Markel CATCo assets under management hit $6.1bn

Markel CATCo Investment Management Ltd., the collateralized reinsurance and retrocessional investment fund manager, lifted its ILS assets under management to a new high of $6.1 billion by the end of 2017, which includes the collateral held to pay for incurred losses.

As of June 2017, Markel CATCo Investment Management had grown its assets under management to a new high at $4.5 billion, but the impacts of natural catastrophe events through the third and fourth-quarters of the year have, naturally, taken their toll.

Markel CATCo provides reinsurance and also retrocessional reinsurance, so reinsurance for reinsurers, which is largely natural catastrophe exposed, meaning it took a big hit from the hurricane and wildfire events of the last few months of 2017.

However, Markel CATCo had successful fund-raising efforts, as it worked towards replenishing its capacity for the January renewals, first raising more than $1.8 billion for its private ILS funds, then adding another $546.4 million with two capital raises for the managers listed retrocessional fund strategy.

At the time of the last fund-raise, Markel CATCo said that it was expecting to hit $6 billion of assets under management in 2018, but with the addition of its loss reserves it reached $6.1 billion as of 31st December 2017.

Speaking during the Markel earnings call this week, Richard R. Whitt, III, Co-Chief Executive Officer of Markel Corporation, commented on Markel CATCo, “Assets under management, including funds held that will be used to settle claims for incurred losses, increased to $6.1 billion at December 31st 2017. This is up from $3.6 billion at December 31st 2016.”

The growth in assets under management at Markel CATCo in the wake of the major loss events of 2017 has been particularly impressive, with both long-standing and new investors allocating to its strategies.

Markel CATCo revealed recently that its listed retrocessional reinsurance fund, the CATCo Reinsurance Opportunities Fund, has a maximum portfolio return target 43% higher than it did last year.

The managers other reinsurance and retro investment funds will also be targeting similarly high increases in return, having secured price rises for its products at the January renewals, which has been an attractive proposition for its investors.

This level of capital raising has likely also been made possible due to the increased need for coverage that some of Markel CATCo’s clients will have been feeling after the losses, resulting in heightened demand for coverage and replacements for those clients that had severe losses.

Whitt discussed the capital raising, saying, “This included approximately $2.2 billion of funds raised during the fourth-quarter that we expect to be deployed in 2018.”

Markel Corporation has its own investment stake in the Markel CATCo funds, which took a hit due to the impacts of hurricanes Harvey, Irma and Maria, as well as the Californian wildfires.

“As of December 2017, Markel’s investment in Markel CATCo funds was approximately $189 million. During the third and fourth quarter of the year, we recognized losses of approximately $52 million due to changes in the net asset value of the funds, given the estimated losses from the 2017 cat events,” Whitt explained.

The size of Markel’s investment in the Markel CATCo funds has reduced, in line with the impact of the losses from 2017.

Interestingly, Markel did subscribe to increase its holdings again during the capital raising efforts undertaken by Markel CATCo, but the firm decided to step back and allow third-party investors to take the opportunity to allocate as demand was so high. So ultimately, Markel’s interest in the Markel CATCo funds has shrunk to a smaller percentage of the overall assets under management.

Whitt commented, “We did subscribe and then other investors’ demand for the fund was so great we did not want to squeeze other people’s investments down. So, ultimately, we didn’t take our subscription so that other people could participate.”

At $6.1 billion of ILS and reinsurance linked assets under management, Marke CATCo now stands as the seventh largest manager of ILS assets in Artemis’ ILS Fund Manager Directory.

Clearly, with the total AuM including funds held to pay for losses, the total will decline as those claims are paid. But we’d assume Markel CATCo will also continue to add new capital, working towards future renewal seasons when it can deploy its products into the market again.