Nephila writing cat reinsurance a cleaner, more efficient option for Markel: Execs

Placing ILS fund manager Nephila Capital as the single point of entry to the property catastrophe reinsurance market for Markel Corporation is seen as a “cleaner option” for the company and also a way of generating operational efficiencies, Markel senior executives said yesterday.

It was recently announced that Nephila Capital, the largest dedicated insurance-linked securities (ILS) and reinsurance linked investment fund manager in the market, would become the single point of entry for Markel to access property catastrophe reinsurance.

Beginning from the January renewals, Nephila will write all catastrophe reinsurance on behalf of Markel, 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.

Speaking during the Markel third-quarter earnings call yesterday, Co-CEO Richie Whitt explained the benefits of this shift of property catastrophe underwriting responsibility to Nephila.

“This move allows us to more fully leverage Nephila’s market leading competitive position,” Whitt said, adding that it will also generate “operational efficiencies” for Markel.

He continued to explain that, at Markel, “We believe that the companies that will win in the future are those who most efficiently connect risk with capital and this strategic move is going to help us do that in the property cat market.”

Connecting risk with capital in the most efficient manner is precisely what Nephila is so good at, having established numerous routes through which it can underwrite and leverage risk, to bring it back to the third-party investors in its ILS funds in the most effective way.

How the shift to Nephila will work was better explained by Jeremy Noble, Chief Financial Officer at Markel.

No property cat business will be renewed on Markel’s books from the 1/1 2021 renewals and Noble said that instead “if those clients are interested, Nephila will offer renewal quotes on that business.”

Noble gave an idea of the scale of the opportunity for Nephila and its investors, saying that the business in question amounts to around $200 million of reinsurance premiums.

This catastrophe driven premium will renew within the Nephila ILS funds, should Markel clients choose to do so.

“What that does for us, in terms of Markel’s balance sheet is it removes that volatility,” Noble said. “As we go forward, to the extent we want to take cat risk, it’s a cleaner option, I think, to do it within the Nephila funds.”

Noble added that this also shows a greater alignment with investors, which is true as the investors in Nephila’s funds now know that they are getting first option on any property catastrophe reinsurance opportunities within the Markel universe.

Noble also highlighted that it makes accounting for catastrophe risk much easier, as “it’s very easy to calculate how much capital I’m allocating to cat, whatever the investment is, it makes that that maths simple.”

Finally, Noble also said that it was an obvious choice, as “Nephila, with its management of roughly $10 billion of AuM, they have market presence, market clout that we were never going to be able to achieve at Markel Re. So, the logic just made too much sense, in terms of making that move.”