Nephila Capital, the ILS, catastrophe reinsurance and weather risk-linked investment fund manager, is targeting the takeout of another clutch of property insurance policies from Florida Citizens, working alongside its MGA, Velocity Risk Underwriters LLC and fronting insurer State National.
Florida’s Citizens Property Insurance Corporation continues to shrink, offloading policies that other private market insurance or reinsurance companies are willing to underwrite and manage.
Among the companies that have backed takeouts and the Citizens depopulation process, is the largest ILS fund manager Nephila Capital, which has already backed four takeouts so far, using its third-party sources reinsurance capacity to back its managing general agent Velocity as it administers the policies in question.
The Florida Office of Insurance Regulation has announced a number of new takeouts, with one seeing Velocity Risk Underwriters administering its fifth Florida takeout, with the help of State National Companies subsidiary National Specialty Insurance Company, which acts as a fronting company for these arrangements.
This takeout will see up to 4,520 wind only policies from the Florida Citizens coastal account taken out by National Specialty, with Velocity Risk Underwriters acting as the administrator, while Nephila Capital reinsurance capacity will underpin the capacity needs of the arrangement.
In the past these takeouts have been fully reinsured with one of Nephila’s Bermuda reinsurance entities, thus providing an efficient way to source Florida wind risk more directly than the ILS manager could through the typical renewal cycle.
The assumption of the 4,520 policies is scheduled for the 22nd August or later.
Previously, Nephila Capital through its MGA Velocity Risk Underwriters has participated and backed with reinsurance capital four takeouts.
First in in late February 2016, when National Specialty was approved to assume up to 17,534 wind-only policies from Citizens coastal account, which were then administered by Nephila’s Velocity Risk Underwriters.
Then a second takeout was approved in late March 2016, allowing National Specialty to takeout another 19,535 wind-only residential policies from Citizens coastal account. A third takeout was approved by the regulator at the end of August 2016, for up to 8,421 wind-only insurance policies from the Citizens coastal account.
Finally a fourth takeout was approved just at the end of September 2016 for 2,217 wind-only coastal account policies, with the takeout effective as of the 20th December 2016.
In all these cases we understand that the State National owned insurer National Specialty enter into a fully collateralised quota share reinsurance agreement with Nephila’s Bermuda domiciled reinsurance company (Ananke Re in some cases) for up to 100% of the risks involved, thus effecting the passing of the returns from the insurance business through to Nephila’s ILS fund strategies.
With this latest takeout Velocity could be administering over 52,000 ex-Florida Citizens wind-only coastal account residential property insurance policies, with Nephila and its investors benefitting from the returns derived through the reinsurance arrangements.
This allows Nephila to efficiently access reinsurance linked returns using its own MGA platform and the services provided by State National, helping it to extract property catastrophe insurance-linked returns more directly, while retaining more of the margin.
The takout model adopted by Nephila Capital remains a model for how ILS capacity and the capital markets can find a way to shorten the risk-to-capital value chain, acquiring property catastrophe risk through more direct routes and outside of the typical reinsurance renewal cycle.
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