Markel CATCo raises $700m for increased mid-year demand

Markel CATCo Investment Management Ltd., the retrocession and reinsurance linked investment manager, has raised an additional $700 million of capital from its existing investor base to meet an increased demand for its products at the mid-year renewals this year, Artemis has learned.

The Markel CATCo product range has not become any less sought out by protection buyers we’re told, with the manager seeking to satisfy a higher demand for its underwritten products at the June and July reinsurance renewals this year.

Existing investors in the Markel CATCo strategy have allocated as much as $700 million of fresh capital to help in meeting the demand that was seen, with this additional haul taking the total assets under management at the firm to a new high of $6.8 billion, we understand.

The $700 million has been raised across the first-half of the year, so is in addition to the more than $2.3 billion that Markel CATCo raised last year following the impacts of major hurricanes, wildfires and other catastrophe loss events.

That $2.3 billion was split across both the private ILS fund, for which roughly $1.8 billion was raised, and the stock exchange  listed fund, for which $543 million was raised.

The $700 million of fresh funding allocations in 2018 appears to have all been for the Markel CATCo private ILS funds.

The firm had originally expected that the capital raised in 2017 would have been sufficient to meet demand at the key January renewals and for any further renewals in 2018, but it seems that demand for the CATCo retro product has been higher, likely in response to the losses reinsurance firms faced from last year, hence the additional investor inflows.

The capital raise also comes despite the firms increase in loss reserves, which Markel CATCo hardened significantly in recent months to account for ongoing escalation of the estimated industry loss impact from the 2017 hurricane events.

The fact existing investors have demonstrated their commitment to the strategy by allocating more funds will have pleased the firm, offering a vote of confidence in its strategy.

It seems protection buyers have also provided a further vote of confidence, by continuing to buy the Markel CATCo product and in increased volumes (hence the need to raise more capital).

We understand that early indications for the next key renewal season in January 2019 suggest flatter pricing for the types of retrocessional reinsurance products Markel CATCo provides, so it would not be surprising to see more capital raised for that juncture.

Additionally, we understand that Simon Moore has now assumed the role of sole Chief Underwriting Officer of Markel CATCo, following the departure of the firms other co-CUO Lindsay Watson recently.

Markel CATCo is also said to be looking to hire additional senior technical underwriting resource we’re told, as it looks to bolster support for the underwriting team.

At some point the losses from 2017 will begin to unwind for managers like Markel CATCo at which point it will be interesting to see whether reserves have been set with sufficient leeway to account for the ongoing loss creep, or whether there is room to release some as the final bills come in.