Nephila Capital targets further growth for Syndicate 2357 at Lloyd’s

Nephila Capital, the largest dedicated investment manager in the insurance-linked securities (ILS), weather and catastrophe reinsurance space, is targeting further growth for its flagship Lloyd’s of London Syndicate 2357 in 2021, with its stamp capacity lifted to almost $672 million this year.

Nephila Capital has made Syndciate 2357 an integral part of its infrastructure, helping it flow reinsurance premiums around the world in an efficient manner.

It’s not all about access to underwriting business in the Lloyd’s market, which is the goal of some in the ILS fund and investments space. Rather it has been about making best use of available platforms to heighten the efficiency of reinsurance capital for Nephila.

As a result, Nephila’s use of its syndicate at Lloyd’s is particularly sophisticated, with Syndicate 2357 playing an important role in how the ILS fund manager cedes risk between its operations around the world. Which means that the performance of the syndicate isn’t as clear-cut as it may seem at first glance, as the benefits to Nephila are greater than the profits or loss of the syndicate alone.

Stamp capacity is an important measure of the importance of the Lloyd’s market to Nephila, as the ILS manager flows an increasing amount of business through that marketplace.

Stamp capacity for Syndicate 2357 was $536 million in 2019, then $575.3 million in 2020.

But for 2021, Nephila is targeting stamp capacity for Syndicate 2357 of $671.8 million, one of the largest year-on-year increases for a while.

Nephila Capital’s flagship syndicate at Lloyd’s has suffered due to the catastrophes in recent years, when looking at the reported results.

Syndicate 2357 reported a 2018 loss of $155.2 million, a 2019 loss of almost $84.4 million and most recently a just over $41.5 million loss for underwriting year 2020.

The results have improved markedly, but this is in-line with industry catastrophe loss experience and to be expected.

In recent years, Nephila has been flowing an increasing amount of its insurance related business sourced through its MGA Velocity via the Lloyd’s marketplace.

In 2020, MGA Insurance business resulted in almost $222 million of premiums booked through Syndicate 2357, up from $159 million in 2019.

While the insurance side of Nephila’s Lloyd’s syndicate grew further in 2020, reinsurance premiums actually fell slightly, to $300 million in 2020, down from almost $315 million in 2019.

In 2020, the reinsurance segment performed much better, as Nephila’s MGA insurance unit took some impacts from the COVID-19 pandemic, as well as the active hurricane season in the United States.

The reinsurance business that flowed through Syndicate 2357 at Lloyd’s experienced a positive result of almost $60.9 million for 2020, where as the MGA insurance business fell to an almost $103.5 million loss.

Nephila reinsures the syndicate’s business itself, using the Demeter Re vehicle in Bermuda to provide collateralised quota share reinsurance to it.

While at the same time, much of the syndicate’s capital is provided by another Bermuda vehicle of Nephila Capital’s, Poseidon Re.

Syndicate 2357 continues to play an expanding role in Nephila Capital’s global risk capital infrastructure, helping the manager to benefit from the Lloyd’s licenses, leverage and central fund protection model, while providing an efficient hook through which business can be flowed back to its Bermuda underwriting vehicles as well.