Universal Insurance Holdings has bought back 200,000 shares from Nephila Capital, as the largest investment manager focused on natural catastrophe reinsurance and weather risks elected to sell down some of its investment in the insurer.
Florida headquartered primary homeowners insurer Universal and Nephila entered into an agreement in December 2014 which saw Ananke Catastrophe Investments Ltd., an affiliate of Nephila Capital, purchase 1 million of its shares.
At the time Universal explained its goals, saying that the investment would help it to boost its book value per share, further reduce its reinsurance costs specifically the use of quota-share reinsurance, and help it to expand geographically outside Florida.
According to Universal, Nephila notified it on June 2nd that the ILS manager wanted to sell down some of its shareholding in the insurer. Universal elected to buy-back the shares itself.
In the short amount of time since Nephila’s Ananke vehicle made the investment in Universal the primary insurer has achieved its three goals, that were stated at that time, with risk capital provided by Nephila playing an important part in this.
Universal has now launched its operations outside of Florida, having expanded into North Carolina, South Carolina, Hawaii, Georgia, Massachusetts, Maryland, Delaware, Indiana and Pennsylvania.
On the use of reinsurance, Universal said in February that it had cut the use of the quota-share significantly, something Nephila has helped with by being one of the largest reinsurers on the Universal program.
After the June 2015 reinsurance renewal Universal announced that it has entirely eliminated the use of quota-shares from its reinsurance program, again with Nephila being a major capacity provider that will have assisted in that shift.
Finally, on boosting book value per share. Nephila’s Ananke Catastrophe Investments bought its 1 million shares in Universal at a price of $19.00 per share. When it sold the 200,000 shares in the last few days the price had risen to $25.38 per share, a very impressive growth in share price and an attractive profit for Nephila.
“This transaction reduces our outstanding share count and reflects our prudent approach to deploying our capital to enhance shareholder value,” Sean P. Downes, Universal’s Chairman, President and CEO commented on the privately negotiated transaction.
Part of the agreement when the shares were purchased by Ananke was that Nephila would give Universal notice if it elected to sell any of the shares, giving the insurer a chance to repurchase. In the well-capitalised world of insurance and reinsurance it’s no surprise to see them bought back.
Universal has made really impressive progress in such a short period of time and Nephila Capital, as a key provider of reinsurance, risk and investment capital has played a key role in assisting the insurer to grow.
Universal has benefited from the efficient and cost-effective use of reinsurance capital provided by Nephila, which has helped it to become better protected and to optimise its capitalisation. The relationship between the two is a good example of the strong ties that can be developed between ILS managers and their cedents.
This is something that is often overlooked. The importance of relationship building in the reinsurance market applies to ILS managers just as much as it does to traditional reinsurers.