Nephila Capital is set to become the single point of entry for Markel to access property catastrophe reinsurance, as the company shutters its Markel Global Reinsurance property CAT unit and creates a centre of excellence for catastrophe risk under the ILS fund manager.
Markel acquired the largest insurance-linked securities (ILS) and reinsurance linked investment fund manager Nephila Capital in an acquisition that closed in early 2018.
Since then, Nephila Capital’s ILS operations have become a key component of the Markel operation and this latest move, of placing all property catastrophe reinsurance business under Nephila is a clear demonstration of just how important the ILS manager is to the overall Markel Corporation strategy.
“This move allows us to more fully leverage Nephila’s market leading competitive position while also generating necessary operational efficiencies,” explained Markel Co-CEO Richie Whitt. “We believe the companies that will win in the future will be those who most efficiently connect risk with capital, and this strategic shift will help us do that in the property CAT market.”
Markel Global Reinsurance will increase its focus on underwriting and growing its casualty and specialty reinsurance lines portfolios, under the leadership of Jed Rhoads, president and chief underwriting officer, Markel Global Re.
“The process to shift to our new model will begin immediately and we will ensure that it’s completed in a professional, orderly, and seamless fashion,” Rhoads said. “I want to express my deep thanks and appreciation to our property CAT clients, trading partners, and employees for their years of loyal support.”
A number of Markel Global Re property underwriting team employees may now have the opportunity to join the Nephila team, the company said.
But Markel added that this change will drive around 25 job reductions globally, with affected employees set to depart the company on December 31st 2020.
“We are committed to working with and assisting employees affected by this change,” Whitt said.
Markel sees the move as creating a single centre of expertise for the global property catastrophe (CAT) reinsurance market, all under the Nephila brand.
Nephila is already a recognised leader in the property catastrophe reinsurance underwriting space and given its access to diverse capital sources, including the capital markets and its market infrastructure that includes fronting, a Lloyd’s syndicate, its collateralized funds etc, the ILS manager is well-positioned to lead property cat writings for the Markel group.
Whether this means Nephila will be able to write property catastrophe reinsurance for Markel’s balance-sheet, as well as its third-party capitalised ILS funds isn’t completely clear.
But this might make sense, as Nephila could benefit from some leverage and the rated fronting of a Markel underwriting entity, while deploying its own third-party investor capital increasingly efficiently as well.
However the mechanics of this move work, whether all the catastrophe risk now flows to Nephila’s ILS funds in future, or in part to a rated balance-sheet, for example, the move is significant and underscores the importance of Nephila Capital to the Markel Corporation.