Markel CATCo Investment Management Ltd. plans to establish specific loss reserves for the Nov. 30 net asset value held by CATCo Reinsurance Opportunities Fund Ltd. due to 2018 major loss events.
Markel CATCo, which is CATCo Reinsurance Opportunities Fund's investment manager, estimated that the specific loss reserves required to cover major events and to be recorded within the Nov. 30 NAV will be 23% for ordinary shares and 45% for C shares. Estimated impacts are based on the Oct. 31 NAV, which is inclusive of the estimated reduction of the ordinary share side pocket investment due to the 2017 specific loss reserve strengthening.
A portion of the Nov. 30 specific loss reserve will be used to cover potential portfolio exposure to hurricanes Florence and Michael. The manager also established a preliminary reserve for the recent California wildfires assuming the combined industry insured losses may increase significantly beyond the current reported levels of loss.
The CATCo Reinsurance board is also considering a number of options to address shareholder concerns over its shares trading at a significant discount compared to the last published NAV.
The company said the board will conduct share buybacks as early in 2019 as possible. The board also intends to offer shareholders the chance to convert to redemption shares in 2019. Redemption shares would continue to participate in reinsurance contracts, but will not participate in any new investments from that date.
As the related reinsurance contracts expire, the company would redeem the redemption shares with the proceeds received from underlying investments. The offers will likely be made in the second quarter of 2019 and are expected to become effective shortly prior to the 2019 mid-year renewals.
The board may also approve the issuance of a new C Share class to provide exposure to 2019 mid-year reinsurance contract renewals, and it plans to pay the annual dividend as normal, subject to available liquidity.