CATCo portfolio favourable 2018/19 side pocket development continues

Having reported favourable development of its side pocket loss reserves through the final quarter of 2022, the CATCo retrocessional reinsurance investment portfolio saw this trend continue in Q1 of 2023 as well, with further gains made.

As we reported, sside pocket loss reserves set by retrocessional reinsurance specialist Markel CATCo Investment Management continued to prove to have been set conservatively as more favourable development occurred related to the 2018 and 2019 underwriting year, in the final quarter of 2022.

There was already a sign things had continued to improve in the first-quarter, when Markel CATCo’s parent, Markel, reported that it had booked some benefits from the favourable development of the Markel CATCo retro portfolio in its results for  that period.

In fact, Markel had reported that in Q1 2023, there was $44.8 million of favorable loss reserve development on the run-off of reinsurance contracts written by Markel CATCo Re, which flowed positively to Markel’s bottom-line.

Now, we can see evidence of this in the net asset values (NAV’s) of the CATCo Reinsurance Opportunities Fund, the London and Bermuda exchange listed retro ILS fund strategy operated by Markel CATCo.

There was a 15% jump in the NAV for the ordinary shares of the CATCo Reinsurance Opportunities Fund in Q1, while the C share class saw its NAV jump by roughly the same.

Once again, it is the 2018 and 2019 underwriting year loss reserves in side pockets that have developed better than anticipated, once again reflecting the fact reserves had been set at sufficiently high levels to contain the full loss exposure the CATCo fund had to catastrophe events from that year.

The 2018 side pockets are largely related to Hurricanes Michael and Florence, Typhoon Jebi and the 2018 California Wildfires.

The 2019 side pockets related to Hurricane Dorian, Typhoons Faxai and Hagibis and the Australian bushfires.

With only a few open contracts remaining at the investment managers reinsurance vehicle, Markel CATCo Re, the running off of the CATCo retro ILS fund strategies should be over in the coming months.