investors.