Retrocessional reinsurance focused investment manager Markel CATCo Investment Management has now established specific loss reserves for recent catastrophes hurricane Dorian and typhoon Faxai.
The manager also says it is monitoring more recent typhoon Hagibis, in case its impacts on Japan also warrant the setting up of any side pocket investments.
Markel CATCo had warned a few weeks ago that the investors in the 2019 underwriting portfolio of its listed retrocessional reinsurance fund were exposed to potential losses from hurricane Dorian’s impacts in the Bahamas, United States and Canada in early September and typhoon Faxai’s impacts in Japan also in September.
The investment manager is currently in the process of running off its retrocessional reinsurance investment strategies. But having written new pillared contracts for the 2019 underwriting year in January, investors allocated to those still in-force portfolios and contracts remain exposed to any major catastrophe events occurring this year.
Hurricane Dorian is currently estimated to have caused an industry loss of up to roughly $8 billion, while typhoon Faxai is estimated to perhaps cost the insurance sector a little more at up to $9 billion.
Both of these losses have the potential to bring some retrocessional reinsurance contracts into play and as a result Markel CATCo has created loss reserves for its exposure to these catastrophe events.
The investment manager said it has established a specific loss reserve for each of these events, side pocketing amounts for the Ordinary and C Shares representing -1.69% and -2.53% of NAV respectively, as of September 30th 2019.
Information regarding Dorian and Faxai losses remains limited, Markel CATCo explained, saying that cedant loss notifications are not yet available.
As a result, these loss reserves have been set based on the early industry loss estimates that are available and it is possible that the impact of these events on its funds could “change materially” once formal cedant loss notifications are made available to it.
Separately, Markel CATCo also explained that it is monitoring the impact of typhoon Hagibis and will assess the need to set up a side pocket and specific loss reserve for this event once there is sufficient industry loss information available to make that decision.
Given the size of the expected losses from these three catastrophe events, which look set to become the three biggest industry losses of the year so far, early indications suggest Hagibis could cost the re/insurance market almost as much as Faxai, it is no surprise that Markel CATCo’s strategies would be exposed to potential losses.
The insurance-linked securities (ILS) market will have exposure to each of these events, across a number of ILS fund managers and strategies. This exposure will range from merely attritional impacts, to perhaps more meaningful dents to returns for riskier layers.
However, on the retrocession side, it will remain a little challenging for some to identify the full exposure until loss estimates are firmer for each of these events and loss notifications come in, particularly for any aggregate retro contracts that are exposed.