CATCo funds report favourable development on 2019 year side pocket

The CATCo retrocessional reinsurance investment portfolio experienced more favourable development on a side pocket set for the 2019 underwriting year before its final winding down and distribution of the remaining capital to investors was complete.

The buy-out schemes for the Markel CATCo managed retrocessional reinsurance investment funds closed at the end of March and distributions of the remaining value in the insurance-linked securities (ILS) fund strategies began, with capital returned to investors and shareholders in the listed funds getting an exit.

It turns out there was an additional bonus, in the form of some more favourable development on reserves related to the 2019 underwriting year, which will have boosted the amount of capital available to return to investors slightly.

Yesterday, the listed CATCo Reinsurance Opportunities Fund revealed an update to the February net asset values for its share classes.

The company said that a 6% increase in the February net asset value per Ordinary Share was due to a combination of contributions related to the buyout transaction representing, which made up 4.7%, as well as favourable loss reserve development of around 1.3% in relation to the CATCo fund side pocket investments from the 2019 underwriting year.

In addition, an 8.6% increase in the February NAV per C Class Share was made up of 3.6% contributions to the buyout deal, and around 5% due to the favourable loss reserve development again from the 2019 underwriting year.

The Markel CATCo insurance-linked securities (ILS) funds had exposure to a range of catastrophe events around the globe in 2019, with side pockets established for Hurricane Dorian, Japanese Typhoons Faxai and Hagibis and the Australian bushfires that year.

It’s not possible to know which events in particular have driven the favourable development on these 2019 loss reserves, but it is yet another reflection of prudent reserving for these events.

With favourable loss reserve development across the 2019 side pocket, it’s assumed this benefited investors in the CATCo private retro reinsurance investment funds as well, with additional value returned to their investors as well.

As we previously explained, the running-off of the CATCo retro reinsurance portfolio is likely to take some time, perhaps into 2023, so there could be additional reserve developments and some may flow to investors, as any upside on the valuations given at the time of the buyout are due to the end-investors in the funds as well.

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