Markel CATCo gains U.S. court recognition of foreign proceedings

By Sarah Lizee

Olympia, Wash., Nov. 4 – Markel CATCo Reinsurance Fund Ltd. received recognition from the U.S. Bankruptcy Court for the Southern District of New York of its liquidation proceedings pending before the Supreme Court of Bermuda, according to an order filed Thursday.

As previously reported, in 2017 and 2018, the catastrophic risk reinsurance business of the CATCo group was hit by historically large losses due to a number of large windstorms and forest fires, Simon Appell, a foreign representative for the company, said in a declaration.

Consequently, investors in the Markel CATCo business suffered material losses on their investments, Appell added.

Following a second year of losses in 2018, debtor and manager Markel CATCo Investment Management Ltd. extended a special redemption option to investors of CATCo Reinsurance Opportunities Fund Ltd., the public fund, and Markel CATCo Reinsurance Fund, the private fund, and, in view of the majority uptake, decided to cease offering new investment in the funds.

At the end of the 2019 policy year, all remaining capital in the funds, other than that trapped as collateral for insurance policies, was returned to investors.

On March 26, 2019, investors in the public fund voted to approve the orderly run-off of its investments in the Markel CATCo Diversified Fund, the master fund, operated by the private fund.

On July 25, 2019, the manager announced that the private fund would cease accepting new investments and would not write any new business going forward through the reinsurer, Markel CATCo Re Ltd. After that, the manager started the orderly run-off of the reinsurer’s existing portfolio.

The manager has since continued to manage the retro and reinsurance portfolios, in order to run-off the policies in an orderly manner and, subject to approval from the Bermuda court, return capital to investors as it is released from the trust accounts to the reinsurer.

Appell said the run-off has progressed smoothly since the funds stopped accepting new subscriptions, with a total of about $2.3 billion released and returned to investors as of August. The manager expects the run-off to be completed by January 2023.

Recently, three small investors in sub-funds operated by the private fund asserted claims seeking to recover losses incurred on their investments in 2017 and 2018.

Appell said that in order to resolve the uncertainty around further investor litigation, to ensure that all investors are treated alike and none gain an unfair advantage through litigation, and to facilitate the return of funds to investors, parent company Markel Corp. has decided to make a buy-out transaction available to the private fund and the public fund.

It is intended that schemes will be proposed by each of the private fund and the public fund in the near future to implement the buy-out transaction, under which investors will receive an early return of all or substantially all of their remaining capital invested in the funds, as well as being entitled to any future upside on their investments.

In exchange, investors will provide a release of any potential claims against the debtors and related entities.

Markel Corp. will provide funding to facilitate the transaction and bear substantially all of the downside risk from any future reserve strengthening at the reinsurer, Appell said.

The Hamilton, Bermuda-based insurance-linked investment manager filed bankruptcy on Oct. 5 under Chapter 15 case number 21-11733.

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