In the latest record quarter, Nephila Capital released pocketed capital, leading to an increase in insurance-linked securities (ILS) revenue reported by parent company Markel, while premiums ceded to Nephila’s reinsurers are increasing, even if assets under management have decreased. further away.
For the third quarter of 2023, Markel announced that revenues attributed to unconsolidated entities managed by Nephila were $43.6 million, up from $17.1 million the previous year.
For the first nine months of 2023, that figure now stands at $74.1 million, again up from $57 million last year.
Overall, Markel announced that its insurance-linked securities (ILS) segment reported net income of nearly $18 million for the third quarter of 2023, much better than the $7 million loss of the previous year.
For the nine months, this means that Markel’s ILS business, which is now Nephila’s ILS fund management business, generated a net profit of $15 million.
Key to this performance was the release of trapped capital related to the previous year, with Markel reporting that $29.5 million in management fees were booked in the third quarter of 2023, after Nephila worked to release capital from lateral reserves.
This will have unlocked value for both Markel and Nephila, as well as third-party investors in the ILS structures linked to these side pockets, which will also have enabled some redemptions.
Given the amount of management fees recorded, the amount of trapped ILS capital released by Nephila must have been significant.
It is understandable, on this basis, that Nephila Capital’s net assets under management fell in the third quarter of 2023, ending the period at $6.8 billion, down from the $7.2 billion reported in the middle. of this year.
It is impressive, however, that while clearly deployable capital has declined at Nephila in recent years, the investment manager is making greater use of the fronting and leverage it enjoys through its parent company Markel, with premiums ceded to as Nephila’s range of reinsurance vehicles continues to grow.
For the third quarter, in Markel’s Program and Facing Services segment, gross written and ceded premiums attributable to Nephila programs reached $501.8 million for the third quarter of 2023, up from $398.8 million. million dollars from the previous year.
For the first nine months of 2023, premiums ceded to Nephila reinsurance vehicles, through Markel’s programs and fronting activities, have now reached nearly $1.04 billion, once again up from compared to previous years, by nearly $890 million.
Markel is also handing over part of its real estate business to Nephila’s reinsurance vehicles as part of a quota sharing agreement. That’s just over $10 million in ceded premiums in the third quarter of 2023, down slightly from $15 million a year earlier and perhaps reflecting Markel’s own appetite for reinsurance of goods more than anything else.
Year to date, premiums ceded to Nephila Capital under this quota share reinsurance agreement are approaching $40 million, again slightly below the year’s $44.6 million last.
Markel noted that “the increase in gross premium volume in our other fronting operations for the quarter and nine months ended September 30, 2023 was due to the expansion of our property catastrophe programs with Nephila Reinsurers and the obtaining more favorable rates on this activity, as well as the growth of a new specialized program with Nephila Reinsurers.
The growth in premiums, even if assets under management remain lower than before, shows that Nephila benefits from being part of the Markel group, using its fronting and the leverage it provides.
In fact, we’re told that even though Nephila’s assets under management are declining, the company’s market footprint remains significant, as the new structure of its reinsurance premium pathways allows it to remain a highly relevant investment manager when it comes to catastrophe risk, even with less nominal capital. managed.
Furthermore, the release and return of more collateral and trapped capital also bodes well for reducing Nephila’s legacy exposure, thereby better positioning the fund manager for the future.