Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Nephila Capital sees opportunities to grow asset base


Nephila Capital, the world’s largest manager of catastrophe and weather insurance or reinsurance linked assets, sees opportunities emerging which will allow it to grow its asset base and accept new capital from third-party investors.

Nephila Capital has been holding its catastrophe and weather risk ILS and reinsurance linked assets steady at between $9 billion and $10 billion for the last couple of years, as it recognised that the softened and competitive state of the market meant raising new capital was not as attractive at this time.

Speaking in an interview with Environmental Finance magazine, Barney Schauble, Managing Principal at the firm and responsible for Nephila’s weather risk fund, explained that the approach of keeping assets under management steady has been welcomed by the firms investors, but that now Nephila sees opportunities and reasons to open up to allow more capital in.

“We see some specific opportunities, so we’re planning to open up the fund to additional capital this year,” Schauble explained.

Nephila Capital see new or incremental opportunities, which could require additional capital, in both property catastrophe and weather risks, according to Schauble.

In the interview he cites renewable energy as an area of opportunity, both for the weather or property risks associated with supply, as well as weather risk associated with generation of power. Schauble also cites the participation of Nephila Capital in the African Risk Capacity reinsurance transaction as an example, as well as Nephila’s participation in the Lloyd’s initiative looking at emerging market catastrophe and weather risk transfer.

Schauble also discusses the launch of Nephila’s MGA, Velocity Risk Underwriters LLC, as an example of bringing Nephila working to create ways to transfer risk more efficiently to the capital, another initiative that will, we suspect, bring new opportunities for additional capital to be deployed in due course.

Finally, Schauble discusses insurance technology (insurtech) and explains that Nephila Capital has been investing here to differentiate its offering to investors and to cedents. As insurtech becomes increasingly important in both insurance and reinsurance markets and the gap between risk and capital narrows, Nephila is seeking to position itself to capitalise on that trend, which again will likely enable it to increase its assets under management further down the road.

The fact that a manager like Nephila Capital believes there are new opportunities to deploy more capital emerging likely means increased opportunity for everyone. That should be viewed as positive by the entire insurance-linked securities (ILS) and traditional reinsurance market.

With the catastrophe reinsurance and weather risk transfer markets being limited in size and with the high-levels of traditional competition and softening of reinsurance pricing, the opportunities to deploy additional capital, at attractive returns, can become more limited when ILS manager funds reach a larger size.

However, innovation, increased education on the collateralised reinsurance and ILS product, as well as increased familiarity of risk transfer options, will all contribute towards increasing demand.

Of course in order to capitalise on any increased demand for capacity and capital the skill sets to underwrite the risks are required. That’s an area where Nephila Capital has been putting in a lot of effort in recent years, building out its team and expertise even while keeping its assets relatively static.

When new opportunities do present themselves, Nephila will want to be ready.

Also read:

Nephila gets closer to the risk with Velocity MGA, plans Florida takeout.

State National & Nephila Capital extend program business partnership.

Nephila Capital uses Lloyd’s syndicate for ARC reinsurance renewal.

Nephila Capital in 10% follow-form arrangement with Amwins.

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