Markel Corporation has estimated that the recent sale of ILS fund manager Nephila Capital’s managing general agency (MGA) Velocity Risk Underwriters LLC to funds managed by Oaktree Capital Management, L.P. has netted the company around $180 million.
Oaktree Capital Management, L.P., a leading global investment manager specialised in private equity and alternative investments, purchased a majority stake in Velocity Risk in a transaction that closed on February 1st.
Nephila Capital set up and launched its MGA Velocity Risk Underwriters LLC in 2015, as the largest insurance-linked securities (ILS) investment fund manager in the market sought out new routes to gain access to catastrophe exposed property risks more directly.
Velocity was developed as a pipeline for more direct access to primary sources of risk for Nephila, to provide a more efficient way to deploy the manager’s third-party investor backed reinsurance capital.
After Markel acquired Nephila Capital in 2018, the ultimate ownership benefits related to Velocity Risk flow through the company.
The sale price of Velocity Risk to Oaktree Capital was not disclosed at the time, but Markel has now reported that it places an estimated value of $180 million on its share in the MGA that was sold.
Markel retained a minority interest in Velocity Risk Underwriters and the MGA will continue to act as a source for risk origination for the Nephila Capital ILS fund management operations.
Markel said that Velocity Risk had been a source of growth within its ILS operations and the company is likely hoping that with the investment Oaktree can plough into the MGA, its platform can continue to grow, while maintaining a close relationship with Nephila.
Interestingly, Markel increased the carrying value of goodwill attributed to the Nephila Capital unit in 2021, reporting it as having reached $413.2 million at December 31st 2021, which is up from $401.9 million at the end of 2020.
Markel said that, it performed a quantitative assessment of the Nephila reporting unit, the primary component of the Nephila Capital operation, and reassessed this in conjunction with the planned disposition of the Velocity managing general agent operation, but found that fair value of Nephila continued to exceed the carrying amount, suggesting the Velocity sale proceeds are seen as being balance-sheet positive for the company.
The sale of Velocity is a prime example of the value created by Nephila Capital within its insurance-linked securities (ILS) operations, as the manager constructed its own pipelines to originate risk through so it could be matched with its investors’ capital.
Also read: Sale of Nephila Capital’s MGA Velocity Risk to Oaktree completes.
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