Nephila results track expectations, including for hurricane Ian: Markel Co-CEO’s

The investment results of Nephila Capital’s insurance-linked securities (ILS) fund strategies are tracking expectations, including for the estimate of losses from major hurricane Ian, according to the Co-CEO’s of owner Markel Corporation.

Speaking during the Markel third-quarter earnings call today, the Co-Chief Executive Officers of the company both discussed Markel’s insurance-linked securities (ILS) operations, the flagship of which is ILS investment manager Nephila Capital.

As we reported this morning, Markel reported that Nephila Capital experienced a $700 million, or roughly 8%, decline in net assets, as hurricane Ian’s impacts and losses drove the total down to $7.8 billion as of September 30th 2022.

Discussing this, Markel Co-CEO Tom Gayner commented, “As we roll through another difficult year of industry catastrophe losses, the performance of the Nephila funds demonstrates the underwriting process is creating investment results that track expectations.”

Adding that, “The impact of storms like Ian and other industry losses are developing along the lines expected by our modeling and loss expectation methodology and that bodes well for the future.”

Fellow Co-CEO Richie Whitt also commented on the decline in AuM at Nephila.

Saying that, “While hurricane Ian had a significant impact on investor returns, the estimated losses were consistent with Nephila’s expectations for an event of this magnitude.”

However, Whitt went on to say that, “Nevertheless, the significance Ian loss and investor fatigue around recent cat activity will continue to adversely impact assets under management.”

Later during the call, Whitt was asked how he expects the fourth-quarter of the year to play out for Markel’s ILS segment, which has historically seen a decent proportion of annual fee income flowing through to the owner from its ILS manager Nephila.

To which he replied, “I guess I have to say, I don’t know. The fourth quarter is usually when you look hard at the side-pockets and see if they can be released and that releases trapped fees.

“I don’t know where that will stand this year, just simply because of Ian and I think there’s gonna be quite a bit of focus on making sure you get reserves correct for Ian. And also in terms of, this is the time that you do capital raising.”

Reporting results that are in-line with modelled expectations and how you’ve explained the potential for draw-downs and negative returns after major catastrophe loss events, could be a critical factor for ILS fund managers seeking to raise new funds.

Investors are going to be looking at track-records very closely, with hurricane Ian the latest example of a major loss to the ILS market, so being able to demonstrate that the event fell within modelled expectations will be important for managers, although may still not be sufficient to guarantee the investor appetite will be there to commit more before the year-end.