Nephila seeks $100m Atela Re catastrophe bond for Lloyd’s syndicate 2357

Nephila Capital, the insurance-linked securities (ILS) investment manager owned by Markel, is in the catastrophe bond market seeking $100 million or more in aggregate industry-loss index based retro reinsurance for its flagship Lloyd’s syndicate 2357, through an Atela Re Ltd. (Series 2024-1) cat bond issuance.

This won’t be the first time that the Nephila Capital portfolio has benefited from catastrophe bond protection.

Previously, four Blue Halo Re cat bonds covered tail risks from the Nephila book, but were sponsored by its fronting partner Allianz Risk Transfer.

This, however, is the first catastrophe bond directly sponsored by an entity of Nephila Capital and also the first to target protection for its Lloyd’s syndicate.

Atela Re Ltd. has been established in Bermuda to be the issuer for this first Series 2024-1 catastrophe bond for Nephila.

The ceding reinsurer for the Atela Re 2024-1 cat bond will be Nephila Syndicate Management Limited, the Lloyd’s managing agent that operates two syndicates for Nephila’s ILS strategies.

But the coverage is only for Lloyd’s Syndicate 2357, which is Nephila’s longest-standing underwriting operation in the Lloyd’s market and as we recently reported came through 2023 with a combined ratio that was market-beating.

Atela Re Ltd. will issue two tranches of Series 2024-1 cat bond notes, with a target issuance size of $100 million across the two layers of retrocessional reinsurance coverage, we understand.

The notes will ultimately provide syndicate 2357, via Nephila Syndicate Management, with a three year source of annual aggregate and industry loss index based retro reinsurance protection.

The Atela Re cat bond notes will provide protection against major industry losses from US named storms and US earthquakes, with PCS the reporting agent for insured industry events, sources said.

We’re told that a franchise deductible will be in place for both perils, based on an index point level of 300m for each.

In terms of where the risk is most concentrated, we understand that Florida named storm is the largest exposure of both tranches of notes, at more than half in each case, after which comes California earthquake, Texas named storms and Louisiana named storms, but with those all below a 10% contribution of expected loss to either tranche of notes. So Florida hurricanes are the main exposure to these notes.

As said, the target for this cat bond is to source $100 million of industry-loss based retro nat cat protection from the two tranches of notes and at this stage the tranches themselves do not have target sizes, we understand.

The Class A tranche of notes have an initial attachment probability of 6.66%, an initial expected loss of 5.15% and are being offered to investors with price guidance in a range from 11.25% to 12.25%, sources said.

The Class B tranche are riskier, having an initial attachment probability of 11.73%, an initial expected loss of 8.36% and are being offered to investors with price guidance in a range from 18.25% to 18.25%.

At those attachment and expected loss levels, this new Atela Re cat bond is at a level where industry-loss warranties (ILW’s) are often purchased, suggesting Nephila Capital sees an opportunity to source efficient industry-loss index based retrocession through the cat bond market this year.

Industry-loss trigger cat bonds have seen their spreads tighten faster and further than indemnity bonds in recent weeks, making the cost of coverage compelling to some.

With forecasts for an active Atlantic hurricane season this year, it is perhaps no surprise a sophisticated manager of portfolios of catastrophe reinsurance is looking to secure retro protection in the most efficient manner possible.

Nephila’s first directly sponsored catastrophe bond could stimulate more interest from other retro buyers, so it will be interesting to see how this first Atela Re 2024-1 cat bond is executed and where the pricing settles.

You can read all about this new Atela Re Ltd. (Series 2024-1) catastrophe bond transaction and every other cat bond ever issued in our Artemis Deal Directory.