Markel CATCo listed fund NAV’s rise for second consecutive month

The CATCo Reinsurance Opportunities Fund, Markel CATCo Investment Management’s stock exchange listed retrocession focused investment fund, has experienced a second consecutive month of positive returns for April, but the shares are still discounted well below the latest NAV’s.

This retrocessional reinsurance investment fund is heading towards an orderly run-off, which will begin to be actioned in the coming weeks once some of its contracts mature in June.

But the strategy continues to demonstrate the performance potential of reinsurance-linked assets in loss free months, reporting positive net asset value increases for both March and April 2019.

The net asset value (NAV) of the CATCo Reinsurance Opportunities Fund ordinary shares rose by 0.83% in March and another 0.85% in April, while the C share class saw its NAV rise by just over 1% for March and almost 1.2% for April.

These positive monthly returns followed declines in February as further loss creep hit the fund’s share class valuations, meaning the NAV’s still sit below where they began the year, but it does now look like they could recover further when the May NAV’s are reported.

The share prices tell a different story though, sitting at a steep discount to their latest NAV’s currently.

The CATCo Reinsurance Opportunities Fund ordinary shares NAV at the end of April was $0.3328, which is a full 51% higher than the latest price for the ordinary shares on the London Stock Exchange of $0.22.

Meanwhile, the CATCo Reinsurance Opportunities Fund C shares NAV at the end of April was $0.6139, a full 57% higher than the latest C share price on the LSE which is $0.39.

It’s important to note that the Markel CATCo exchange listed retro reinsurance fund has almost always been priced at a discount to NAV, as have almost every other listed insurance-linked securities (ILS) fund strategy, the main reason for which has always been cited as a lack of liquidity in the shares.

There has been a lot of interest from speculative investors in the shares in recent weeks, as a potential buying opportunity emerges for those keen to acquire the shares and hold until the run-off arrangements are finalised, hoping to secure a higher NAV return than the share price they bought into the class at.

It’s important to note that the final NAV’s that the run-off redemptions are calculated are unlikely to be the same as those the fund has been reporting lately, given their will be costs and expenses to deal with out of the NAV’s of each class of shares.

But the positive NAV returns in the last two months are likely to buoy investors further and we could see more liquidity in the Markel CATCo listed fund shares as the redemption opportunity approaches as a result.

Both May and June returns will also need to be added to the NAV’s before the run-off and shareholder redemption begins at the end of June, so if the retro reinsurance market can remain loss free and the Markel CATCo strategy escape any further loss creep, those holding the shares may find there are further gains to be had.

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