Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

CATCo run-off process could continue into 2023 for Markel


With the CATCo retrocessional reinsurance investment funds buyout now completed, owner Markel and the remaining former-Markel CATCo team can concentrate on running-off the remainder of the portfolio, a process that could continue into 2023.

Markel CATCo logoThe buy-out schemes for the Markel CATCo 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, with capital returned to investors and shareholders in the listed funds getting an exit.

Of course, parent Markel Corporation funded a significant percentage of the buyout, to enable investors to exit the strategies and recover the majority of their remaining capital quickly.

But still a relatively significant amount of trapped capital remains within the ILS structures underpinning the Markel CATCo funds, with a number of contracts still running-off and some a way off commutation at this time.

The remaining Markel CATCo team remain focused on proactively managing the trapped capital in the retro reinsurance strategies, so that capital and value can be unlocked, with Markel itself set to benefit from the majority, given it funded a lot of the buyout, while any upside will also be delivered to the investors in the strategies.

How the remaining contracts run-off and are commuted will define whether Markel can recoup much of its remaining stake in the CATCo strategies, but with the team having had a reasonably strong track-record for getting early commutations at attractive valuations, the owner will be hoping to recover as much value as possible.

That will also benefit the now bought-out investors, who were not only bought-out at a premium to net asset value, but also retain the right to any upside achieved on the running-off and commutations, if, “currently held reserves are more than sufficient to repay the amount advanced to fund the early return of capital after ultimate claims related to reinsurance loss events have been settled,” Markel CATCo said today.

Loss reserves exist in side pockets of the CATCo strategies for exposure to catastrophe events from the 2016 to 2019 underwriting years, which are now based on the actual claim information retrieved from cedants, rather than estimates.

“Whilst the Investment Manager deems the existing loss reserves are sufficient, there is an ongoing element of uncertainty in relation to underlying prior year loss event contracts which may lead to favourable or adverse loss development in the future,” the investment manager cautioned.

Interestingly, Markel CATCo also believes any upside related to California wildfire subrogation has now been received, so investors hoping for additional upside in the running off, should not expect reductions in wildfire losses to make a difference of any magnitude from here on.

Markel CATCo said it has now closed out the 2016 contracts, meaning those side pockets should soon be closed, but still 2017 to 2019 years are running-off and awaiting commutation.

There is always an option to commute early, if cedants allow, but otherwise it can run to 36 months before the commutation process starts.

Therefore, Markel CATCo cautioned that the 2019 side pocket investments are subject to commutation from the end of 2022, suggesting the process of running-off the portfolio and realising all of the value, for Markel and any upside for the investors, could continue into 2023.

However, Markel CATCo did say that “it is likely that some commutations will be achieved within the next six months,” suggesting the manager will be working to speed the process, where it can.

Interestingly, over the course of 2021, Markel CATCo paid out almost $396 million in claims to its cedants, as a range of loss impacted contracts from 2016 through 2019 were settled.

Also read:

CATCo shares redeemed as investors get their exit.

CATCo buy-out scheme closes, distributions to investors begin.

CATCo buy-out gets US court approval, Belisle lawsuits to be dismissed.

CATCo buyout schemes sanctioned by Bermuda Court.

CATCo investors vote “overwhelmingly” in favour of buyout.

Markel CATCo funds seek US bankruptcy support for buyout.

Markel CATCo sets buy-out meeting date. End of process in sight.

Former CATCo CEO Belisle’s fraud lawsuit stayed as settlement negotiated.

Bermuda Court orders CATCo creditor meetings be held.

CATCo retro funds head back to Bermuda Court this week.

Markel CATCo gets majority investor support for improved buy-out terms.

CATCo reports favourable development on 2017 & 2018 catastrophes.

Markel CATCo buy-out terms sweetened after settlement reached.

Belisle fraud lawsuit to wait for CATCo insolvency decision in Bermuda.

CATCo retro fund gains again, NAVs now 148% & 231% higher than lows.

Markel CATCo buyout support undertakings extended to end of February 2022.

Markel CATCo says court decision on buyout hoped for in January.

Markel CATCo to “vigorously defend” investor challenges.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.