Markel Corporation intends to continue to cede retrocessional reinsurance business to its Lodgepine Capital Management start-up retro ILS investment manager and expects the full retro book to transfer to the ILS model in time, Co-CEO Ritchie Whitt said today.
Speaking during the Markel third-quarter 2021 earnings call, Co-CEO Whitt highlighted the challenging insurance-linked securities (ILS) market environment, but explained that ILS remains a core piece of the Markel re/insurance business.
Whitt explained that ILS capital, managed through its climate and catastrophe reinsurance focused investment manager Nephila Capital and now its retrocession focused start-up investment manager Lodgepine Capital Management, is helping the company to moderate its exposure to natural catastrophe risks and the derisking by shifting risk to ILS capital is going to continue.
Markel has previously announced a shift in catastrophe focus, to underwrite all property catastrophe reinsurance business at Nephila Capital, instead of on its own capital.
Markel still fronts some of that business, while more is sourced through its program services business under State National.
As we explained this morning, catastrophe premiums from the shift to Nephila have continued to build in the third-quarter.
Lodegepine Capital Management, meanwhile, launched earlier this year and for the moment is only contributing a small amount of ILS revenues for Markel, but Whitt said the plan is to increase that.
Lodgepine Capital Management launched its first ILS fund with third-party capital backing it this year, as the Lodgepine Fund began operations from July 1st with just under $100 million of capital.
That’s just the start and Whitt said that as Markel continues to proactively manage down its cat exposure, so far the company has, “transitioned a little less than half of the underwriting risk of our retro property reinsurance book,” to Lodgepine.
“In the future we plan for a transfer of the fulll retro book to the ILS model, with Markel acting as a minor investor in the fund,” Whitt added.
Tom Gaynor, Co-CEO, also commented that on the transitioning of catastrophe risks to Nephila and now also to Lodgepine.
“We’re about mid-way through that transition. So once we complete that transition, the activity from any kind of cat losses on the retro book will show up through investment results in future,” he explained.
Adding that, “If we complete the transitions, you wouldn’t expect to see much of any cat number next year, as we transition both of those to an ILS model.”
Separately, Whitt also commented on the challenging last few years for the ILS business.
“The past five years of elevated cat activity have been particularly difficult for ILS,” Whitt said.
But he added that, “Despite these challenges, we continue to identify new areas of opportunities to deploy capital and launch new investment opportunities, both within and outside of the catastrophe market, heading into 2022.”