The proposed buy-out schemes for the Markel CATCo retrocessional reinsurance investment funds have now received formal support from the US bankruptcy courts and Markel said yesterday that two lawsuits filed against former Markel CATCo CEO Tony Belisle will now be dismissed with prejudice, as the buy-out offer moves towards its close.
Parent company Markel Corporation and retro reinsurance investment manager Markel CATCo Investment Management Ltd. yesterday announced the necessary court approvals of the proposed fund buy-out transaction and schemes of arrangement which clear the way for the winding-down to proceed and investors to be bought-out of their holdings in the ILS strategies.
The two insurance-linked securities (ILS) funds, the private Markel CATCo Reinsurance Fund Ltd. and the public and listed CATCo Reinsurance Opportunities Fund, remain in run-off under the management of Markel CATCo, but now the investor holdings will be redeemed, allowing the run-off to continue at pace, while all legal claims against the funds and the manager are set to be dropped.
As we recently reported, a Bermuda Court sanctioned the proposed schemes to implement the buyout process last week, after investors in the Markel CATCo retrocessional reinsurance investment funds voted overwhelmingly in favour of the proposed and updated buyout terms.
Then yesterday, March 16th, the United States Bankruptcy Court for the Southern District of New York entered orders that approve the enforcement of the Bermuda court Orders in the United States, under Chapter 15 of the United States Bankruptcy Code.
As a result, all material conditions for closing the CATCo funds Buy-Out Transaction have now been satisfied, Markel explained.
The Buy-Out Transaction is being facilitated by Markel, with the company providing funding up to $50 million to buy-out substantially all of the retrocessional segregated accounts of the CATCo fund strategies and also providing tail risk cover to enable the return of trapped collateral to investors in the Aquilo Fund, a collateralized reinsurance focused segregated account of the Private CATCo Fund.
On top of this, Markel is set to make payments to or for the benefit of investors in the Funds, net of insurance proceeds, amounting to roughly $100 million.
Not only are investors being bought out of their fund holdings at attractive terms, but they also stand to benefit from any upside in the running-off of the fund strategies.
To-date, Markel CATCo, as it manages down the remaining fund assets, has been able to recover significant value through commutations and also releasing reserves, where it had reserved more than adequately. In the majority of cases, it has been proven that the Markel CATCo team reserved robustly for catastrophe losses and capital has repeatedly been freed to be returned to investors in the funds.
That will continue, as buy-out participants will retain the right to receive any upside generated at the end of the run-off process, if Markel CATCo Re Ltd.’s held reserves exceed the amounts necessary to pay ultimate claims.
Importantly for the parent company, Markel said that its affiliates that are financing the buy-out deal, expect to be returned all of their funding in relation to the full buy-out of the Funds by the end of the run-off period.
Also of note, Markel said that at the closing of the buy-out transaction, all investors and related parties “will grant mutual releases of all claims related to the Buy-Out Transaction, the Markel CATCo Group Companies’ businesses and the investors’ investments in the Funds.”
That closes down the prospects of any further litigation against the fund, or the investment managers staff.
Finally, and particularly notable, the buy-out agreement also shuts down litigation against former Markel CATCo CEO Tony Belisle as well, with the two ongoing lawsuits filed by investors in the CATCo Private Fund against Belisle set to be dismissed with prejudice at the closing as well.
With the buy-out transaction expected to close later this month, it seems Markel will finally be able to put to bed its experience in the retro reinsurance investment marketplace, while the Markel CATCo team will then be able to concentrate on running off the remaining fund assets and recovering as much value as possible, for Markel and for the investors that now stand to benefit from any upside generated.
As a result, the final hurdles have been overcome in the CATCo retro insurance-linked securities (ILS) funds saga and soon they will disappear into an internal running-off process, of which we are unlikely to have much visibility.
Investors are set to benefit from the generous buy-out, funded with the significant support of Markel, while also benefiting from any run-off upside that can be delivered.
As we’ve explained before, some investors have done very well out of this whole process, particularly any that bought into the public fund at the lowest NAV’s, on which they are now set to make a tidy profit at the improved buyout terms.
The removal of the litigation threat is also significant, as it clears any current or former staff of further scrutiny in the courts over this affair and allows Markel to finally put the venture to bed.
CATCo buyout schemes sanctioned by Bermuda Court.
CATCo investors vote “overwhelmingly” in favour of buyout.
Markel CATCo funds seek US bankruptcy support for buyout.
Markel CATCo sets buy-out meeting date. End of process in sight.
Former CATCo CEO Belisle’s fraud lawsuit stayed as settlement negotiated.
Bermuda Court orders CATCo creditor meetings be held.
CATCo retro funds head back to Bermuda Court this week.
Markel CATCo gets majority investor support for improved buy-out terms.
CATCo reports favourable development on 2017 & 2018 catastrophes.
Markel CATCo buy-out terms sweetened after settlement reached.
Belisle fraud lawsuit to wait for CATCo insolvency decision in Bermuda.
CATCo retro fund gains again, NAVs now 148% & 231% higher than lows.
Markel CATCo buyout support undertakings extended to end of February 2022.
Markel CATCo says court decision on buyout hoped for in January.
Markel CATCo to “vigorously defend” investor challenges.
View all of our Artemis Live video interviews and subscribe to our podcast.
All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.
Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.