The world’s largest manager of catastrophe and weather insurance or reinsurance linked assets, Nephila Capital, is working towards a second takeout of policies from Florida’s Citizens Property Insurance Corporation, via its recently established MGA, Velocity Risk Underwriters LLC.
Velocity Risk Underwriters is set to administer a second Florida takeout to be undertaken by State National Companies insurer subsidiary National Specialty Insurance Company.
The first takeout of Florida Citizens policies for which Nephila Capital provided reinsurance risk capital occurred in late February 2016, when National Specialty participated in a takeout of Florida wind-only policies, administered by Nephila’s Velocity Risk Underwriters.
After taking out the policies in February, the State National owned insurer National Specialty entered into a fully collateralised quota share reinsurance agreement with Nephila’s Ananke Re reinsurer vehicles for as up to 100% of the risks involved.
Last week a second takeout was approved by the Florida Officer of Insurance Regulation, allowing National Specialty to takeout up to 19,535 personal residential policies from Citizens Coastal Account. Again these are wind only policies and the takeout is being effected through and administered by Velocity Risk Underwriters.
The policies will be taken out on the 21st June 2016 and continue Florida’s depopulation efforts, as it seeks to reduce the number of policies in state-created Citizens and transfer them back to the private insurance market.
Of course in this case, with a significant amount of the risk likely to be reinsured by Nephila (in a similar quota share style arrangement as the February takeout) and ultimately find its way into Nephila managed funds and investment strategies, the policies are being backed by risk capital in an efficient manner, which we’d assume helps Nephila to extract more premium value from the takeout reinsurance.
By leveraging a fronting-style insurer and its own MGA to effect the takeout, Nephila can reduce the frictional costs of acquiring a new pool of Florida wind risk, enabling its capital to get closer to the source of risk and avoiding the typical reinsurance market cycle and also saving on intermediary costs.
These takeouts, working with Nephila Capital, are also an efficient way for State National to increase the volume of policies that pass through its insurance organisation, while immediately reinsuring the bulk of the risk as the transaction is effected.
For Florida residents the takeouts not only pass the risk onto private insurance and risk markets, but also reduce the load on Citizens and lower the chance of the state-established insurer suffering a particularly bad hit when the next hurricane hits the state.
These takeout transactions are a prime example of ILS capacity and the capital markets shortening the risk-to-capital value chain, acquiring risk through more direct routes and outside of the typical renewal cycle.
With Nephila Capital seeing opportunities for growth this year, as we reported last week, transactions such as these and other innovative origination efforts will bring in new risk, which will ultimately assist the manager to raise new capital from its investors.