Nephila syndicate 2357 writes 27% more, delivers $55.5m profit in 2021

Nephila Capital, the largest dedicated investment manager in the insurance-linked securities (ILS), weather and catastrophe reinsurance space, has reported a more profitable year for its flagship Lloyd’s of London Syndicate 2357 in 2021, as its premiums written also soared year-on-year.

For full-year 2021, Nephila Capital’s Lloyd’s Syndicate 2357 wrote $662.7 million of gross premiums, up by 27% on the $521.8 million written in 2020.

Not only was more risk assumed, or flowed through, the Lloyd’s of London syndicate for Nephila, it was more profitable business, as the end of year report shows a combined ratio of just 86.5% for 2021.

As a result, Nephila’s syndicate 2357 delivered a $55.5 million profit for the last year, much improved on a $41.5 million loss for 2020.

In 2021, syndicate 2357 wrote $287 million of MGA linked insurance premiums and another almost $376 million of reinsurance premiums, with both an increase on the prior year.

Nephila Capital has positioned Syndicate 2357 as a key component of its reinsurance market and investing infrastructure, helping it to flow insurance and reinsurance premiums around the world in a more efficient manner, while also benefiting from Lloyd’s licensing and central fund.

It’s not all about gaining access to underwriting business in the Lloyd’s market either, which is the goal of some in the ILS fund and reinsurance investments space.

Rather, syndicate 2357 has been about making best use of available regulated platforms to heighten the efficiency of reinsurance capital for Nephila and ultimately its investors.

So, Nephila’s use of this syndicate at Lloyd’s is particularly sophisticated and Syndicate 2357 plays an important role in how the ILS fund manager cedes risk between its underwriting structures and operations around the world.

Which means that the performance of the syndicate isn’t always as clear-cut as it may seem at first glance, as the benefits to Nephila’s platform can be greater than the profits or loss of the syndicate alone.

It’s particularly challenging to assess how quota share reinsurance with Nephila’s own reinsurer Demeter Re and excess-of-loss reinsurance with Nephila’s Poseidon Re, factor into the true benefits of the syndicate and how underwriting returns flow back to the benefit of the ILS managers investors.

But the 2021 underwriting year was clearly a much more profitable one for the business that flowed through syndicate 2357, which will have benefited Nephila’s funds and investors as well.

It’s particularly notable to see the profit, despite Nephila Syndicate Management explaining, “The result was impacted by an above average year for natural catastrophe claims, across both the MGA and Reinsurance class particularly as a result of multiple landfalling hurricanes in the United States.”

For 2022, Nephila’s syndicate 2357 is not significantly expanding its stamp capacity, with $655.4 million available, which is slightly up on a comparable exchange rate basis to the prior year it seems.

But with Nephila Capital having now offloaded its majority stakes in two of its MGA’s, Velocity Risk and more recently Volante Global, it’s possible the syndicate at Lloyd’s may get a little less use on the MGA insurance side this year.

However, with reinsurance rates hardening globally, it’s possible the syndicate sees a little more action on the reinsurance side through 2022.

Syndicate 2357 continues to be a key conduit 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.

Now, Nephila also has its syndicate 2358, which is specialty lines focused and launched this year, so the ILS managers’ activities in the Lloyd’s market continue to grow.