Markel’s sale of Nephila-owned MGA’s valued them around $384m

After Markel Corporation sold off the managing general agent (MGA) platforms created and owned by its flagship insurance-linked securities (ILS) investment manager Nephila Capital, it’s now become clear the combined value of the MGA’s was around $384 million.

Following the sales of the MGA platforms, that ILS manager Nephila Capital had created and held controlling interests in, and with the winding down of the CATCo funds and Lodgepine, the insurance-linked securities (ILS) business at Markel now solely consists of Nephila’s fund management operations, marking a return to a more pure-play ILS approach.

Markel first sold a majority stake in Nephila Capital’s managing general agency (MGA) Velocity Risk Underwriters LLC to funds managed by Oaktree Capital Management, L.P., a move which it previously said had netted the company around $180 million.

Now, Markel has provided a little more visibility into the profits made, as well as what its remaining minority stake in MGA Velocity is worth.

Markel said that selling the majority of its controlling interest in its Velocity managing general agent resulted in a total cash consideration of $181.3 million.

But, while the remaining ownership retained by Markel had been assumed to be relatively small, Markel has now said that its minority interest in Velocity had a fair value of $47.4 million as the transaction date.

Against the $181.3 million netted for the sale of the majority share to Oaktree, Markel’s remaining stake in Velocity Risk Underwriters now looks to be roughly 26%, as of the date of sale, which is a still meaningful stake in the company.

Importantly, Velocity Risk Underwriters will continue to provide risk origination services for the Nephila ILS funds, so a significant amount of value was recognised as well as a stake retained, plus the source of original risk from further up the value chain kept open.

Overall, that sale appears to have valued the Velocity MGA operation at close to $230 million, reflecting the significant franchise value created in Velocity over its relatively short lifespan since Nephila Capital launched the MGA in 2015.

In March, it was announced that Markel owned ILS manager Nephila Capital had sold its ownership stake in multi-class international MGA platform Volante Global to broking group Acrisure.

Nephila Capital’s holding company had been the majority equity owner in Volante since its launch and the sale of Volante to Acrisure marked Nephila’s exit from direct MGA ownership (although the Velocity stake owned by its parent Markel remains meaningful, of course).

Volante had written around $250 million in premiums in 2021, but no valuation was given to the sale.

Now, while acknowledging that Volante had been a source of growth for Nephila, Markel has revealed that the estimated consideration from the sale of the MGA platform is expected to be $155 million.

A stake in Volante was not retained by Markel, possibly due to it being a less-core source of risk for the Nephila ILS funds than Velocity.

But the move completes Nephila’s transition back to a more pure-play ILS management platform, with its parent now retaining the MGA stake in Velocity, which alongside Markel’s ownership of State National will likely remain key conduits to risk for the Nephila ILS funds going forwards.

But, onto the value realised by Markel from selling these MGA operations that Nephila had developed.

Taking the $181.3 million value of the majority stake sold in Velocity, plus the $47.4 million retained stake in that MGA, as well as the $155 million estimated value of the Volante Global sale, it looks like Markel has realised roughly $384 million in value from Nephila Capital’s MGA ventures.

That is a considerable sum and given Markel disclosed that its acquisition of Nephila Capital cost it a total consideration of $975 million back in 2018, the MGA platform sale and realisation of value in the remaining Velocity stake has paid back almost 40% of the purchase price, which is a significant amount.

Nephila Capital now moves forward still with access to US catastrophe exposed property risk via the Velocity Risk platform, but with a purer concentration on its fund management operations, and lower operational overheads overall.