Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

CATCo retro fund favourable development delivers $82m to investors this year

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Favourable development across the CATCo retrocessional reinsurance investment portfolio has delivered almost $82 million back to investors in the strategy across the first nine months of 2022.

Markel CATCo logoParent company Markel provided some insight into the way the CATCo retro reinsurance fund portfolios have developed and put a quantum on the returns of value to investors that have happened this year.

We’ve documented the various developments on Markel CATCo’s running off and the recovery of value as loss reserves have proved more than adequate in many cases, as reported by the listed CATCo Reinsurance Opportunities Fund.

But typically that hasn’t given a dollar-value to the favourable development on loss reserves and how much additional capital has actually been returned.

Now, Markel has said that in the third-quarter alone, $53.4 million of favorable loss reserve development on the run-off of reinsurance contracts written by Markel CATCo Re Ltd. was returned to third-party investors.

During the third-quarter of the year, the CATCo retro reinsurance investment portfolio saw strong recoveries in positions exposed to catastrophe losses from the 2018 and 2019 underwriting year, we understand.

A number of side pockets set up to segregate retro contracts that were exposed to catastrophes in those years have experienced favourable development, with losses ending up lower than originally reserved for, allowing for an additional return on capital for investors.

Across the first nine months of 2022 the total returned has now neared $82 million, all of which was delivered to third-party investors in the Markel CATCo reinsurance investment strategies.

The Markel CATCo portfolio management continue to demonstrate that reserves set for many of the major catastrophe losses the strategy faced over the years were more than adequate, resulting in significant release of value secured, to the ongoing benefit of the investors in CATCo’s retro funds.

In fact, the CATCo favourable loss reserve development is also very interesting signal more broadly for the insurance-linked securities (ILS) market, as other players may have benefited from similar reductions in loss expectations for positions from those years, although clearly not on the same contracts, given CATCo’s pillared product strategy.

Markel’s CFO Jeremy Noble commented on the recovery of value for CATCo investors yesterday, “That is a straight pass through, we continue to wind down the reserves. We continue to execute commutations where we can, and where there are savings, that passes through to the benefit of the original investors.”

As of September 30th 2022, loss reserves attributable to Markel CATCo Re totalled just over $375 million, as the running off of CATCos strategies continues apace.

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