Nephila writes $756m of Florida Citizens renewal, Berkshire takes $1bn

Insurance-linked securities (ILS) investment management specialist Nephila Capital has written just over $756 million of the $2.98 billion reinsurance placement by Florida Citizens at the renewals in 2023, but Berkshire Hathaway was the largest participant with a huge $1 billion line.

For Nephila Capital, the Markel-owned ILS manager, this was its biggest participation in the reinsurance tower of Florida’s Citizens Property Insurance Corporation, we believe.

A year ago, Nephila took $450 million of Florida Citizens’ reinsurance program, which was a decline on the $600 million line Nephila wrote for Citizens’ program in 2021.

This year’s $756.3 million was split up into $634.4 million written for the Citizens Coastal account and $121.9 million for its Personal Lines Account.

Nephila Capital was not the largest participant in Florida Citizens reinsurance renewal though, that was Warren Buffett’s Berkshire Hathaway which took a $1 billion line of the Personal Lines Account section of the program.

Berkshire Hathaway’s $1 billion line far outstrips other traditional reinsurers, as Swiss Re only took $147.65 million, Munich Re $118.87 million, Ariel Re $115.25 million, Everest Re $89.88 million, and Hannover Re $78.85 million of the towers.

ILS funds and collateralized reinsurance markets took a significant share, with in total $1.195 billion of the Florida Citizens reinsurance renewal going to entities backed by ILS capital, it appears.

Nephila was the largest ILS market participant by far, with its $756.3 million participation in the Citizens reinsurance towers.

Next, was D. E. Shaw taking just under $300 million, then Aeolus Capital Management at just under $60 million, followed by Stone Ridge Asset Management’s Longtail Re vehicle at just under $30 million, then LGT ILS Partners reinsurer Lumen Re at $23.53 million, next Leadenhall Capital Partners at $11.9 million, investor Quantedge at $10 million, Credit Suisse ILS’ reinsurer Bernina Re at $2.46 million, and finally Eskatos Capital Management at $1.2 million.

Which all means that, once again the ILS market remains a dominant force in supplying Florida Citizens reinsurance needs for 2023, given the insurer of last resort also has over $2.4 billion of catastrophe bonds still in-force.

Florida Citizens has now got over $5.38 billion of reinsurance protection, from traditional and ILS markets for 2023, just falling slightly short of its $5.644 billion target for coverage.

The ILS market therefore contributes almost $3.6 billion of the total reinsurance protection for this hurricane season, which is almost 67%.

Florida Citizens noted that its 2023 private risk transfer program cost was “significantly higher” than a year earlier, based on the gross rate-on-line. The 2023 gross ROL was 12.69%, up from the previous year’s 8.96% for 2022.

Citizens said that moderate growth of its Coastal Account during 2023 led to a price increase of approximately 20.65% on a risk-adjusted basis, while significant growth in the Personal Lines Account during 2023, plus surplus erosion associated with recent storms and increased litigation, as well as market conditions led to a risk-adjusted price increase of approximately 28.59%.

The reinsurance placement for 2023 cost Citizens roughly $650 million.

The Board had approved Citizens to seek a total of $5.644 billion of coverage at a cost of no more than $675 million, so the insurer has secured slightly less reinsurance than it was authorised to, but at a spend $25 million below the top-end of the budget.

Citizens said that the $5.38 billion of risk transfer it has secured includes $4.23 billion of new placement and $1.150 billion of existing, multi-year coverage from 2021 and 2022, which were some of its catastrophe bonds.