Nephila Capital vehicle buys Universal Insurance Holdings shares

Nephila Capital, the largest investment manager focused on natural catastrophe reinsurance and weather risks, continues to demonstrate that there are more ways to access the returns of catastrophe insurance business than simply signing on reinsurance programs.

In an announcement published late yesterday, Florida based primary insurer Universal Insurance Holdings disclosed that it has sold 1 million shares in its common stock at a price of $19.00 per share, in a privately negotiated transaction, to Ananke Catastrophe Investments Ltd., an affiliate of Nephila Capital Ltd.

Universal said in the announcement that the deal will benefit it threefold, it will boost its book value per share, help it to further reduce its reinsurance costs specifically the use of quota-share reinsurance, as well as assist the insurers goal of expanding geographically outside Florida.

“This investment by Nephila, the premier investment manager within the global property reinsurance space, underscores the strength of our longstanding partnership and their confidence in Universal,” said Sean P. Downes, the Company’s Chairman, President and Chief Executive Officer.

The investment by Nephila is also beneficial to Universal’s shares. Downes explained; “By using shares held in treasury from prior repurchases, this transaction will immediately increase our book value per share by 7%.”

The investment in its shares will help Universal to accelerate its growth plans outside of Florida, as like so many other once Florida-focused primaries it seeks to grow into other regions of the U.S. There are also going to be further cost-benefits realised in terms of reduced need for quota-share arrangements.

“The transaction will also allow the Company to use the proceeds to accelerate its organic growth strategy through the combination of continued geographic expansion outside of Florida and further quota share reduction.  We are uniquely positioned in that a complete quota share reduction would allow us to retain an additional $230M of our own organically grown business,” Downes said.

Nephila Capital is already a key participant in Universal’s reinsurance arrangements, helping the insurer to benefit this year, as its efficient ILS capital enabled Universal to recognise significant savings at its last renewal.

It’s not clear whether there is any underlying agreement in terms of continued support for Universal’s reinsurance needs from Nephila Capital. But by leveraging its risk capital in new ways to provide support that helps Universal to grow, Nephila Capital will itself benefit from the strengthened relationship. Nephila also stands to benefit by assisting Universal to expand, which will in time see the insurers reinsurance capital requirements increase, an area where Nephila can benefit in years to come.

Nephila Capital has transacted a number of interesting deals in the last year where it has leveraged its risk capital in innovative ways to help partners grow, to gain access to new reinsurance business or to strengthen existing relationships it has with companies that could become key producers of new risk for the firm.

Also read:

– Reinsurance capital, ILS & Nephila Capital help State National grow.

– Nephila taps catastrophe risk returns in deal with State National Companies.

– Nephila Capital helps Universal to extraordinary reinsurance cost reductions.

– Nephila Capital investing in Florida takeout insurer Heritage’s IPO.