Variable Interest Entities

12 Months Ended

Dec. 31, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

17. Variable Interest Entities

Markel CATCo Investment Management Ltd. (MCIM), a wholly owned consolidated subsidiary of the Company, is an insurance-linked securities investment fund manager and reinsurance manager headquartered in Bermuda. Results attributable to MCIM are not included in a reportable segment.

MCIM serves as the insurance manager for Markel CATCo Re Ltd. (MCRe), a Bermuda Class 3 reinsurance company, and as the investment manager for Markel CATCo Reinsurance Fund Ltd., a Bermuda exempted mutual fund company comprised of multiple segregated accounts (Markel CATCo Funds). Voting shares in Markel CATCo Reinsurance Fund Ltd. and MCRe are held by MCIM, which has the power to direct the activities that most significantly impact the economic performance of these entities. The Markel CATCo Funds issued multiple classes of nonvoting, redeemable preference shares to investors, and the Markel CATCo Funds are primarily invested in nonvoting preference shares of MCRe. The underwriting results of MCRe are attributed to investors through its nonvoting preference shares. Both MCRe and the Markel CATCo Funds were placed into run-off in July 2019.

In 2022, the Company completed a buy-out transaction with MCRe and the Markel CATCo Funds that provided for an accelerated return of all remaining capital to investors in the Markel CATCo Funds. Under the terms of the transaction, the Company provided cash funding of $45.1 million to purchase substantially all of the Markel CATCo Funds' interests in MCRe. As part of the transaction, substantially all of the preference shares held by investors in the Markel CATCo Funds were redeemed, including preference shares previously held by the Company. In order to complete the transaction, the Company also made $101.9 million in additional payments, net of insurance proceeds, to or for the benefit of investors, which were recognized as an expense to the Company and included in services and other expenses in 2022.

The Company has received a return of $24.9 million of the capital it provided, and the related preference shares were redeemed. In November 2024, following the commutation of certain reinsurance contracts, $117.2 million of collateral held by MCRe was released, which allowed for the redemption of the corresponding preferred shares held by Markel CATCo Funds. As of December 31, 2024 and 2023, the Company's investment in the remaining preference shares of MCRe totaled $20.1 million, which comprised 52% and 23%, respectively, of the equity of MCRe. Through that investment, the Company has exposure to adverse loss development on reinsurance contracts previously written by MCRe for loss events that occurred from 2014 to 2020. If loss reserves held by MCRe are sufficient to settle claims on the remaining open contracts, the Company will receive a full return of the remaining $20.1 million in capital. Favorable development on loss reserves held by MCRe, less operating expenses, will be distributed to the Markel CATCo Funds, and ultimately to investors in the Markel CATCo Funds.

MCRe is considered a VIE, as the equity at risk does not have the right to receive residual returns that exceed the capital provided by the Company in the buy-out transaction. As a result of the preference shares acquired by the Company in the buy-

out transaction, and the voting shares held by its consolidated subsidiary, MCIM, the Company consolidates MCRe as its primary beneficiary. Results attributed to the run-off of MCRe are reported with the Company's other insurance operations, within services and other revenues and expenses, and are not included in a reportable segment. For the years ended December 31, 2024, 2023, and 2022, there was $58.1 million, $71.5 million, and $89.9 million respectively, of favorable loss reserve development on the run-off of reinsurance contracts written by MCRe, all of which was included in services and other expenses and attributable to noncontrolling interests. During the years ended December 31, 2024, 2023, and 2022, $117.2 million, $62.6 million, and $22.3 million respectively, of preference shares of MCRe held by noncontrolling interests were redeemed.

The Company's consolidated balance sheets include the following amounts attributable to MCRe.


	December 31,
(dollars in thousands)	2024		2023
Assets
Cash and cash equivalents	$	34,497	$	91,301
Restricted cash and cash equivalents	28,701		173,800
Other assets and receivables due from cedents	329		19,292
Total Assets	$	63,527	$	284,393

Liabilities and Equity
Unpaid losses and loss adjustment expenses	$	25,005	$	184,967
Other liabilities	66		1,842
Total Liabilities	25,071		186,809
Shareholders' equity	21,139		21,139
Noncontrolling interests	17,317		76,445
Total Equity	38,456		97,584
Total Liabilities and Equity	$	63,527	$	284,393

In connection with the buy-out transaction, the Company also entered into a tail risk cover with MCRe to allow for the release of collateral to investors. Through this contract, the Company has $95.0 million of uncollateralized exposure to adverse development on loss reserves held by MCRe for loss exposures in excess of limits that the Company believes are unlikely to be exceeded.