Nephila Capital, the largest insurance and reinsurance linked investment manager, nearly doubled the amount of premiums underwritten through its Lloyd’s of London Syndicate 2357 in full-year 2018.
Nephila, the largest investment manager of catastrophe and weather insurance or reinsurance linked assets, has been leveraging the Syndicate 2357 vehicle at Lloyd’s of London as a component of its global risk and capital management infrastructure for a number of years.
Over time the operations at Lloyd’s have increased in their scale and scope, with Syndicate 2357 now providing an important London-based underwriting hub for Nephila Capital, as well as an ability to leverage the efficiencies of the Lloyd’s platform, its capital structure and the access to business it can also provide.
In 2018 Nephila Capital’s ILS backed Syndicate 2357 underwrote just over $607 million of gross premiums, which is a significant 84% increase over, near doubling, the just over $330.5 million underwritten by the syndicate in 2017.
Of the premiums underwritten, risk sourced through Nephila’s managing general agent (MGA) relationships and its own MGA Velocity grew significant in 2018.
Syndicate 2357 underwrote almost $294.2 million of MGA insurance risk in 2018, more than double the $126.6 million written in 2017.
Reinsurance underwritten (largely property) by Nephila’s syndicate also rose to over $312.85 million of premium for 2018, up from $203.9 million in 2017.
The syndicate was hit by the natural catastrophe events of 2018, falling to a loss for the year of -$155.2 million.
While this loss is slightly higher than the -$120.6 million suffered in 2017 from the major hurricanes and wildfires, the combined ratio was actually lower at 155.9% in 2018, down from 166.7% in 2017.
While the amount of losses in dollar terms was higher in 2018, given the expansion in premiums underwritten the return on capacity improved for the 2018 year of account to -28.4%, from -49.5% in 2017. It should be noted that both 2017 and 2018’s year of account remain open, so results subject to change.
Reflecting the loss creep that impacted so much of the ILS and reinsurance market, the 2017 year of account’s result has worsened by 9 percentage points since roughly a year ago, a further piece of evidence of the significant impact loss creep has had across the market in the last two years.
The majority of the claims incurred by the syndicate during the underwriting year were from the reinsurance side of its business, at almost double claims incurred in the MGA insurance segment.
Along with writing considerably more risk in 2018, Nephila’s syndicate 2357 also purchased much more in the way of reinsurance, with outwards reinsurance premiums more than doubling to over $246 million for the year.
The syndicate still purchases collateralised reinsurance from Nephila’s two Bermuda vehicles, Poseidon Re and Demeter Re, with quota shares in place as a way to funnel risk back to the managers ILS funds.
In addition an index based reinsurance arrangement is also in place between Poseidon and syndicate 2357.
This is a way to retain risk premium within the Nephila business universe, while also ensuring peak exposures are adequately de-risked within the syndicate itself.
The syndicate appears to be increasingly useful to Nephila’s overall business structure, providing access to risk, capital efficiency and a complementary underwriting vehicle for the firm.
Nephila expects to continue to expand the use of its syndicate at Lloyd’s in 2019, with stamp capacity rising further to a projected nearly $500 million ($496.8m to be precise).
With Nephila Capital also launching its own managing agency for its Lloyd’s of London operations, Nephila Syndicate Management Ltd., its use of Lloyd’s as an underwriting route to market, that it can deploy capital through for its investors, is likely to become even more efficient in years to come.
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