Markel CATCo’s listed retrocessional reinsurance fund, the CATCo Reinsurance Opportunities Fund Ltd., has already lined up $1 billion of underwriting for January 2019, achieving similar rates to 2018.
The company has released its first-half 2018 report, which reveals that mid-year renewals were successful, at the same increased pricing achieved at the January 1st, 2018 renewals season.
James Keyes, Chairman of the CATCo Reinsurance Opportunities Fund Ltd., explained in the interim report that despite the losses of 2017, both the traditional and alternative reinsurance markets have found it difficult to achieve desirable pricing increases for 2018 renewals, “with rates largely decreasing by mid-year 2018 across the sector.”
But despite this, he stressed that demand for its unique, innovative solutions are at its highest point since inception, revealing that its mid-year portfolio increased by 30% from the 2017 mid-year portfolio, with pricing remaining the same as achieved at the January 1st, 2018 renewals.
According to Keyes, this is an approximate increase of 43% over 2017 prices.
“The 2018 portfolio pricing and risk profile is the strongest since the Company’s inception, one of the distinct benefits following a significant loss year,” said Keyes.
“Downward pricing in this space is the direct result of an ongoing growth of capital amongst ILS products that are mere commodities,” added Keyes.
The company announced in May that it had boosted its reserves for 2017 catastrophe losses by another 19.5% of net asset value (NAV). However, it appears that investors are committed to the strategy by allocating more funds in spite of losses, something that would have no doubt pleased the firm.
The fund’s 2018 portfolio maximum net loss return on capital remains on target at 23%, which, is a 43% increase on the 2017 portfolio maximum net loss return on capital, with the 2018 portfolio renewed at appreciably lower risk levels.
In response, the mean return on the 2018 portfolio has increased 70% over the 2017 portfolio.
The firm announced previously that in order to meet expected increased buyer demand for its offerings at the mid-year, it raised an additional $7000 million from existing private fund investors, as discussed by Artemis, our sister publication.
Looking forward, the firm expects both the traditional reinsurance market and insurance-linked securities (ILS) funds to experience further rate declines at the January 2019 renewals, so long as losses remain benign through the second-half of 2018.
But despite this, the firm anticipates that 2019 January deals will be renewed at similar terms to that witnessed during 2018. In fact, the firm has already received a significant volume, $750 million, of both written and verbal orders from buyers for January, 2019 at the same, or higher pricing levels as 2018.
Keyes explained that the investment manager expects $1 billion of orders for January 2019 to be written prior to the start of September at flat pricing.
Keyes also discussed the firm’s successful negotiation of a collateral release across a number of January 2017 and 2017 mid-year contracts amounting to 30% of Ordinary Share NAV.
“As a result, the 2017 SPI (side pocket investments) will increase by an additional 9% of Ordinary Share NAV in August 2018.
“Once all 2017 SPIs have been established in August, the estimated 2017 SPI will represent c.56% of Ordinary Share NAV. While the net effect is an increase to the 2017 SPI, the substantial releases achieved on these 2017 contracts should be viewed as overall positive news for Ordinary Shareholders,” said Keyes.