CATCo Reinsurance Opportunities (CAT) has reported annual results to 31 December 2019. Catastrophic activity over 2019 was relatively benign, following two consecutive years of severe natural catastrophic events. CAT said global insured losses during 2019 are estimated to have amounted to $52bn, in line with the long-term average, compared to 2017 and 2018, which were the first-and fourth-costliest years on record, resulting in over $140bn and $80bn of insured losses respectively.
Over 2019, the higher premiums CAT achieved during the 1 January 2019 renewals helped to offset some of these losses, resulting in the 2019 investment portfolio generating an estimated return of around 4.3% on capital invested in the master fund.
Furthermore, over $100m of capital was returned to shareholders during the year with additional payments anticipated during the first half of 2020.
CAT is carrying out an orderly run-off
CAT announced in July 2019 that it will cease accepting new investments in the Master Fund SAC and will not write any new business going forward through Markel CATCo Re Ltd. (the reinsurer). CAT said it would take the manager around three years to carry out an orderly run-off of the existing portfolio, from 1 January 2020.
Following a shareholder consultation in February 2019, the board sought the approval of shareholders to put the company’s portfolios into an orderly run-off, which approval was given on 26 March 2019.
Manager’s review
Manager, Jed Rhoads, had this to say: “The company’s 2019 investment portfolio was impacted by comparatively lower levels of catastrophic activity following two consecutive years of severe natural catastrophic events, but was nonetheless exposed to significant losses, primarily from Japanese Typhoons Faxai and Hagibis. The higher premiums achieved during the 1 January 2019 renewals helped to offset some of these losses, resulting in the 2019 investment portfolio generating an estimated return of circa 4.3% on capital invested in the master fund.
Meanwhile, the 2017 and 2018 portfolio investments experienced some deterioration during 2019, primarily in the first half of the year as previously announced by the company in its update on 3 June 2019. The second half of the year generally witnessed a stabilising of losses relating to the prior year investment portfolios, notwithstanding one further adjustment to the ordinary share NAV during December 2019, driven by further claim settlements in relation to 2017 events.”
2019 loss events
Jed added: “Following two consecutive years of severe catastrophic activity, 2019 proved to be another active year with Hurricane Dorian, Typhoon Faxai, Typhoon Hagibis and the Australia bushfires being the year’s most significant events.
The reinsurance industry continued to witness loss creep across a number of prior year events. The most extensive loss creep has been in relation to Hurricane Irma and Typhoon Jebi.
While 2019 experienced significantly lower insured losses compared to 2017 and 2018, a similar confluence of events occurred throughout 2019, causing further trapped capital industry-wide for the third year in a row.
Multiple severe thunderstorms swept through the United States during 2019, resulting in over $19.5bn of insured losses, the second-worst year over the past three decades after 2011, when severe thunderstorms generated approximately $26.5bn of insured losses. The most significant storm occurred in May 2019 which impacted the Midwest States of Illinois, Nebraska and Ohio and caused approximately $3.4bn of insured losses. This was the worst tornado since the Joplin and Tuscaloosa tornadoes of 2011, which caused approximately $7bn of insured losses each.
For the fourth consecutive year, the Atlantic Basin experienced a relatively active hurricane season with eighteen named storms, significantly above the annual average of twelve. The strongest hurricane of the season, Hurricane Dorian, was the most intense tropical cyclone on record to strike the Bahamas, and is regarded as the worst natural disaster in the country’s history, causing approximately $4bn of insured losses. Continuing northwest from the Bahamas, Dorian threatened to strike Florida as a Category 3 hurricane, but gradually dwindled northeast, only making contact with the edge of Cape Hatteras as a Category 1 before moving out to the open Atlantic and then making landfall again in Canada.
As in 2018, Japan was again struck by a series of severe typhoons, the most significant of these being Faxai and Hagibis, which generated $7bn and $10bn of insured losses respectively, topping the combined insured losses generated by Typhoons Jebi and Trami of 2018, the insured losses from which are currently estimated to be approximately $11.4bn. Both 2019 typhoons hit the Tokyo area, with Faxai sweeping over Tokyo Bay and making landfall in the city of Chiba. Hagibis struck further northwest, directly over the Yokohama-Tokyo conurbation, with as much as approximately 1 metre of rain falling within two days, breaching levees and seriously damaging many industrial operations.
As was the case in the preceding two years, California experienced more wildfires in the fourth quarter of 2019. However, these were far less devastating than the record $30bn2 for the combined insured California wildfire losses in 2017 and 2018. The Saddle Ridge, Walker and Kincade fires were the headline California wildfire events of 2019, burning a total of 140,000 acres and causing approximately $1bn2 of insured losses.
Lastly, during the final weeks of the year, hundreds of bushfires across all of Australia continued to materialise, a number of which are still burning at the time of this report. The Insurance Council of Australia indicated that the countrywide insured losses due to the bushfires was approximately $200m at 2019 year-end. However, as at the date of this report the figure is over $1bn, following further fires in the first quarter of 2020.”
Covid-19 update
In the subsequent events part of the report, CAT had this to say: “In early 2020, the existence of a new coronavirus (Covid-19) was confirmed. Since that time, Covid-19 has spread from China and to a significant number of other countries around the world. Covid-19 has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. The company considers the emergence and spread of Covid-19 to be a non-adjusting post balance sheet event. Given the inherent uncertainties, it is not practicable at this time to determine the potential impact of Covid-19 on the company’s operations. While we do not expect any adverse impact on actual investment results, it may be possible that there may be an adverse impact on the company’s progress on its stated intentions to return capital to investors as quickly as possible.”
CAT: CATCo Reinsurance Opportunities helped by relatively lower levels of catastrophic activity over 2019