CATCo growth continues to drive higher investment fee income for Markel

Reinsurance and retrocession linked specialist ILS investment manager Markel CATCo Investment Management has continued to deliver higher investment fee income to parent Markel Corporation in the second-quarter, as the increased assets under management contributed 87% more revenue this year.

The investment management income that Markel CATCo’s ILS and reinsurance linked fund management activities had been earning for its parent had fallen after the impact of the major losses in 2017, but then bounced back significantly in Q1 2018, as major catastrophe activity dropped back to more typical levels and the revenues earned due to higher assets under management flowed through.

That has continued in the second-quarter of 2018, with Markel Corporation reporting that it earned $17.4 million of investment management fees kin Q2 2018, up 87% on the $9.3 million earned in Q2 2017.

For the first-half of the year the total is also up by 87%, with Markel CATCo’s investment management contribution to the parent coming in at $34.7 million for H1 2018, almost double the $18.6 million earned in H1 2017.

This income is becoming a very useful boost for Markel Corporation, as this is a business that is completely additive in terms of revenues for the company and that also offers other synergies in terms of any use of the Markel CATCo products they take advantage of as well.

Markel CATCo’s position as one of the largest retrocessionaire markets in the world meant that it was inevitable its collateralized reinsurance portfolios would take a significant hit from the losses of 2017. That drove the decline in investment management fees in the third and fourth quarters of 2017, giving full-year 2017 investment management fees of $28.7 million, down from $56.5 million in 2016.

But after a half-year with lower catastrophe activity, Markel CATCo’s investment fee earnings have risen commensurately with its increased assets under management, which now stand at $6.8 billion.

As we reported recently, Markel CATCo raised $700 million from its existing investors for the mid-year renewals, thanks to heightened demand for its retro products, taking the AuM to this new high point.

So already the investment fee income earned by Markel CATCo in the first-half of 2018 has outstripped the total for the full-year in 2017 and it looks set to beat the 2016 total as well.

This will be despite the fact that its profit commissions or share are likely dented due to the losses it suffered and the fact the loss estimates had to be increased this year, which suggests that once those 2017 losses are dealt with Markel CATCo’s fee income could rise even more.

For Markel Corporation, the increasing investment management fee income will be a welcome boost to its earnings, going a long way towards justifying its investment in Markel CATCo.

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