Catastrophes hit results of Nephila’s Syndicate 2357

by Artemis on March 29, 2018

While the major catastrophe losses of 2017 took their toll on the results of ILS fund manager Nephila Capital’s Syndicate 2357 vehicle at Lloyd’s of London, driving the syndicate to a loss for the year, the manager is looking to expand on the use of the vehicle and as a result has increased its stamp capacity allowance for 2018.

Nephila, the largest investment manager of catastrophe and weather insurance or reinsurance linked assets, has been using its Syndicate 2357 vehicle at Lloyd’s of London for a number of years now, but hadn’t yet faced a year of catastrophes like 2017.

The impacts of the major hurricanes, wildfires and other loss events are clear in the syndicates results, with the combined ratio for 2017 jumping to 167%.

During 2017 Nephila’s Syndicate 2357 at Lloyd’s underwrote considerably more in the way of gross premiums, with property catastrophe reinsurance the major driver of the increase.

Overall gross written premiums rose by roughly 88% to over $330 million for the year, compared to $175 million for 2016.

But property catastrophe reinsurance underwriting rose by 206% to almost $162 million of the total, while the MGA driven insurance business that the syndicate also writes only rose by 18% to almost $127 million.

Meanwhile, weather risk related business written by the syndicate for Nephila also jumped during the last year, with a roughly 300% increase in premiums bringing them to almost $42 million for 2017.

The impact of the losses is clear though and the 167% combined ratio meant that Syndicate 2357 fell to a loss of $120.6 million for 2017, compared to driving a $15 million profit for 2016.

In terms of the return on capacity, the syndicate recorded a -40.2% return  for 2017, compared to a 10.7% positive performance in the prior year.

The impact of the losses is no surprise, as Nephila’s strategy is focused on peak catastrophe and weather risk exposures. As one of the managers likely most exposed to all of the events of 2017, due to the size of its portfolio, Nephila would always have been hit by significant losses following the hurricane and wildfire activity in particular.

It was the MGA insurance unit that drove the losses, with over $132 milllion, compared to a profit of $9.85 million for the reinsurance division.

Looking ahead though, Nephila is set to continue with its steady increasing of the stamp capacity available to its Syndicate 2357 at Lloyd’s.

Back in the Syndicate 2357 stamp capacity came out as roughly $160.9 million, then in 2017 that rose to $308.3 million.

But for 2018 the ILS manager is targeting another big increase of 36%, with the stamp capacity forecast for the year ahead put as $418.5 million in the latest Syndicate 2357 reports and accounts.

The syndicate still purchases collateralised reinsurance from Nephila’s two Bermuda vehicles, Poseidon Re and Demeter Re, with quota shares in place as a way to funnel risk back to the managers ILS funds.

The syndicate plays an important role in Nephila Capital’s overall platform, adding efficiency, access to risk through Lloyd’s, allowing the manager to benefit from the security a Lloyd’s vehicle offers to its clients and providing an additional prong to its underwriting reach.

It’s important to note that the losses faced by the syndicate in no way reflect losses faced by investors in Nephila’s ILS funds, as it is purely a vehicle for underwriting and channeling risk in an efficient manner, as part of the managers overall infrastructure. Therefore it’s impossible to look through the syndicate results to the actual results of Nephila’s investment strategies.

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