Markel CATCo raises loss reserves for 2017 cat events

Markel CATCo Investment Management plans to increase the specific loss reserves held by the company related to the 2017 loss events namely hurricanes Harvey, Irma, Maria (HIM) and the California wildfires that year.

The impact of the increase is estimated to be approximately 27.7 percent of the Oct. 31, 2018 ordinary share net asset value (NAV) and will be accounted for within the Nov. 30 2018 NAV. On a normalised basis, this represents approximately a 15.7 percent deterioration in the ordinary share 2017 annual performance and is equivalent to a 2017 NAV return on the ordinary shares of approximately -57.1 percent (down from the -41.4 percent reported at year-end).

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.

US and Bermuda authorities are investigating loss reserves recorded in late 2017 and early 2018 at Markel CATCo Investment Management and its subsidiaries.

Industry loss estimates for the 2017 hurricanes Harvey, Irma, Maria and the California wildfires have continued to deteriorate beyond reasonable expectations since the time of the last reserve provision made in April 2018, the investment manager said. Since this time, the industry loss estimates on major 2017 loss events have increased by more than 12 percent as of December 2018. In addition, based on an assessment of updated cedant loss data as of the third quarter of 2018, further reserve strengthening is required, it explained. This expectation aligns not only with the increases of industry loss estimate trends, but also with the numerous reports of insurers, reinsurers, and insurance-linked securities (ILS) constituents who have continued to report ongoing loss deterioration throughout the third quarter of 2018, according to the statement. As such, the manager will strengthen reserves to be aligned with the observed wider market increases.

In November 2018, Markel CATCo had already raised reserves for hurricane Michael and typhoon Jebi and had 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.

Even after the latest loss reserves increase, some level of uncertainty will remain until industry loss estimates cease to exhibit further growth, the investment manager noted. Further, the manager is continuing to assess the potential impacts to the portfolio related to the 2018 California wildfires. A material impact is expected to be recorded in the Nov. 30, 2018 NAV, according to the corporate statement.

While the ILS sector was fairly quick in reloading after the 2017 hurricane losses some investors felt they were misled by the size of the losses, as Intelligent Insurer reported in its autumn magazine issue. Read the full story here.

Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

More of today's news

Peak Re unveils first Asian reinsurance sidecar

Berkshire Hathaway exits Hong Kong EC terrorism pool

Coverys provides capacity for DTW Syndicate 1991

New legislation reduces no-deal Brexit risks: Fitch

Gallagher snaps up brokerage firms in UK, New Zealand

Tokio Marine hires Chubb property underwriter in Singapore

AIG chief data officer joins AI insurtech Planck Re

Don't miss our insurtech email newsletter - sign up today