CATCo funds to benefit from another release of trapped capital

The CATCo retrocessional reinsurance investment portfolio continues to benefit from favourable development on reserves, with the manager expecting yet another release of side pocket investment capital later this year, which it expects to buy back more shares with.

In recent months, the CATCo retrocessional reinsurance investment funds have reported multiple cases of favourable development.

The running-off of the CATCo retro reinsurance investment funds continues apace, with favourable development against loss reserves from the 2019 underwriting year reported back in June.

Then, in July, the Markel owned investment manager, Markel CATCo, reported improvements in net asset value across both ordinary and C Share classes of investments into its listed CATCo Reinsurance Opportunities Fund, as favourable loss reserve development was experienced on the Side Pocket Investments from the 2017, 2018 and 2019 underwriting years.

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 at that time, with capital returned to investors and shareholders in the listed funds getting an exit.

The running-off of the CATCo retro reinsurance portfolio is likely to take some time, perhaps into 2023, so any additional reserve developments 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.

So this morning, Markel CATCo Investment Management advised of a further release of side pocket investment capital which it expects to receive towards the end of the fourth-quarter of the year.

It’s possible this is down to a commutation, at a favourable valuation, enabling some of the trapped capital to be released to the benefit of investors.

The listed CATCo Reinsurance Opportunities Fund, the stock exchange listed retro insurance-linked securities (ILS) strategy, intends to use the released capital to fund an eighth compulsory partial redemption of share capital.

With any upside secured through the running-off process set to benefit the investors that participated in the buy-out, it’s assumed this will benefit those that held shares in the listed fund right through to its shuttering.

In addition, as with all portfolio developments, this recovery in value through a reserve release likely benefits investors in the CATCo private retro reinsurance investment funds as well, with improvements in the position of the running-off of that overarching portfolio as well.

Markel CATCo continues to demonstrate that its reserves for the major losses it suffered were more than adequate in many cases, with now significant releases secured over the last few years since they stopped offering new coverage.