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CATCo retro fund to return another $15.8m from side pockets


The in run-off CATCo Reinsurance Opportunities Fund Ltd., the exchange listed retrocession focused investment fund strategy managed by Markel CATCo Investment Management, is set to return more trapped capital back to investors as its side pockets continue to prove more than adequate for certain older loss reserves.

Markel CATCo logoMarkel CATCo Investment Management has been managing the run-off of its retrocessional reinsurance fund strategy over recent months, returning capital where it has been able to through a reverse tender offer and a series of share buy-backs.

The CATCo Reinsurance Opportunities Fund had a significant amount of its capital retained in side pockets related to losses and catastrophe events from prior underwriting years.

As the loss pictures becomes clearer for these side pockets, effectively the trapped insurance-linked securities (ILS) capital or collateral that the manager has had to set aside to pay any potential losses on events as they develop, sometimes the losses develop under the reserves that were originally set allowing a portion to be released.

Markel CATCo had already delivered one release of side pocket capital back in May, with an $18.8 million return of capital from a range of side pockets, the proceeds of which were used to redeem more shares and accelerate the running-off.

Now, the company has revealed a second capital release from its side pockets, with a further $15.8 million to be returned to the fund and again used to buy back more outstanding shares, with the capital expected to flow through in July this year.

With the retrocessional reinsurance focused investment strategy of Markel CATCo having been hit by many of the major global catastrophe loss events that hit the re/insurance and insurance-linked securities (ILS) sector in recent years, the company made regular use of side pockets.

However, Markel CATCo had always said in the past that it would find its side pocket reserves had been set prudently and that not all of the capital within them would be needed to support the losses, meaning some return of capital was likely to be seen.

That has proven to be the case, to the benefit of investors in the strategy who will now get a faster exit from this running off of the retro fund and also benefit from a return of capital that some may have assumed was destined to be lost.

It’s a reminder that if catastrophe events are reserved for prudently, then there is often a return of capital to be had in the ILS fund world and drives home the usefulness of side pockets as a tool to segregate potentially exposed reinsurance assets while losses develop.

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