Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Markel CATCo fund increases California wildfire & hurricane loss reserves


Markel CATCo Investment Management Ltd. has strengthened loss reserves considerably for its listed retrocessional reinsurance fund, the CATCo Reinsurance Opportunities Fund, adding 14.4% of net asset value (NAV) for the California wildfires and another 3.6% of NAV for losses from 2017’s hurricanes.

The manager had already established a 4.4% of NAV loss reserve for the wildfires that struck the northern California region during October 2017.

But with cumulative insurance industry losses from the California wildfires now seen as around US $12.5 billion and uncertainty over the potential impact of the wildfires in southern California as well, Markel CATCo is bolstering its loss reserves from this event and clearly expecting a larger impact to the retrocessional covers it provides to its clients.

“As a result of the significant increase in insured losses,” Markel CATCo explained this morning that it has, “increased specific loss reserves for 2017 wildfire events by c. 14.4% of Net Asset Value.”

So this suggests the loss reserve for the combined costs of the California wildfire events is now 18.8% of the CATCo Reinsurance Opportunities Fund NAV.

There is some uncertainty surrounding these wildfire losses though and Markel CATCo notes that, “Shareholders could be further exposed to potential losses following the Thomas, Creek, and Lilac wildfires that impacted parts of Southern California, U.S.A. during December 2017.”

Hence the strengthening of reserves for what has been the largest insured wildfire event in history is a prudent move to ensure reserves are available to pay claims that may come in from Markel CATCo’s clients.

Markel CATCo has also continued to monitor the fall-out from hurricanes Harvey, Irma and Maria and given continued uncertainty over the final insurance industry bill from those events, has hardened its reserves for the hurricanes as well.

The manager has increased its loss reserves for the hurricanes by another 3.6% of NAV, which added to the already 20% of NAV hurricane loss reserve it had hardened in October, takes the total hurricane loss reserve to 23.6% of NAV.

Markel CATCo has also announced a total 2017 attritional loss reserve of 1.8%, which it adds to each month through the year to cover smaller loss events. The manager said it expects that the attritional loss reserve will be sufficient to absorb losses from other catastrophe events in 2017, including Cyclone Debbie, the earthquakes in Mexico, and U.S. Severe Convective Storms.

Looking back at 2017, Markel CATCo said, “The combined effect of 2017 loss events has resulted in the largest impact to portfolio returns since the Company commenced operations at the end of 2010.”

As a result of all of this catastrophe loss activity, the NAV annual return for 2017 for Ordinary Shares of the CATCo Reinsurance Opportunities Fund was -27.6%.

“These severe loss events serve to reaffirm the collective importance of the traditional insurance, reinsurance, and collateralized reinsurance markets in the efforts to rebuild communities that have been severely impacted,” Markel CATCo explains.

Looking forward though, Markel CATCo notes that it saw pricing rise at the renewals across its retrocessional reinsurance portfolio, with this fund now on track for a net no loss return of around 23% for the 2018 portfolio, versus the 16% that its 2017 portfolio could have achieved. At the same time, Markel CATCo reveals that this higher pricing has been achieved with lower risk levels, which have been reduced in the 2018 portfolio.

Markel CATCo raised over $2.5 billion between its public and private funds in the last weeks of 2017 and has now fully deployed those funds for 2018.

Managers will be hoping that their loss reserves are now sufficient to cover the impacts of 2017’s loss events and any worsening of loss estimates. There is also a strong chance that losses come in below where reserves have been set and therefore investors benefit from some return of NAV in months to come.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis ILS NYC 2023 - Insurance-linked securities conference in New York City

Get a ticket soon to ensure you can attend. Secure your place at the event here!

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.