Lloyd’s of London Syndicate 2357, backed by the largest manager of catastrophe and weather insurance or reinsurance linked assets, Nephila Capital, more than doubled its full-year profit in 2015 and has increased its stamp capacity for 2016 by 68% to $178.9m.
Syndicate 2357 at Lloyd’s is 100% backed ILS investment manager Nephila Capital. It was launched in 2013 and began underwriting in the second half of the year, underwriting industry loss warranties written on a county basis, often known as CWIL (county-weighted industry loss).
Since then the syndicate has expanded its remit a little, writing property catastrophe reinsurance, other reinsurance and also some weather risks.
The full-year 2015 syndicate 2357 results show that Nephila’s steady approach to growing the syndicates size and remit at Lloyd’s is paying off.
Profit rose by 110% to $16.703m for 2015, more than double the $7.962m the syndicate earned in 2014. Premiums written increased by slightly more, being up 119% at $73.098m for 2015, compared to $33.355m in 2014.
The slight difference in premium growth rate, being higher than profit growth, is likely a reflection of the softer reinsurance market rates, particularly in property catastrophe risks.
Also reflecting the impact softer reinsurance rates has on Lloyd’s syndicate profitability is the fact that Nephila Capital’s syndicate 2357 also had a lower combined ratio in 2015, at 31% compared to 54% in 2014.
But with Nephila Capital’s investment funds and ultimately end-investors benefiting from the access to Lloyd’s and the Lloyd’s market benefiting from the access to efficient capital markets backed capacity, the syndicate 2357 business plan appears to be progressing nicely with growing profits delivered.
Almost $46.2m of the premiums written during 2015 are classed as purely reinsurance, $26.6m are property catastrophe reinsurance and the remaining $325,000 are weather risk related.
Interestingly the results show that syndicate 2357 achieved an impressive return on capital of 28.5% for the now closed 2013 underwriting year of account. 2014, which is still open, is listed as 6.6% and 2015 at 15.5%. We can only assume that the 54% combined ratio losses or some higher expense costs reduced the 2014 year return, while 2015’s capital return is reflecting the softening of the reinsurance market over 2013.
Nephila Capital will continue to steadily grow the syndicate 2357 stamp capacity, helping the syndicate to become an increasingly influential player in the Lloyd’s insurance and reinsurance market.
For the 2016 year of account the syndicate 2357 stamp capacity will be $178.9m, an increase of roughly 68% over 2015’s $106.6m.
Also of note is the fact that Nephila’s syndicate 2357 is buying stop-loss reinsurance protection from Nephila’s Bermudian Class 3 reinsurance vehicle Poseidon Re. In 2015 syndicate 2357 purchased $22.74m of stop-loss reinsurance from Poseidon Re, up a little from the $18.73m it purchased in 2014.
By utilising its own Poseidon Re reinsurer, Nephila Capital can control the exposure of syndicate 2357 and be more efficient by ensuring it retains as much of the premiums underwritten as possible, rather than ceding it to other parties.
Nephila Capital’s steady approach to building syndicate capacity appears to be paying off, as syndicate 2357 has clearly moved beyond its initial plan of solely underwriting industry loss based reinsurance contracts (the weather risk premium alone is evidence of that).
As syndicate 2357 becomes more accepted in Lloyd’s of London and considering the fact that Lloyd’s itself is becoming increasingly keen to welcome more ILS and capital market players into the market, Nephila Capital now stands well-positioned to upsize on this syndicate when underwriting conditions are more conducive.