CATCo listed ILS fund NAV’s bounce up to 1.3% in June

After having reported further loss creep that dented the net asset value’s of its listed retrocessional reinsurance fund shares in May, the CATCo Reinsurance Opportunities Fund shows that premiums are still set to flow as its share classes returned up to 1.3% in June.

The listed retrocessional reinsurance investment fund, that is operated and managed by Markel CATCo Investment Management, has obviously had its difficulties, but the monthly NAV’s show that premiums continue to accumulate, while the fund shares continues to be priced well below net asset values.

The latest NAV’s for June 2019 show that the Ordinary share class NAV appreciated around 1% in June, to $0.2745. While the C share class appreciated by around 1.3% to $0.5128.

The strategy continues to demonstrate the performance potential of reinsurance-linked assets in loss free months, reporting with these positive net asset value increases at levels many investors would be happy to receive.

This also demonstrates the value remaining in the current portfolio of the retrocession focused strategy and suggests that premiums will continue to flow for as long as contracts remain on-risk and fresh losses absent, as long as loss creep does not continue.

As of this morning these share classes remain priced at levels well below the net asset value, with the Ordinary shares priced on the London Stock Exchange at $0.14 and the C shares $0.17.

That’s a heavy discount, reflecting the possibility of further loss creep and that NAV’s may be expected to decline before the Markel CATCo fund can unwind its contracts and return capital to investors.

However, the fact the shares are so heavily discounted continues to attract attention from more speculative investors we understand.

Some investors have been looking at the fund as an opportunity to buy in at a very low share price, benefit from the monthly premium flow and then hope for a better NAV valuation at the upcoming running off and redemption of the fund.

Of course, the Markel CATCo exchange listed retro reinsurance fund has almost always been priced at a discount to NAV, as had almost every other listed insurance-linked securities (ILS) fund strategy, the main reason for which has always been cited as a lack of liquidity in the shares.

In addition, the final NAV’s that run-off redemptions are calculated against are unlikely to be the same as those the fund has been reporting lately, given there will be costs and expenses to deal with out of the NAV’s of each class of shares.

But the returns achieved in June will still be welcomed by holders and any buyers of the fund. More importantly though they show that reinsurance linked investments are set to accumulate attractive premiums in the wind season, while loss activity remains slight.