Nephila Capital revenues rise again for Markel, as CATCo costs slow

Markel Corporation has reported rising revenues earned through the operations of its insurance-linked securities (ILS) and reinsurance investment manager Nephila Capital, with year-to-date the total reaching an impressive almost $125 million.

Markel has been fully reporting the revenue contribution it receives from the activities of the Nephila Capital ILS and reinsurance investing business, with the figure rising a little in Q3 2019.

A quarter ago, Markel reported that the Nephila Capital related ILS and collateralized reinsurance underwriting and management activities drove an impressive $38.8 million of revenue in Q2.

For Q3 of 2019 the figure has increased again to $42.7 million of Nephila related revenue for the quarter, taking the figure for the first nine months of 2019 to an impressive $124.7 million.

Also notable was the continuing steady expansion of Nephila Capital’s program business relationship with Markel-owned program and fronting specialist State National, with the work between the pair resulting in $126.4 million or premiums ceded to Nephila’s reinsurance strategies in the third-quarter, taking the first nine months tally to $360.6 million.

Markel continues to support the winding up of its Markel CATCo operations, with additional expense during the quarter and year so far.

Some income continued to be earned from the Markel CATCo business though, with Q3 2019 investment management and incentive fees earned from the Markel CATCo Funds of $10 million and $28.1 million for the first nine months of the year. It’s far below the levels earned in the prior year, as Markel CATCo’s assets under management shrink and run-off.

The process of getting to the stage of winding down Markel CATCo has not been without its costs though.

Markel reported that its insurance-linked securities (ILS) segment returned to profit, which takes into account the operations of both Nephila Capital and Markel CATCo, recorded total operating revenues of almost $55 million for the third-quarter, expenses of $46.1 million.

Costs from the Markel CATCo wind-up and additional oversight required there have added to expenses for Markel in its insurance-linked securities (ILS) operations.

For the first-nine months of 2019, ILS operating revenues reached almost $158.6 million for Markel, while ILS operating expenses were $159 million and the gap between the two figures has now narrowed significantly, having been much higher after the first-half of this year.

Nephila Capital’s business continues to fly, as evidenced by the robust income and revenues earned by Markel.

At the same time the Markel CATCo related expenses appear to be reducing, which should continue as the unit gets ever closer to its final run-off.

At the same time, the launch of new retrocessional reinsurance investment manager Lodgepine Capital Management will begin to deliver further ILS related revenues into 2020, with the new venture, which Markel has seeded with $100 million of capital, slated for its official launch at the 1/1 renewals this year.

Nephila Capital’s assets under management have remained relatively steady all year so far, with Markel reporting that they ended September 2019 at $10.5 billion under management.

Meanwhile, Markel CATCo’s assets under management have now shrunk to $3 billion as of the end of September 2019, as the impacts of losses and the running off of its portfolios of retro reinsurance risks continue.