Markel CATCo under investigation because of 2017 loss creep


Markel CATCo, the retrocessional reinsurance investment specialist, is under investigation by regulators in US and Bermuda in relation to loss reserves recorded in late 2017 and early 2018, which proved to be inadequate.

Markel Corporation, the parent of Markel CATCo Investment Management and its subsidiaries, has confirmed that it is fully cooperating with inquiries by US and Bermuda authorities.

The company stressed the inquiries are limited to Markel CATCo and do not involve other Markel Corporation companies. Outside counsel has been retained to conduct an internal review, it added.

Markel CATCo Investment Management builds and manages portfolios that provide investors the opportunity to participate in the returns from a selected mix of investments linked to reinsurance risks accessed through its reinsurance company Markel CATCo Re.

It is one of a number of funds that has been exposed to so-called loss creep since the catastrophes in late 2017. The issue is important because many investors quickly reloaded and reinvested in the aftermath of those events, partly on the basis of those initial loss estimates.

In November 2018, Markel CATCo raised reserves for Hurricane Michael and Typhoon Jebi and again warned over a loss creep from the 2017 hurricane season.

Markel CATCo implemented a specific loss reserve to cover the 2018 events hurricane Michael and Typhoon Jebi and has also warned over potential California wildfire losses and a loss creep from 2017 nat cat events.

The reserves for Hurricane Michael and Typhoon Jebi losses resulted in a 3.7 percent impact to the ordinary share net asset value (NAV) and 9.8 percent impact to the C Share NAV as of 31 October 2018, the firm said in an update.

The investment manager also warned over potential losses from the California wildfires, notably the Camp (Northern California) and Woolsey (Southern California) fires, which began in early November.

Based on early assessments of the industry loss potential due to the fires, it appears a material loss to the portfolio is likely in an amount that could exceed the impact of the 2017 California Wildfire events (2017: c.17 percent), the investment manager said.

In addition, the company has warned over a potential loss creep from the 2017 nat cat events.

The company's ordinary shareholders continue to be exposed to losses arising from 2017 major events, it said in the document. Since the reserve provisions made in April 2018 for 2017 events, the insurance market has continued to report further loss deterioration. In addition, the industry loss estimates for the 2017 events have increased at least 9 percent over estimates reported in April 2018. As a result, further reserve strengthening is likely to be necessary, the investment manager had noted.

Markel CATCo, ILS, Insurance, Reinsurance, Bermuda

Bermuda Re