Markel reveals ‘threatened claims’ by two investors prompted CATCo buyout

Specialist insurer  Markel has confirmed a buyout transaction for its retrocessional insurance-linked securities manager  Markel CATCo Investment Management (MCIM) in a move it hopes will provide “accelerated return of substantially all the net asset value” to investors in the fund.

The funds ( Markel CATCo Reinsurance Fund and CATCo Reinsurance Opportunities Fund), which are insurance-linked securities funds managed by Bermuda-based MCIM, have been in run-off since June 2019.

“The buyout transaction has been prompted as a result of threatened and asserted claims by two small investors,” Markel revealed in a statement, adding that although the Funds believe these claims to be “meritless”, they have disrupted the continued timely and orderly return of additional capital to investors and is being offered to prevent the potential for inequitable treatment of some investors at the expense of all other investors.

Affiliates of Markel Corporation will be providing funding of up to approximately $150 million to facilitate the buyout transaction of the retrocessional segregated accounts of the Funds. Additionally, an affiliate of Markel will be providing tail risk cover that will allow for the return of approximately $100 million of trapped collateral to investors in the Private Fund's separately structured reinsurance offering, known as the Aquilo Fund segregated account.

Under the buyout deal, investors in the Funds will retain the right to receive any outstanding NAV plus any upside at the end of the applicable run-off period if currently held reserves exceed the amounts necessary to pay ultimate claims. The affiliates of Markel Corporation financing the buyout expect to receive a return of all their funding by the end of the run-off periods.

MCIM will offer all investors in the Funds to provide a support undertaking with respect to the buyout on or before October 22, 2021 in order to become eligible to receive at closing a fee equal to one percent of the investor's proportional entitlement to the current NAV as at closing.

Markel stated that the boards of directors of each of the Private Fund and Public Fund have unanimously determined that the buyout is in the “best interests” of each of their respective Funds (taking into account the interests of their respective investors) and recommend that their investors return support undertakings by the Early Consent Deadline.

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