CATCo investment fee income up 84% for Markel in first-quarter

by Artemis on April 25, 2018

Financial services, insurance and reinsurance giant Markel Corporation has reported a significant 84% year-on-year jump in investment management fees generated by the reinsurance and retrocession linked ILS investment activities of its specialist manager Markel CATCo Investment Management.

Following a decline in investment management fees earned from Markel CATCo’s ILS and reinsurance linked fund management activities, after the impact of the major losses in 2017, the revenue earned increased significantly in Q1 2018, as major catastrophe activity dropped back to more typical levels.

Markel Corporation had been reporting steadily rising investment management fee income from Markel CATCo up until the third-quarter of 2017, when the impacts of hurricanes Harvey, Irma and Maria all took their toll.

Given Markel CATCo’s position as perhaps the largest retrocessionaire, it was inevitable that the managers collateralized reinsurance portfolios would take a significant hit. That led to a decline in investment management fees in the third and fourth quarters of 2017, resulting in full-year 2017 investment management fees of $28.7 million, down from $56.5 million in 2016.

But after one less active catastrophe quarter it is clear that the investment fee income potential has risen, along with Markel CATCo’s assets under management which now stand at $6.1 billion.

Markel Corporation reports that investment management fee income earned from Markel CATCo’s ILS and reinsurance fund management activities reached $17.3 million for Q1 2018, up 84% from the $9.4 million earned in the prior-year quarter.

It’s a clear demonstration that fee income has risen considerably, alongside the asset growth, making Markel’s acquisition of reinsurance investments and fund manager CATCo in December 2015, for an acquisition cost of $205.7 million, look increasingly attractive for the firm.

At the same time the losses from 2017 catastrophes are evident in the fact that Markel Corp’s investments in some of the Markel CATCo funds are reported at a lower value than in 2017, reflecting the fact these strategies faced losses from 2017 catastrophe events.

The value of those investments may recover a little, as losses become clearer and some of the trapped collateral may get to be released over time.

The increase in investment management fees is significant this quarter and should the market remain relatively free of major losses through the year, Markel could find the CATCo revenue contribution an increasingly meaningful boost to its income, as the fee income rises throughout the year.

For more information on insurance and reinsurance linked investment managers like Markel CATCo, visit our Insurance Linked Securities (ILS) Investment Managers & Funds Directory.

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