MGA sales unlocked significant value, allow Nephila to focus: Whitt, Markel

Markel’s sale of the two managing general agent (MGA) platforms that its ILS investment manager Nephila Capital had created and had ownership stakes in has unlocked significant value related to its acquisition of the manager, Co-CEO Richie Whitt explained recently.

As well as unlocking value, Markel is also adjusting strategy to enable its Nephila Capital insurance-linked securities (ILS) operation to be more focused on its core business, of managing third-party capitalised funds invested in catastrophe and climate risk.

Speaking recently, Co-CEO Richie Whitt said the firm had “an active quarter in the ILS space” in Q1 2022, with the completion of the sale of a majority stake in MGA Velocity Risk Underwriters and the announcement of the sale of multi-class MGA Volante Global.

As we explained at the time, these sales suggest a valuation of the pair of MGA platforms of around $384 million, with Markel retaining a $47.4 million ownership stake in Velocity.

Whitt said that, “These transactions unlocked significant value from our Nephila acquisition in 2018 and also allow Nephila to devote full attention to the opportunities they see in the cat arena right now.”

Markel’s ILS operations are now solely made up of the Nephila Capital catastrophe and climate insurance and reinsurance focused fund management activities, as well as the infrastructure surrounding it.

Given the retained ownership stake and relationship with Velocity, a catastrophe exposed property focused MGA platform, Whitt said that, “Velocity will continue to partner with and produce significant premiums in support of Nephila funds,” however the MGA’s commission revenues will no longer be a feature of Nephila’s earnings.

Explaining the rationale behind the sale of the MGA’s, Whitt said, “We’ve looked at it two ways. In both cases, management had partial ownership of those businesses, so they had an interest in realising the value of those organisations at some point and that had been sort of memorialised through the deals Nephila had put together with management in both cases.

“So, we wanted to be fair to the management of those two operations and allow them to realise part of the value that they had created there.”

While, “Obviously, we were able to unlock significant value for Nephila and Markel Corporation.”

Going on to further explain the motives for the MGA sales, Whitt continued, “Honestly, these are great businesses, great people, but there is quite a bit of time spent in terms of managing those operations, that now we can fully devote to the core business which is fund management for cat risk and climate risks, and we think the opportunity right now (for Nephila) in the cat arena is significant.

“So, all of those things play into it, but really just getting super-focused on our core business is probably the driver.”