New opportunities for Nephila Capital to grow its insurance-linked securities (ILS) business are expected to come to fruition over the next year through bespoke offerings and ESG portfolios, while Lodgepine’s first retrocession ILS fund launch is just the start, according to Markel Corporation Co-CEO Richie Whitt.
Speaking during the Markel second-quarter earnings call just now, Whitt explained that the insurance-linked securities (ILS) business segment at the company is one area that opportunity and growth is expected over the coming months.
In reporting its results late yesterday, Markel revealed that its ILS fund manager Nephila Capital returned to growth, in terms of assets under management, during the last quarter.
Nephila Capital raised its ILS AuM to $9.8 billion during the period, while operating revenues earned from the largest ILS manager in the market resurged after a slightly lower first-quarter of the year.
In addition, Markel revealed that its retrocessional reinsurance focused investment manager Lodgepine Capital Management launched its first ILS fund with third-party capital backing it, as the Lodgepine Fund began operations from July 1st with just under $100 million of capital.
So the Markel leadership had a lot to discuss during the Q2 earnings call today, with insurance-linked securities (ILS) activities one area of pleasing performance and ongoing opportunity.
Co-CEO of Markel Richie Whitt began by explaining that across the insurance and reinsurance businesses, including Markel’s ILS activities, market conditions and new offerings are expected to drive growth and profitability.
“We see runway to capitalise on price increase and we continue to find growth opportunities across our insurance businesses,” Whitt explained.
“These include potential new investment offerings at Nephila and the completion of a long-awaited initial capital raise at Lodgepine.”
With attractive rates across almost all lines of business and an expectation that market conditions will remain attractive, Whitt doesn’t see the opportunity diminishing for now.
On Nephila Capital specifically, Whitt said, “We continue to identify new areas of opportunity to deploy capital and have several opportunities in the works for later in 2021 and into 2022.”
He expanded on this later by explaining that Nephila Capital is seeing demand from larger investors seeking mandates, wanting to have their own ILS portfolio strategies, but under the management of professionals.
In addition, investor appetite for environmental, social and governance (ESG) appropriate investments is also driving demand for Nephila’s services it seems.
Whitt explained, “We’re seeing a lot of interest from investors in bespoke funds. We’re seeing more and more interest from investors to establish their own trading strategy, they may be interested in a certain return profile vs a certain risk profile. They may be interested in an ESG strategy.
“We’re working with them to try and put those together and we’re hopeful as we get to the end of the year and into 2022 we’ll have been able to set some of those up.”
Lodgepine’s launch of its first managed fund strategy on July 1st is also seen as a positive for Markel, Whitt said, explaining that over time more of the retrocessional reinsurance business will be ceded to the retro ILS manager unit.
“We’re very pleased to have raised near $100m of investor capital for Lodgepine.
“Starting in the third-quarter of this year, a portion of our retrocession underwriting results will transition to our ILS operations. With the expectation that over time all of our retrocession underwriting results will transition into ILS, with Markel keeping a participation,” Whitt said.
He continued, saying that, “The capital raise moves about 40% of the retro book into Lodgepine. We’ve committed to keeping 20% at Markel, on our balance-sheet or our capital.
“In terms of our ability to grow the retro portfolio that depends on market conditions. If they stay good we can certainly grow and add new investors. But we’re committed to that being done at an underwriting profit.”
Whitt added that growth opportunities for Lodgepine will depend on renewal deals on offer at January 1st, when the majority of the retro book renews.
Finally, one other comment on retrocession from Whitt has a particularly positive read-across for Lodgepine.
He cited a “positive year-to-date performance” for Markel’s retrocession portfolio, which suggests the initial Lodgepine Fund portfolio has been constructed with a solid footing.