ILS fronting specialist State National grows program services in 2016


Specialist primary insurer State National Companies, which provides fronting and program services to the world’s largest insurance-linked securities (ILS) fund manager, Nephila Capital, saw revenues from its Program Services unit increase by 7.9% in 2016.

For the full-year 2016 the firm reported that its Program Services unit recorded revenue of $73.3 million, up 7.9% or $5.4 million on 2015’s figure. During the final quarter of last year its Program Services segment also saw its revenue increase to $20.9 million, growth of $2.3 million or 12.3% when compared with Q4 2015.

The specialist insurer said that growth in revenues within its Program Services segment was driven by higher ceding fees from both its new and existing client programs, which suggests that State National continues to benefit from its fronting relationship with ILS and catastrophe risk investment manager, Nephila Capital.

Terry Ledbetter, Chairman and Chief Executive Officer (CEO) of State National said; “From an operational perspective, growth in our Lender and Program Services segments led to significant earnings increase over the prior year. In Program Services, ceding fees grew 12 percent in the fourth quarter and 8 percent for the year compared to last year. We continued to grow existing programs and build new client relationships for fronting programs.”

Unfortunately and unlike previous earnings releases from the company, State National’s Q4 and full-year 2016 release fails to break down the revenue it received from its individual relationships via its Program Services business, only revealing that overall, the segment grew in 2016.

Artemis reported roughly this time last year that State National’s relationship with ILS manager Nephila Capital continued to drive additional revenue, and the relationship appears to be consistently growing in strength since its inception in the second-quarter of 2014.

The working program and relationship between State National and Nephila is a sign of how reinsurance and ILS can have a symbiotic relationship, and provides both entities with benefits. Nephila is able to access risk more efficiently and outside of the typical reinsurance cycle, while State National can take advantage of additional fee income.

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