Swiss Re Insurance-Linked Fund Management

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CATCo reports favourable development on 2017 & 2018 catastrophes


The CATCo Reinsurance Opportunities Fund Ltd., the listed, retrocession focused insurance-linked securities (ILS) fund strategy managed by Markel CATCo Investment Management, has recovered more value for its investors, with favourable development related to 2017 and 2018 catastrophe loss events.

Markel CATCo logoOnce again, the retrocessional reinsurance investment portfolio constructed by Markel’s CATCo Investment Management unit has experienced much more favourable development than many had anticipated would be possible, resulting in more value recovered for the remaining investors in this strategy and also its private retro ILS funds.

The CATCo strategies have repeatedly been able to report a reduction of claims for prior year catastrophe events, effectively recovering value that was once thought lost, freeing trapped collateral and boosting the net asset value of the CATCo retrocessional insurance-linked securities (ILS) fund share classes.

Previously, favourable development has been reported for most underwriting years, the last time it was for the 2019 loss events.

This time it is for 2017 and 2018 underwriting years, which likely implies the favourable development experienced this time is related to hurricanes from 2017 and perhaps either typhoons or wildfires from 2018, as they were some of the most impactful events to CATCo’s funds at the time.

The CATCo listed retro reinsurance fund has reported a monthly improvement in the NAV of its Ordinary and C Shares of 5% and 7% respectively.

The improvement is due to favourable development related to loss reserves for 2017 and 2018 catastrophe events.

The amount recovered has been slightly offset by some additional costs related to the Scheme of Arrangement that was announced to investors last Friday, which we wrote about here and explained that the terms of the buyout proposal have been sweetened after a new settlement was reached with some investors that had objected.

Markel CATCo’s retro fund reported this morning that the net asset value (NAV) of its Ordinary shares rose by the 5% to $0.3389 and its C Shares rose 7% to $0.6750, as of the end of December 2021.

These improvements will also have a positive read-across for investors in the Markel CATCo private retro fund NAV as well, we expect.

The Ordinary Share NAV is now up some 161% since its low in July 2019, while the C Share NAV is now up around 255% over a similar period.

For those investors that speculatively bought into the CATCo retro reinsurance investment fund strategies around the time the winding down was announced, a significant recovery in value has occurred that could have boosted those investments considerably.

The run-off process continues and the portfolio managers of the CATCo funds will likely continue to realise some additional positive gains, as losses become clearer from prior year catastrophe events, positions are commuted, reserves adjusted and in some cases value released back, to the benefit of investors.

Markel continues to make progress towards realising a finalisation and winding-down of the CATCo strategies, with its latest improved buyout terms likely to gain additional support and speed the process of closing this chapter.

This morning, while revealing some of the latest recovery of value has gone to cover some additional costs related to the updated Scheme of Arrangement, the fund reminded investors that “if the necessary approvals are obtained then the additional costs will be covered by a further contribution from Markel Corporation at the closing of the Scheme of Arrangement.”

That should mean any future recovery of value from the funds loss reserves, as the run-off continues, flows back to the benefit of its remaining shareholders.

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