Markel CATCo Investment Management has increased its specific loss reserves for catastrophe events from both 2017 and 2018 again, further denting the net asset values of the shares of its CATCo Reinsurance Opportunities Fund.
This morning Markel CATCo Investment Management has announced that the latest loss notifications from cedant’s show further loss creep associated with both typhoon Jebi and hurricane Michael from 2018, as well as ongoing loss creep from certain 2017 catastrophe losses as well.
This is reflective of the experience of much of the insurance-linked securities (ILS) market and also traditional reinsurance carriers, which have been hardening reserves for these events in recent months.
As we explained last week, typhoon Jebi’s impacts on Japan have crept higher again, with the market now suggesting the eventual industry loss toll could rise to as high as $15 billion or even $16 billion.
At the same time, it’s also been widely reported that reinsurance and ILS markets are seeing loss creep associated with hurricane Michael’s impacts in Florida in 2018 as well.
“Industry loss estimates for Typhoon Jebi and Hurricane Michael have continued to rise meaningfully since the start of 2019,” Markel CATCo explained this morning.
Saying that many of its Q1 2019 cedant loss reports have only been received within the past 15 business days and show that cedant loss reserves have risen meaningfully in recent weeks.
Being a provider of retrocessional reinsurance capacity, Markel CATCo is often among the last to receive notifications of actual losses, needing to wait out the process of its cedants reconciling their own losses first.
As reinsurance firms have only largely received fresh loss notifications on typhoon Jebi at the end of Q1 anyway, it’s no surprise these flowed through to Markel CATCo and other retrocessionaires eventually.
Given the increase in industry loss information and in reported cedant loss reserves for typhoon Jebi and hurricane Michael, Markel CATCo said that is has now reviewed its own estimates of the ultimate cost of these loss events and decided that a further strengthening of its 2018 loss reserves is required.
Adding to the hit to CATCo’s fund, the manager also said that it has now received updated loss notifications from cedants for 2017 loss events as well, seeing continued evidence of development meaning that a further strengthening of the 2017 event specific loss reserves is considered necessary by the firm.
It’s likely this is down to the ongoing creep associated with hurricane Irma, perhaps Maria as well.
Markel CATCo reports that for the C-Shares of its CATCo Reinsurance Opportunities Fund, the impact of this reserve hardening exercise is expected to be 18% of the 30 April 2019 C Share Net Asset Value (NAV), which will be accounted for at the end of May NAV
Normalised, this represents a roughly 11% deterioration in the 2018 annual performance, the manager said, adding that after the adjustment the estimated C share NAV will be roughly $0.5030 (pre premium attribution for the month of May).
For the Ordinary share class, the impact of the 2017 and 2018 loss reserve strengthening is estimated to be around 13% and 8% respectively of the 30 April 2019 Ordinary Share Net Asset Value (NAV), again to be accounted for within the end of May NAV.
Normalised, this represents around a 3.5% deterioration in the 2017 annual performance, the manager said. Adding together the impact of 2017 and 2018 loss reserve strengthening, the estimated Ordinary share NAV is around $0.2616 (pre premium attribution for the month of May).
Markel CATCo cautioned that should loss creep continue, especially related to typhoon Jebi and hurricane Michael, there is a chance of further loss reserve strengthening being required.
The company said it will monitor cedant reports, industry estimates and market sentiment, to make any further decisions on reserves in the coming months.
Given the way the industry estimates have risen through 2019 so far and negative months been reported by collateralized reinsurance funds, while major reinsurers all reported loss creep in their end of Q1 results, it’s not really a surprise that further impacts have flowed through to the retro market in this way.
Typhoon Jebi in particular has seen its loss estimate rise by almost a third since the end of 2018, with reinsurers on the hook for most of the creep, making the chances of them claiming on retro almost a certainty.
It will be a further disappointment for investors in retro strategies like Markel CATCo, but it is another step closer to the losses finally settling, which will at least give a clearer picture of the final NAV’s for the fund.
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