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Markel results hit as problems at ILS unit weigh

Financial loss

Markel Corp. reported a $753.4 million loss for the fourth quarter of 2018, compared with a $439.9 million profit a year earlier, as it saw big investment losses and sought to deal with problems at one of its insurance-linked securities units.

The Richmond, Virginia-based insurer and reinsurer disclosed in December that its Bermuda-based Markel CATCo Investment Management Ltd. unit, which provides collateralized retrocessional reinsurance coverage, was being investigated by U.S. and Bermudian authorities over its loss reserves.

In January, a putative class action was filed against Markel related to a stock price drop following the disclosure.

A few days later, Markel said two top executives at the unit had left the company after an investigation uncovered violations of company policies regarding disclosure of personal relationships.

On a conference call with analysts on Wednesday, Jeremy Noble, chief financial officer of Markel, said the insurer has taken a $179 million impairment charge in the fourth quarter as a result of reducing the carrying value of goodwill and intangible assets of the unit to zero.

“In light of governmental inquiries into loss reserves recorded in late 2017 and early 2018 at an entity managed by Markel CATCo and taking into consideration the departure of two senior executives and certain redemption rights now being offered to investors in the ILS funds managed by Markel CATCo, Markel CATCo’s ability to maintain and raise capital has been adversely impacted,” he said.

Markel investors in ILS funds managed by the unit have until March 31 to exercise their redemption rights, said Ritchie Whitt, co-CEO of Markel.

“Given the circumstances at Markel CATCo we felt it was appropriate to offer investors a special redemption right, which they can exercise by March 31 … I would expect most investors to exercise their option,” he said.

“If we get to the other side of the challenges we currently face, and we are not able to continue the business, there’s no more goodwill or intangible hits to take,” Mr. Whitt added.

The insurer also accrued $64 million of incentive and retention compensation as of Sept. 30, 2018, related to the senior executives who left, “all of which was reversed in the fourth quarter,” Mr. Noble said.

Markel reported realized investment losses of $845.9 million for the fourth quarter of 2018, compared with $3.8 million a year earlier, related to “unfavorable market value movements” and a decline in the value of funds managed by Markel CATCo, according to the insurer’s earnings statement.



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