State National the “natural conduit between risk & capital,” says CEO

Terry Ledbetter, the Chairman and Chief Executive Officer (CEO) of State National Companies has described the firm as the “natural conduit between risk and capital,” highlighting its commitment and ability in providing fronting services for companies like Nephila Capital.

In fact, data from the company’s half-year results show that ceding fees from its relationship with the largest catastrophe and weather insurance and reinsurance linked investment fund manager Nephila increased year-on-year to $5.5 million, a gain of 6%.

Specialist provider of property and casualty insurance services, State National Companies, in its recent second-quarter and H1 2016 financial release, commented on the expansion of its relationships with both new and existing clients.

The firm provides fronting facilities and program services for providers of insurance, reinsurance, and insurance-linked securities (ILS) and institutional capital, enabling companies to access the returns of insurance underwriting business via a rated carrier.

“I am pleased with the progress we have made in our fronting business and with our sales process. Our industry has been transformed by new structures and platforms, which are beginning to compress the value chain between risk and capital.

“State National is the natural conduit between risk and capital because we are both a highly-rated and broadly-licensed insurance carrier. We believe that State National is well positioned for continued profitability and enhanced shareholder value,” said Chairman and CEO, Ledbetter.

During the second-quarter State National reported that total revenues from its program services arrangements totalled $16.9 million, up 3% or $500,000 on the same period last year.

Driving the increase, says the firm, was higher ceding fees from its relationships with new and existing client programs, which includes Nephila. Ceding fees from its arrangement with Nephila during the first-half of the year and the second-quarter totalled $5.5 million and $3.2 million, respectively, compared with $5.2 million and $3.2 million in 2015.

So it remains unchanged when compared with the second-quarter of last year, but actually grew by $3 million for the first-half of the year.

State National’s relationship with Nephila, the world’s largest insurance linked investment manager, continues to grow as the program reaches greater scale and the insurer earns increased ceding fees.

For Nephila, its relationship with State National enables it to access property insurance business using rated paper, utilising Nephila’s third-party sourced capital that provides the reinsurance to support risks underwritten.

The success of the relationship underlines the benefits that collaboration between reinsurance and ILS business can create, providing State National with revenue and Nephila with access to risk in the most efficient way possible.

The continued expansion and deepening of its relationship with Nephila Capital highlights the value and importance State National’s program services business adds to its balance sheet, and it’s success could see the firm enter into similar arrangements with other classes of risk, where alternative reinsurance capital providers would be keen to make the most of easier, and faster access to the risk.

By positioning itself as this “natural conduit” for facilitating capital’s access to insurance risk, State National stands to benefit from the disruptive trends affecting the reinsurance market, as increasingly the capital markets and ILS fund specialists seek to gain broader access to the original source of the risk, rather than participating purely in the renewal cycle.

Also read:

– State National buys first shell insurer for Nephila program.

– State National & Nephila deepen relationship as program scales.