Markel CATCo Reports U.S., Bermuda Inquiries into Reserves

December 9, 2018

On Friday Dec .7, Markel Corp. said it was fully cooperating with inquiries by U.S. and Bermuda authorities into loss reserves recorded in late 2017 and early 2018 at Markel CATCo Investment Management Ltd., the company’s investment manager, and its subsidiaries.

Markel said it was contacted by those authorities on Nov. 30, 2018. The insurer has retained outside counsel to conduct an internal review.

The inquiries are limited to Bermuda-based Markel CATCo Investment Management Ltd. and its subsidiaries and do not involve other Markel Corp. entities.

The same day, Markel CATCo Investment Management Ltd., as investment manager of the company announced its intention to increase loss reserves held by the company. It estimated the impact of the increase to be approximately 27.7 percent on the ordinary share net asset value as of Oct. 31.

The investment manager, a specialist in insurance linked securities, explained the move and that more reserve strengthening is to be expected:

“Following the 2017 Hurricanes Harvey, Irma, Maria (HIM) and the California Wildfires, the Manager has continued to monitor the ongoing uncertainty related to these loss events. As has been communicated previously, industry loss estimates have continued to deteriorate beyond reasonable expectations since the time of the last reserve provision made in April 2018. Since this time, the industry loss estimates on major 2017 loss events have increased by more than 12% as of December 2018.

“In addition, based on an assessment of updated cedant loss data as of Q3 2018, further reserve strengthening is required. This expectation aligns not only with the increases of industry loss estimate trends, but also with the numerous reports of insurers, reinsurers, and ILS constituents who have continued to report ongoing loss deterioration throughout Q3 2018. As such, the Manager will strengthen reserves to be aligned with the observed wider market increases. Some level of uncertainty will remain until industry loss estimates cease to exhibit further growth.”

The investment firm also noted that it is continuing to monitor the 2018 California wildfires and said it expects to see a material impact from those that could exceed the 17 percent impact felt from the 2017 wildfires.

The company had earlier indicated the possibility of a reserve adjustment in a November 22 announcement.

Insurer rating agency A.M. Best said that there was no cause for changing any ratings of Markel and its insurance operating subsidiaries at this time but that it would continue to monitor the situation.

Markel acquired CATCo Investment Management in 2015. CATCo manages retrocession and traditional reinsurance portfolios for financial institutions, charities, pension funds, family offices, and investment funds.

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