Markel CATCo run-off saw continued favourable development in Q2

Markel CATCo Investment Management, the retrocessional reinsurance specialist investment manager arm of Markel, is still running-off its portfolio of risk and in the last quarter of record managed to recover additional value as favourable development of its side pocket loss reserves continued.

There’s been a steady recovery of value through the favourable development of loss reserves set against the Markel CATCo collateralized retro reinsurance contracts, with reserves proving more than adequate in many cases, benefiting its investors while they still had a stake in the vehicle and now parent Markel, after it bought out the remaining liabilities and allowed investors an exit.

When we last reported on Markel CATCo, the investment manager saw the recovery trend continue in Q1 of 2023, with further gains made.

Which aligned with reporting from parent Markel, which said it had booked some benefits from the favourable development of the Markel CATCo retro portfolio in its results for  that period.

Now, the side pocket loss reserves set by retrocessional reinsurance specialist Markel CATCo have again proved to have been set conservatively, with further gains made in the second-quarter of 2023.

This is evident in the latest net asset value of the fund and the NAVs reported for the CATCo Reinsurance Opportunities Fund, the London and Bermuda exchange listed retro ILS fund strategy operated by Markel CATCo.

Through the first-half, the remaining net asset value of the in run-off CATCo retro portfolio rose from $9 million to $10.8 million, the company has reported.

That’s around a 20% increase over the six months and previously it was understood that roughly 15% had been gained in Q1 alone.

The additional came during the course of Q2 it now seems, with the NAV’s of the share classes both rising by approaching 4% during the period, signifying additional recoveries of value.

Markel CATCo said that “further upside recorded relating to positive development on the 2018 and 2019 reinsurance portfolios plus interest income,” drove the share class NAVs higher.

In total, Markel CATCo has now returned some $413.9m of capital to shareholders since its run-off commenced in March 2019, through dividends, tender offers, share buybacks, compulsory share redemptions and ultimately the completion of the Markel Buy-Out Transaction.

There are still 10 open retro reinsurance contracts, from the 2018 and 2019 underwriting years, which are now all subject to commutation negotiations and Markel CATCo hopes to make some further gains on their value before it can finally close out its portfolio and shutter the business.

The company said, “Whilst it is not possible to determine the ultimate future value of the remaining contracts, it is likely that additional commutations will be achieved within the next six to 12 months.  The Investment Manager is committed to working on the remaining commutations with the cedants in the best interests of Shareholders.”

Remember, these listed fund strategies are not the entirety of the Markel CATCo retro portfolio, the private ILS funds it offered were much larger.

But, the portfolio featured is the same and so as these listed funds run-off and near their closure, the same will be true of the rest of the Markel CATCo Re portfolio positions.