Nephila Capital ILS fund revenues keep rising, even as soft market evident in fronted premium

Nephila Capital’s insurance-linked securities (ILS) fund management business continues to deliver in 2026, as revenues reported within parent Markel’s quarterly results showed yet another increase of nearly 40% to $42.2 million for the third-quarter, even as the soft reinsurance market becomes increasingly evident in the volume of premiums fronted to Nephila’s reinsurers.

After the first-quarter of this year, Nephila Capital’s insurance-linked securities fund management revenues had risen by an impressive 59% year-on-year, to reach $40.5 million for Q1 2026.

Then, for the second-quarter, ILS fund management revenues generated by Nephila Capital reached $37.7 million, a 23% increase on Q2 2025’s $29.1 million, while the first-half 2026 total reported of $78.1 million was a 30% increase over H1 2025’s ILS fund revenues of $54.6 million earned by the Nephila Capital business.

Over the course of the first nine months of 2026, Nephila Capital has now generated $120.3 million in ILS fund management revenues for its parent Markel, an almost 42% increase year-on-year from $85 million by the end of September 2025.

The third-quarter of the year is likely a period where more performance fees have an effect for Nephila’s business, given the seasonal premium accrual that benefits reinsurance contracts at that time of year.

This naturally suggests the investors backing Nephila’s range of ILS fund strategies will have been seeing positive returns all year, given how the fund management revenues have been rising.

This trend has been persistent through the last year or so, for ILS related earnings to be increasing over the prior year quarters, as Nephila Capital has naturally benefited from the higher inward rates it had been earning from underwriting business of recent years, the way it has been able to leverage its underwriting using its infrastructure to write more premium, as well as the more benign major catastrophe loss environment.

But, with property catastrophe reinsurance rates now softened and that expected to persist into 2027, it will be interesting to see how ILS management fee income related earnings adjust through 2027, for Nephila Capital and other players in the space.

Nephila Capital’s premium volumes assumed via the fronted programs operated through parent Markel’s business infrastructure fell again in the third-quarter of 2026.

The trend of Nephila’s reinsurance entities assuming more premiums through these fronted programs began to reverse in recent quarters, as Markel said rate decreases reduce the volumes.

Recall that, in full-year 2025, Markel fronted 42% more in gross premiums for Nephila entities and ILS structures, as the manager expanded its stature further in the reinsurance market.

But then through quarters in 2026, the softening pricing in the catastrophe reinsurance market has meant these fronted premium volumes have fallen behind the prior year.

For the third-quarter of 2026, Markel reported $58.5 million of premium was ceded to Nephila’s reinsurers, down from $162.9 million in Q3 2025.

Year-to-date in 2026, the figure stood at $1.1 billion by September 30th, again a decline from 9-month 2025’s $1.8 billion.

Markel again cited “lower premiums on our property catastrophe programs with Nephila driven by rate decreases.”

However, while the softer market pricing in reinsurance is a factor, there is another to consider as Nephila has other fronting arrangements in place which could account for at least some of the decline.

As we had reported, Nephila also struck up a fronting relationship with Enstar and utilised its Cavello Bay reinsurer entity to front risk for it this year, first seen in Florida Citizens reinsurance placement.

As Nephila looks to diversify its routes to market, including fronting partnerships, we may find it more of a challenge to know just how much of the premium decline reported by Markel is actually due to the soft market pricing and how much may be due to certain reinsurance deals being fronted elsewhere.

The reinsurance recoverable due from Nephila Capital’s reinsurance entities that Markel reports on its balance sheet has declined further, continuing to reflect the effect of commutations made and losses being realised from the past, as we saw begin to take effect in 2025.

The reinsurance recoverables due to Markel from Nephila reinsurers had fallen to $241.9 million by June 30th 2026, but by September 30th had declined further to a recent historical low of $187.2 million.

It seems that Nephila Capital may have increased some of its hedging arrangements in the third-quarter, as Markel reported that fronted ceding reinsurance contracts for industry-loss warranty (ILW) or other retrocession arrangements for the Nephila reinsurers were $18.8 million of gross premiums in Q3 2026, up on the prior year’s $7 million.

Year-to-date, Markel reported that gross premiums written through fronted ceded reinsurance contracts, primarily in the form of industry loss warranties, had reached $36.8 million by September 30th, down from $81.5 million for 9-months 2025.

Markel cited the “higher management fees for our insurance-linked securities investment management services” in commenting on the results for its financial segment, which contains the Nephila Capital and State National businesses.

The Nephila Capital business remains a source of attractive and diversified income for Markel, being the only business unit with a reinsurance underwriting focus these days.

Nephila Capital had increased its third-party assets under management to $7.9 billion as of June 30th 2026.

Markel also reported in its Q3 results that it has entered into an adverse development cover reinsurance agreement with Cavello Bay, Enstar’s reinsurer, to cover subject reserves totalling $4.8 billion from its run-off Global Reinsurance business and some exited lines within its insurance operations.

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