Here’s an interesting twist in the world of collateralized and capital market backed reinsurance business as the largest investment manager in the ILS sector Nephila Capital becomes active in the Lloyd’s reinsurance market by backing a new syndicate. Announced this morning, the Lloyd’s Franchise Board has granted “in principle” approval for Asta Managing Agency Ltd. to set up and manage a new Lloyd’s syndicate 2357 backed by Nephila Capital.
This is the highest profile move into Lloyd’s by an established ILS and reinsurance-linked investment manager that we’ve heard of. We know some others have small interests in Lloyd’s vehicles through their own investments, but by backing a new syndicate outright Nephila Capital is giving its investors access to a new source of business. Given the size of Nephila Capital, with an estimated $8 billion assets under management today, it needs to operate across the reinsurance market to ensure access to deal flow for investors. Lloyd’s is one of the areas of the market which has not been tapped by the ILS and collateralized markets in a big way, until now.
Interestingly, the business that syndicate 2357 will underwrite is going to be catastrophe excess of loss reinsurance and aimed at clients who find their requirements for cover cannot be fully satisfied by the conventional reinsurance markets. That’s exactly the role that many collateralized and investor backed underwriters like Nephila Capital play in their day-to-day business, but by accessing Lloyd’s the opportunities to write this business may be broadened.
The syndicate intends to underwrite using what sounds like Nephila Capital’s CWIL (county weighted industry loss) product. The announcement we received this morning describes the business written as “A more sophisticated version of an Industry Loss Warranty (ILW) that not only reflects the size of insured loss but also reflects the geographic distribution of the cedant’s business to create a tailored index”, which sounds awfully like CWIL. Nephila Capital has been writing this type of business for a number of years and the new syndicate will put a substantial proportion of its assets into renewals of the existing portfolio of these ILW contracts.
Asta will act as the managing agency for the syndicate and it is expected to start trading once operational issues are all in place. The syndicate will launch with a capacity (or a stamp gross premium) of around $100m.
Frank Majors, co-founder and Principal of Nephila Capital, will be the syndicates Active Underwriter. Also announced today, Nephila Capital has hired Adam Beatty, who joins from a managing director roles at Willis Capital Market & Advisory. Adam will be based in London and will act as a point of contact for Asta and Lloyd’s. He will also support Nephila’s communications with investors and trading partners in Europe.
Stephen Cane, CEO of Asta commented on the new syndicate; “We are delighted to have guided the syndicate to this key stage in Lloyd’s application process. The new syndicate brings an innovative business product into Lloyd’s, which sits well with Lloyd’s strategy for future growth and product development as envisioned in the Vision 2025 plan, by introducing business that will compliment, rather than compete with, existing business lines. In addition, the backing from Nephila brings together the skills of the capital markets and converges them with the re/insurance markets to create new revenues backed by a sophisticated investor base.”
Frank Majors added; “We recognize the benefits of operating within Lloyd’s and are excited to be bringing this new syndicate to the Market in conjunction with Asta.”
This is a fascinating move by Nephila Capital, who only the other week sold 24.9% of its business to private equity and buyout giant KKR & Co. L.P. (or Kohlberg Kravis Roberts). By moving into Lloyd’s operations Nephila gains a new source of underwriting business at a time when investment in Lloyd’s of London is growing in attraction and receiving greater interest. Lloyd’s, as a reinsurance market, is receiving increasing interest from large institutional investors in recent months. The Lloyd’s market could also give Nephila a way to utilise its assets to underwrite business which perhaps may not come its way as a collateralized reinsurer, given Lloyd’s rated nature and the long-standing reputation of the market.