Markel CATCo fund sets up 4.4% loss reserve for October California wildfires

by Artemis on December 12, 2017

Markel CATCo Investment Management Ltd. has established a loss reserve amounting to 4.4% of net asset value (NAV) for its listed retrocessional reinsurance fund, the CATCo Opportunities Fund, to cover any losses from the wildfires that struck the northern California region during October 2017.

The California wildfires are just the latest global catastrophe loss events for which Markel CATCo has established loss reserves, having done so already for hurricanes Harvey, Irma and Maria.

With the retrocessional focused ILS fund manager having its core product structured into peril related pillars of coverage, it appears the California wildfires are likely to create some losses to another pillar focused on provision of wildfire related reinsurance and retro protection.

The California wildfires from October are estimated to have caused an insurance and reinsurance industry loss of around $10 billion, although some industry sources suggest the final bill from October’s fires will rise higher than that, perhaps to as much as $12 billion to $15 billion.

The ILS fund sector has suffered some losses as a result, both from retrocession and reinsurance, as well as also catastrophe bonds that are exposed.

Often the exposure has been through aggregate reinsurance or retro and Markel CATCo’s core product offers payouts based on pillars being eroded by peril-specific loss events, of which these wildfires look set to be the latest.

Given the scale of the losses expected from the October wildfires and taking into consideration the losses already suffered, it is to be expected that Markel CATCo’s products would face some exposure to these latest events.

The stock exchange listed CATCo Reinsurance Opportunities Fund’s reported NAV is now 17% down from where it sat prior to hurricane Harvey, the first of the major loss events of the third-quarter.

By reserving prudently the manager aims to segregate potentially loss affected assets, while ensuring it has the collateral set aside to pay any claims that emerge.

With new wildfires now burning in California and expected to add a number of billions of dollars of further insurance and reinsurance industry losses, it is possible that further loss impacts may be felt by Markel CATCo and other ILS fund managers before the year is out.

The impacts of recent losses makes it even more important that managers like Markel CATCo are ready for the renewal season and the company has now raised almost $2.35 billion of fresh capital to ensure it can provide continuity to clients and investors as it moves into 2018.

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