CATCo retro fund further reduces 2018 wildfire losses

The CATCo Reinsurance Opportunities Fund Ltd., the listed, retrocession focused insurance-linked securities (ILS) fund strategy managed by Markel CATCo Investment Management, has again seen its net asset value (NAV) rise after another reduction in catastrophe loss reserves, this time from the 2018 California wildfires.

The retrocessional reinsurance investment portfolio constructed by Markel’s CATCo Investment Management unit has continued to develop more favourably than had originally been expected, with the firm reporting a number of cases where a reduction of claims in relation to prior year catastrophe events has been possible.

Of course, the CATCo retro reinsurance investment funds are in run-off and are now the subjects of a proposed buy-out to accelerate that winding down, but it will be encouraging for investors to see the continued recoveries from loss reserves, as estimates reduce for certain catastrophes.

As we recently reported, bankruptcy protection has now been sought by Markel CATCo, to protect the buy-out process.

But as we also reported yesterday, a challenge to the buy-out proposal has now been made by pension insurance specialist Pension Insurance Corporation plc (PIC), who said the process could “drastically undervalue the interests of investors.”

So, there’s a lot going on in the CATCo world for Markel right now, but at the same time the portfolio team managing the run-off continue to demonstrate that their loss picks had been sufficient for some catastrophe events.

Markel CATCo reported for the CATCo Reinsurance Opportunities Fund that the Net Asset Value (NAV) of the Ordinary Shares and C Shares were $0.3225 and $0.6164 respectively, at the close of business on September 30th 2021.

These NAV’s represent a 2.4 percent monthly increase for the Ordinary Shares and 13.8 percent increase for the C Shares.

Markel CATCo explained that the increase in the share classes NAV’s “predominantly reflect a reduction in claims associated with the 2018 California wildfires.”

Looking over a twelve-month period, the NAV for the Ordinary Shares of the retro reinsurance fund now stand 23% higher and are up 93% on their low in July 2019. Meanwhile, the C Shares NAV is up 26% in a year and 184% up over the low in July 2019.

The fund has been in run-off over that period, but the significant increase in NAV does reflect significant value recouped for investors so far.

While the challenge from PIC is a threat to the buy-out proposal, the run-off process will continue and the managers of the portfolio will likely realise further gains, as losses become clearer from prior year catastrophe events.

As we also explained recently, the fund’s Chairman is hopeful that further wildfire subrogation related recoveries could be made, so that could adjust prior year loss picks further.