1 week ago
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As the running-off of the exchange listed CATCo Reinsurance Opportunities Fund, the stock exchange listed retrocessional reinsurance strategy operated by Markel CATCo, completed this year, the company has now revealed that the net asset value of the shares rose 52% just this year as additional positive loss development was experienced.
Over the course of the running-off of the London and Bermuda exchange listed retrocessional reinsurance investment fund, the managers of the CATCo Reinsurance Opportunities Fund were able to return some $435 million of capital to its shareholders.
At its largest, this retro ILS fund strategy had approached $1 billion in assets under management and it acted as a feeder to the broader Markel CATCo reinsurance investment portfolio, which had been over $6 billion in size in early 2018. There were, of course, initial losses that dented the fund considerably, so the capital returned through favourable development has been quite significant in the context of the overall portfolio that was left by the time the run-off started.
The running-off of the CATCo portfolio began in March 2019 and at one stage it was thought that very little value would be recovered for investors.
But, it has turned out that a significant recovery of value was achieved for the investors, as numerous retrocession contracts saw positive loss development compared to their initial loss picks.
The biggest single return of value to shareholders in the listed retro fund was the buyout that was funded by parent Markel.
Since then, Markel has also recognised positive loss development on the portion of the CATCo retro portfolio that it has been holding.
The $435 million was returned to investors over a series of dividends, tender offer, share buybacks, the buy-out transaction and compulsory share redemptions since March 2019, culminating in a recent redemption of shares.
That has left just capital for run-off expenses and administration in the fund, to pay or the winding down which is expected to be approved by shareholders today.
Highlighting just how much value has been recovered for the shareholders in the CATCo listed fund, the company today revealed that the combined net asset value (NAV) of this fund rose by 52% in 2024 alone, thanks to positive loss development.
For holders of the ordinary share class, the recovery in NAV amounted to 96% this year, while for C share holders it was 44%.
While much of the focus on the demise of the CATCo strategy was on the significant capital raised for 2018, as well as the structural changes to the underlying protection product that were said to have increased the chances of positions attaching and capital being trapped, since the running-off began there has been another story of value-recovery for the investors which it is important not to overlook.
The 2024 increase in NAVs for the CATCo listed fund shares was “due to further upside recorded relating to positive loss development recognized upon commutation of the contracts in the 2018 and 2019 reinsurance portfolios plus interest income,” the company said today.
Those side-pockets for the 2018 and 2019 underwriting years have now been fully-commuted, leaving the portfolio of the listed CATCo fund solely holding its remaining cash, for expenses and potentially some more return to investors.
It’s safe to assume that the same positions have been commuted for the broader private retrocession portfolio that the CATCo strategy had developed, with that too nearing a completed running-off.
James Keyes, Chairman of the CATCo Reinsurance Opportunities Fund Ltd. commented, “As the process of Run-Off and returning capital to investors draws to a close, I would like to thank the Investment Manager for its dedication to ensuring a significant amount of capital has been returned to investors since the Buy-Out Transaction and we believe that the results achieved by the Investment Manager have justified the patient approach taken to run off the underlying 2018 and 2019 portfolios.
“Finally, I would like to thank Shareholders for supporting the actions of the Investment Manager since the Buy-Out Transaction and allowing the Company to deliver on its objective of maximizing the return of capital during the Run-Off.”
The listed fund company is now being wound down and a shareholder meeting today should see that approved and the shares will then be delisted, expenses paid and any remaining capital returned, we expect.
While a lot has happened in the lifetime of the CATCo strategy, the return of value achieved by the portfolio staff that stayed on to manage the process and how they’ve wound down the funds to recover as much value as possible for investors has been commendable. As too have Markel’s actions taken to deliver value back to investors more quickly through the buy-out deal.
Questions still remain unanswered though.
Ranging from, the often overlooked story of how CATCo began, the drivers for the creation of the product in the first place and the actors behind that? Changes made to the retro product structure, whether they contributed to the degradation of performance and what (perhaps who) drove those changes to be made, as well as whether the investors were truly aware of the implications? Finally, questions around the capital raising that took place for 2018 are always going to come up as well. We may never find out the real background to all of this, of course and it is perhaps better to let CATCo disappear into ILS market history.
The CATCo listed retro fund shares have now been suspended from trading today, as a meeting held later in Bermuda will seek approval to begin the winding down, resulting in a delisting tomorrow and then a liquidation of the company and fund.
We’ve reported on CATCo since the start, find all our coverage here.
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