Markel invests in CATCo retro fund, reveals purchase price of manager

Insurance, reinsurance and financial services group Markel Corporation has demonstrated its commitment to one of the funds operated by reinsurance investment and fund manager CATCo by making an allocation to it.

In September Markel announced it had reached an agreement to acquire Bermuda-located CATCo Investment Management, the reinsurance and retrocessional reinsurance linked investment and fund manager, in a transaction set to close later this quarter.

In the Markel results announced yesterday, it has disclosed that it expects the purchase price it paid for CATCo and its assets to be approximately $200 million, which is expected to be fully paid for in cash.

Additionally, in a clear demonstration that Markel intends to align its interests with CATCo’s investors, the firm has made an investment in the managers flagship listed retrocession focused fund, the CATCo Reinsurance Opportunities Fund Ltd.

According to a London Stock Exchange filing, one of the two exchanges where the CATCo Reinsurance Opportunities Fund is listed, a Markel subsidiary which acts as a money manager for the holding company has acquired 25 million C shares in the fund, equivalent to 6.91% of the outstanding voting rights.

The investment was made as part of the recent fundraising by CATCo, which saw the manager successfully raise an additional $88.44 million for the Reinsurance Opportunities Fund. As a result the investment is in the CATCo Reinsurance Opportunities Fund C shares, which will convert to Ordinary shares in the near future.

The 25 million shares would have cost $25 million, as the C shares were offered at $1 each. They will convert to Ordinary shares, likely in January, once the fund goes ex-dividend for 2015.

The allocation to the fund has been made through Markel-Gayner Asset Management Corporation, a unit run by investment manager Tom Gayner that acts as an internal money manager and investment unit for the holding company. The ultimate owner of the shareholders rights is Market Capital Limited, a subsidiary of Markel Corporation.

The investment by Markel in the flagship CATCo listed retrocessional reinsurance fund is a clear demonstration of its commitment to the operation and its belief that the manager will generate attractive ongoing returns.

With the new capital raised and the acquisition by Markel set to complete in the coming weeks, the CATCo Reinsurance Opportunities Fund will be looking ahead to capital deployment strategy at the key January reinsurance renewals.

According to analysts at Numis, CATCo Investment Management has already agreed terms on a significant amount of capacity for its 2016 portfolio at similar rates to those achieved in 2015, which bodes well for investors in the fund.

CATCo also expects to be able to buy industry loss warranty (ILW) protection at similar terms to this year, as its strategy to protect itself and investors from the peak exposures continues. As a result, Numis says that CATCo is likely to construct a 2016 portfolio with a similar composition and risk/return profile as it had this year.

That sounds positive for the fund as it moves forwards, with the increased assets under management from the recent fund raise and the injection of capital from soon-to-be-parent Markel set to provide increasing scale for renewal deployment.