Only months after raising $2.5bn from investors, collateralised retro fund manager Markel CatCo has announced a 19.5 percent reserve hit to its April net asset value (NAV) from growing 2017 cat losses mainly stemming from Hurricane Irma, the equivalent of hundreds of millions of dollars.
This is the latest deterioration for the fund manager following a number of revisions to its 2017 cat bill and the second following the completion of its post-loss fundraising.
It initially estimated a return of between a 5 percent gain and a 15 percent loss for the year - an estimate repeated in its 7 November prospectus - although in October it also revealed that its NAV had fallen by 20 percent after posting loss reserves from the brutal Q3 storms.
But on 19 January, CatCo said that the 2017 cat losses will actually cost 2017 investors an estimated 27.6 percent of NAV with further deterioration from the Q3 hurricane losses and the majority of the additional loss from the Q4 California fires.
The announcement today marks a further 14 percent reduction in the 2017 result since its Q4 fundraising, taking the return on NAV from down 27.6 percent to a 41.4 percent loss.
The share price in its London listed fund - CatCo Reinsurance Opportunities Fund - slumped 19 percent today following the news to $0.59. Pre-hurricanes, it was trading at around $1.35.
CatCo said that following the trio of Atlantic hurricanes and California wildfires in the second half of last year, it had continued to monitor the ongoing uncertainty related to these loss events.
The fund manager said it expected industry loss estimates to rise for Hurricane Irma following reports of “significant increases in loss adjustment expenses, late claims reporting and an increase to loss exposures in the Caribbean”.
With some reinsurance counterparts increasing their ultimate loss exposures related to Hurricane Irma in late April, CatCo said it had concluded that “material increases in the 2017 specific loss reserves were required”.
“Until very recently, all trends were in line with expectations, providing evidence that the 2017 loss reserves would likely be sufficient to support our remaining loss exposures,” Market CatCo’s CEO for Bermuda Alissa Fredricks said.
“However, in late April, we received updated notifications from our reinsurance counterparties indicating a material loss creep in Irma could occur,” she added.
“This further supports market information suggesting that abnormal levels of loss adjustment expenses and late claims have resulted in further deterioration in Irma losses, which has become the consequence of multiple catastrophic events occurring in a short period of time.”
In a note published today (8 May), Jefferies analyst Philip Kett said the adverse claims development at CatCo is part of wider trend among several alternative capital vehicles as cat losses continue to rise.