Markel Catco’s listed fund drops to total return loss since inception

Recent losses and a slump in the share price of the Catco Reinsurance Opportunities fund have pushed total returns to a negative level since the retro fund’s inception in late 2010, as two active catastrophe years wiped out prior year gains.

The fund’s track record since inception has now fallen to a 5 percent annualised loss, on a total return basis that wraps share price returns into net asset value performance.

This has fallen from a 14 percent annualised gain as at 1 January 2017 before the losses, and 9 percent on 1 December 2017 when it had recognised some 2017 losses and had closed its post-HIM fundraising.

This came as the ordinary share price of its London fund has fallen to around half stated book value, with early December trading putting the ordinary shares at 34 cents, versus net asset value on 31 October of 70 cents.

These ordinary shares will be exposed both to further 2017 loss creep and this year’s wildfire losses, which the firm warned will be worse than last year’s 17 percent. The discounts reflect investors pricing in these upcoming losses.

There was a slightly lesser devaluation for the class C shares which will only take this year’s fire losses. This series were priced at 60 cents, versus reported net asset value of $1.05.

Two analysts who spoke to Trading Risk said they were highly sceptical of whether the manager would be able to attract further capital to the London-listed fund, given its recent performance.

“No one wants to diversify into something that is going to lose them money,” one analyst said.

Given that Markel Catco’s track record dates back eight years to 2011, covering a number of benign catastrophe loss years and an initial phase of stronger cat pricing before market softening sped up, it can be taken as a fair sample of its earnings power, the analyst added.

One investor said that they would “love to get out” of the listed fund, but that thin trading meant this was no longer an option.  

The investor expressed disappointment at the level of guidance from the manager on the size of its losses.

“The scale of losses has been quite alarming. It is not a comfortable experience,” the source said.

Midway through this year ahead of the latest wildfires, Markel Catco estimated that the internal rate of return since inception for investors in its 2010 share class had fallen to 3.6 percent for the period to 30 June 2018.

This figure took account of dividend payouts and compared to a net asset value return since inception, excluding dividends payments, of 6.12 percent.

The loss experience in 2018, combined with trapped capital, could result in the retro manager's capacity halving in 2019Trading Risk estimated. 

This is an extract from an article in the December edition of Trading Risk, online tomorrow.