CATCo retro fund benefits from further $19.2m trapped capital release

The CATCo Reinsurance Opportunities Fund Ltd., the stock exchange listed retrocession focused strategy managed by Markel CATCo and in run-off at this time, is continuing to benefit from reducing loss exposure and releases of side pocketed investment capital.

As we’ve previously explained, the running-off and return of capital of the CATCo listed retrocessional reinsurance investment fund continues apace, as well as reducing estimates for some of the major catastrophe events it had reserved for.

As estimates reduce, when information from cedents comes through, manager Markel CATCo has been able to reduce the amount of trapped collateral it has held in side pockets, which effectively grows the pool for returns of capital to shareholders in the fund.

As a result of being advised of this $19.2 million additional release of Side Pocket Investment (SPI) capital, the company intends to buy-back more shares in a seventh compulsory redemption, returning more capital to its investors.

The $19.2 million is expected to be received in May 2021 and roughly $3.4 million will go to Ordinary shareholders and approximately $15.8 million to holders of C-Shares in the reinsurance fund.

After this seventh compulsory redemption, CATCo’s retro reinsurance investment strategy will have returned $287.1 million to its shareholders roughly $63.0 million to the Ordinary Shareholders and $227.5 million to the C Shareholders.

As ever, we expect this reads across to Markel CATCo’s private retro reinsurance investment funds as well and whatever side pocket this capital release is related to will also have returned capital to investors in the much larger private ILS strategies the manager was operating.

It is notable that the CATCo retro funds appear to be experiencing far more positive development on prior year loss reserves, than negative, demonstrating that the manager Markel CATCo had reserved prudently where possible, to the benefit of its investors.