CATCo retrocession fund NAV’s leap on more favourable development

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The CATCo retrocessional reinsurance investment portfolio appears to have had yet another major boost to its value on the back of additional favourable development related to the 2018 catastrophe loss year.

Markel CATCo logoOver the last few months, the stock exchange listed Markel CATCo managed retrocessional reinsurance investment funds have reported multiple cases of favourable development, where actual losses have turned out to be less than the amount reserved for.

This has happened repeatedly, across major catastrophe events, with favourable loss reserve development experienced on the Side Pocket Investments Markel CATCo’s portfolio management team had set aside from the 2017, 2018 and 2019 underwriting years.

Now, the company has reported another significant jump in the net asset value of its listed retrocessional reinsurance investment funds, because of another case where losses turned out lower than anticipated, with that value recovered and flowing back to the fund.

From the end of May 2022 to the end of June 2022, the CATCo Reinsurance Opportunities Fund’s Ordinary Share Class NAV jumped over 20%, while the NAV for the C Share Class leaped by 55%.

It’s a significant jump, but with these retro reinsurance investment funds in run-off, the amount of capital left in the fund is not that large, so any recovery and return of capital could cause a major increase.

The good news for investors in these listed CATCo investment fund share classes is that as the running-off proceeds, any upside in the NAV’s from loss reserve recoveries and releases will flow back to them, that was part of the buy-out agreement previously set.

The buy-out schemes for the Markel CATCo managed retrocessional reinsurance investment funds closed at the end of March and distributions of the remaining value in the insurance-linked securities (ILS) fund strategies began at that time, with capital returned to investors and shareholders in the listed funds getting an exit.

The running-off of the CATCo retro reinsurance portfolio is likely to take some time, perhaps into 2023, so any additional reserve developments may flow to investors, as any upside on the valuations given at the time of the buyout are due to the end-investors in the funds.

It’s also additional positive news for investors in the CATCo private retrocession insurance-linked securities (ILS) funds, as the loss event reserved for will also have featured in the master fund, meaning private CATCo fund investors will also benefit from this recovery, we assume.

The Markel CATCo portfolio management team have demonstrated time and again that the reserves they set for many of the major losses the retro funds suffered were more than adequate in lots of cases, resulting in some significant releases of value secured over the last few years since they stopped offering new coverage, to the continued benefit of the investors.

As the investment manager explained recently, additional recoveries of value from loss reserves may be expected as the running-off continues.

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