Markel CATCo listed fund likely to be run-off, enable investor redemptions

Markel CATCo Investment Management looks likely to run-off the portfolios of retrocession reinsurance from its stock exchange listed fund the CATCo Reinsurance Opportunities Fund.

Markel CATCo had previously offered investors the option of converting their shares in the fund to redemption shares, to allow them a liquidity opportunity.

Today, an announcement from the listed fund company said that after consulting its investors it has concluded that a large majority would elect to convert to the redemption share class.

As a result, the Board has decided to recommend an orderly run-off of the fund’s portfolios of retrocessional reinsurance risk investments in place of the restructuring.

Approval is required from both Ordinary and C class shareholders, which will be sought in late March.

The reason for this is of course the significant losses faced by the retrocession contracts the Markel CATCo fund had invested in, which has driven the desire to return what capital is available to its investors.

The run-off of the portfolios the fund invests in will take time and the Board note that there can be no guarantees of a timescale given this is dependent on the underlying reinsurance contracts and any loss reserves going off-risk and being settled.

The Master Fund segregated accounts company has granted the special redemption rights to all shareholders, exercisable by the end of March, to redeem all or part of their shares by the end of June 2019.

If the proposal to run-off the fund’s portfolios of risk are approved, the run-off and redemptions will go ahead.

Some of the fund’s investments are on-risk through till the mid-year and will be redeemed shortly after going off-risk.

Investors will of course take the loss on their investments and get the value of the contracts that remain, distributed between them according to share classes they are allocated to and their holdings.

In terms of the future of the CATCo Reinsurance Opportunities Fund, the company says that it may still look to raise further capital in future, depending on demand and shareholder approval to do so.

If not further capital is raised at or near the end of the run-off process, the company would be put into voluntary liquidation.

However, at this time the Board said it has determined not to recommend a liquidation giving the possibility of future capital raising.

So the portfolios held by the listed retro fund that have faced the recent severe catastrophe losses look likely to be approved for run-off by the shareholders, given their majority preference for a redemption opportunity at this time.

Markel CATCo owner Markel Corporation recently said it is planning to adapt the Markel CATCo underwriting and investment strategy based on what it can learn from the catastrophe losses that affected it so severely during 2017 and 2018.

It will be interesting to see how investors respond to the opportunity to reinvest and continue the operation of this stock exchange listed retro investment strategy.