Nephila fund revenues rise at Markel, cat and specialty ILS programs grow

In reporting its full-year 2023 results, Markel Group has highlighted higher insurance-linked securities (ILS) revenues from the managed ILS funds of its Nephila Capital unit, while program premiums ceded to Nephila reinsurance structures have soared.

As we reported back in November, Nephila Capital, the insurance-linked securities (ILS) asset manager owned by Markel, dealt with legacy reserves and eliminated trapped capital for its investors through an arrangement entered into with the help of an adverse development cover (ADC) from its parent.

In the Markel full-year results, the company explained that, in the Nephila ILS operations, “The increase in operating revenues within our fund management operations was primarily due to $31.1 million of management fees recognized upon the release of capital from side pocket reserves.”

Which is clearly a result of the work Nephila Capital undertook to resolve prior year exposures and free trapped capital, which allowed the ILS manager to recognise revenues that had been trapped due to prior year catastrophe events.

Insurance-linked securities (ILS) revenue across Markel’s business is reported at $97.55 million for 2023, which is down on the prior year’s $109 million. But in the prior year there were inputs from Nephila’s sale of its managing general agent (MGA) operations, which explains the decline.

However, reflecting improved performance and the unlocking of trapped capital, ILS related expenses were just under $76 million in 2023, which left net ILS revenues at a positive $21.6 million for full-year 2023, much better than a net ILS segment loss of $16.3 million in the prior year.

Markel reports Nephila’s net assets under management were $6.8 billion as of December 31st 2023, but the ILS manager has reported $7 billion of assets to us as of January 1st 2024, as shown in our directory of ILS fund managers.

On the inward business side, Nephila’s reinsurance vehicles have benefited from increased premiums sourced via programs established with its parent Markel’s program services division.

Markel reports its other fronting gross premiums reached almost $841 million in 2023, up by 52% from the $554 million in 2022.

Markel explained that this growth was driven by an “expansion of our property catastrophe programs with Nephila Reinsurers and achieving more favorable rates on this business, as well as growth from a new specialty program with Nephila Reinsurers.”

Of course, Nephila Capital launched a specialty lines syndicate at Lloyd’s of London for the 2022 underwriting year.

Specialty lines had been a targeted area of growth for the ILS manager, with the specialty syndicate 2358’s stamp capacity having been raised for 2023.

With strong 2023 performance for the Nephila Capital ILS funds and the legacy exposure to trapped capital and prior year catastrophes now dealt with, the ILS manager stands in a strong position to deliver for its investors and parent Markel in 2024.

View information on dedicated ILS fund managers, as well as reinsurers offering ILS style investment opportunities, in our Insurance-Linked Securities Investment Managers & Funds Directory.