CATCo adds 3.5% of NAV loss reserve for Jubilee FPSO claims

The CATCo Reinsurance Opportunities Fund Ltd. has reported the establishment of a specific loss reserve, or side pocket, for potential business interruption, joint hull and machinery claims due to the Jubilee oil field, Ghana, FPSO industry loss event.

A number of ILS funds have reserved for potential exposure to the developing Jubilee oil field in Ghana FPSO (floating production storage and offloading) loss of production claim.

The loss event began in March 2016, when a floating production, storage and offloading vessel (FPSO) operating on the Jubilee oil field off Ghana, Africa suffered a fault to a bearing on the turret, causing a loss of production of around 15% of output per day.

Claims for the Jubilee FPSO loss are expected through marine hull, energy and business interruption lines of insurance and reinsurance business, with estimates suggesting an insurance and reinsurance industry loss in the region of $1.2 billion to $1.25 billion.

With retrocessional and reinsurance linked investment manager Markel CATCo Investment Management Ltd., the manager of the CATCo Reinsurance Opportunities Fund, having energy market exposure largely through retro industry-loss warranties (ILW’s) some exposure is to be expected and the manager has elected to prudently reserve for its maximum potential exposure.

The CATCo fund explained; “Following recent discussions with the Company’s reinsurance clients regarding potential losses associated with the ongoing offshore energy loss event in Ghana’s Jubilee oil field, which began in March 2016, the Investment Manager has recorded a specific loss reserve for this event of c.3.5% of NAV (included in the August NAV).

“This loss reserve covers 100% of the Company’s offshore energy exposures for any of its Industry Loss Warranty (“ILW”) contracts up to an industry insured loss of $1.35 billion and represents more than 40% of the Company’s total offshore energy exposure of c.8% of NAV.”

By reserving for the maximum anticipated industry loss and for all of the fund’s offshore energy exposures Markel CATCo is communicating to its investors of the worst possible scenario from this loss, meaning that any improvement in claims outlook could result in a return of NAV from the side pocket to the fund in the future.

The company explained that losses from the Jubilee FPSO event are anticipated in business interruption, joint hull and machinery policies, to which the fund’s retrocessional reinsurance contracts have some exposure.

Markel CATCo had previously warned its investors that it was monitoring the Jubilee oil field loss, in case it developed to the point where a loss reserve was necessary.

The fund has also put a loss reserve in place amounting to 1% of NAV for the Fort McMurray, Canada wildfires this year.