Markel CATCo updates on hurricane Michael & typhoon Jebi exposure

Markel CATCo Investment Management Ltd., the retrocessional reinsurance investment specialist, has revealed that its stock exchange listed CATCo Reinsurance Opportunities Fund is exposed to potential losses from hurricane Michael and typhoon Jebi.

In announcing the net asset value (NAV) for the Fund this morning, the manager said that it expects that single digit impacts to the fund’s NAV are possible for each of these events, which being the two largest catastrophe losses of recent months (perhaps the year so far) is no surprise.

On hurricane Michael, the manager said that the fund’s Ordinary and C Shareholders are exposed to potential losses arising from the storms impacts.

However, given the recent nature of this event, it remains difficult to estimate losses at this stage and Markel CATCo says that based on initial estimates of the insurance and reinsurance industry loss being up to $10 billion, the manager expects a single digit impact to the fund’s NAV.

For typhoon Jebi, which is currently being estimated as a $5 billion to $8 billion industry loss according to our sources, Markel CATCo says that both Ordinary and C Shareholders are exposed to losses from this event as well.

The manager notes that industry loss estimates for this event have been increasing, but says that based on the information available it expects that a low single digit impact to the NAV is possible from Jebi.

Updates are expected to be provided on the fund’s exposure to both events when the NAV’s are next set for the end of October and at that time Markel CATCo will likely know if a specific loss reserve is required for typhoon Jebi. It’s likely that hurricane Michael will warrant a specific loss reserve, or side pocket, to be established, we’d imagine.

Aside from these two very recent catastrophe loss events, Markel CATCo expects that its attritional loss reserve, which it sets at 15 bps per month, is likely to cover all other 2018 loss events aside from hurricane Michael and typhoon Jebi.

It’s no surprise that the Markel CATCo strategy is exposed to these two events, especially given some of the loss estimates coming from reinsurers who may be users of the retrocessional reinsurance product this manager specialises in.

When major catastrophe losses hit the market Markel CATCo is always likely to carry some exposure given its position as one of the largest retrocessionaires in the world today.

The read across for other ILS funds and collateralized reinsurance or retro strategies is that exposure to typhoon Jebi and hurricane Michael is to be expected, especially for those writing lower down layers of programs.

One interesting point that is worth raising is that at the same time as reinsurers are pre-announcing their third-quarter 2018 losses, ILS fund managers are informing their investors of the expected or potential impacts from events that occurred as recently as a week ago.

The cycle of quarterly equity earnings means that most reinsurers won’t even speak about hurricane Michael losses until after the end of Q4, where as ILS managers are forced to get ahead given their monthly NAV reporting cycle, providing much-needed transparency to their investor stakeholders.

It’s also noteworthy that Markel CATCo clearly doesn’t have any major exposure to hurricane Florence, with that likely one of the events that its attritional loss reserve has covered.