Nephila cat premiums rise, AuM relatively flat at $8.5bn, revenue falls on MGA sale

Markel’s flagship insurance-linked securities (ILS) fund management operation Nephila Capital saw another significant rise in catastrophe reinsurance premiums underwritten during the second-quarter of 2022.

Markel has been channelling an increasing volumes of catastrophe exposed property business through the reinsurance vehicles owned by insurance-linked securities (ILS) manager Nephila Capital, after a strategic shift that saw Markel move all cat business to be written by Nephila.

Back in 2020, Markel announced that Nephila Capital would become the single point of entry for Markel’s access to property catastrophe reinsurance.

As a result, the amount of risk channelled to Nephila vehicles has been rising.

Markel reported yesterday that these programs, that are focused on catastrophe exposed property risk , saw gross premiums written through Markel insurers and then ceded to Nephila’s Lloyd’s Syndicate 2357 and other reinsurance vehicles operated by Nephila reached $317.7 million for the second-quarter of 2022, a slight increase from Q1, which was significantly higher than the $186.7 million written a year earlier.

For the first-half, gross catastrophe reinsurance premiums ceded to Nephila vehicles through these programs reached $633.3 million, up from $304 million a year earlier.

This program approach to pushing all catastrophe risk exposure to Nephila, sees Markel putting its entire insurance infrastructure to work to efficiently move risk to capital in vehicles operated by the ILS manager.

It makes for an efficient way to bring risk from nearer the front of the chain to Nephila ILS strategies and also makes use of Markel’s program writing and management infrastructure as well, so delivers revenues into its State National unit too, enabling the company to recognise synergies via what is a newer way for Markel to derive profits from cat exposed property risk underwriting.

Nephila Capital’s overall ILS assets under management (AuM) was relatively flat through the second-quarter of this year, dipping slightly to $8.5 billion at June 30th 2022.

That’s only a $100 million drop in the last quarter, which suggests some inflows were likely had as the churn of capital from previous years of significant global catastrophe losses continue to play out.

Revenues earned for Markel through the Nephila Capital ILS operations are down though, which is at least partly a reflection of the sale of the MGA’s, Velocity Risk and Volante Global.

In 2022, total revenues attributed to unconsolidated entities managed by Nephila were $17.5 million and $39.9 million for the second-quarter and first-half of the year, respectively. A year earlier these figures were $42 million and $70.7 million, respectively.

But, with Nephila Capital now a pure-play ILS fund manager again, since the sale of the Velocity MGA operation, which drove a $107.3 million gain for Markel, there are greater synergies at play between Nephila and the Markel program fronting business, it seems.

This is evidenced by gross written premiums from Markel’s other fronting operations, which consists of business written by its underwriting platform on behalf of the Nephila ILS operations, were $41.4 million and $214.5 million for the quarter and six months ended June 30th 2022, respectively, far higher than the $21.8 million and $44 million of the prior year period.

This is also partly down to the growth in Nephila’s catastrophe premiums sourced through Markel, again part of the more efficient mousetrap for catastrophe risks that the group has developed.

Overall insurance-linked securities (ILS) revenues at Markel $23.2 million for the second-quarter, and $60.2 million for the first-half, which are again both down on the prior year due to the Velocity Risk MGA sale, but offset by the $107.3 million of additional gain that supplied.

Going forwards, it will now be interesting to see whether the Markel ILS platform settles down, with Nephila as the pure-play ILS asset manager of the group.

The growing catastrophe premiums channelled to Nephila via Markel’s infrastructure, including its program and fronting business, will supply revenues and if Nephila can return its AuM to growth, we should see revenues develop very positively as well, catastrophe loss activity allowing, of course.